Job Search Expenses Can be Tax Deductible

Job Search Expenses

Can be Tax Deductible

(IRS Tax Tip 2017-24)

Taxpayers who are looking for a new job that is in the same line of work may be able to deduct some job-hunting expenses on their federal income tax return, even if they don’t get a new job.

Here are some important facts to know about deducting costs related to job searches:

Same Occupation. Expenses are tax deductible when the job search is in a taxpayer’s current line of work.
Résumé Costs. Costs associated in preparing and mailing a résumé are tax deductible.
Travel Expenses. Travel costs to look for a new job are deductible. Expenses including transportation, meals and lodging are deductible if the trip is mainly to look for a new job. Some costs are still deductible even if looking for a job is not the main purpose of the trip.
Placement Agency. Job placement or employment agency fees are deductible.
Reimbursed Costs. If an employer or other party reimburses search related expenses, like agency fees, they are not deductible.
Schedule A. Report job search expenses on Schedule A of a 1040 tax return and claim them as miscellaneous deductions. The total miscellaneous deductions cannot be more than two percent of adjusted gross income.

Taxpayers can’t deduct these expenses if they:

Are looking for a job in a new occupation,
Had a substantial break between the ending of their last job and looking for a new one, or
Are looking for a job for the first time.

Starting Your Own Business

Six Simple Steps to Consider when

Starting A Business

Starting A Business Owning a business is a dream that can become a nightmare without adequate planning. But if you follow some simple steps, a business can be a satisfying and lucrative venture. The following are six steps you can take to ensure that your business idea has a chance to succeed.

1) Evaluate Your Personality

Not everyone is meant to be an entrepreneur. Are you driven to be in business despite the inherent risks? Or do you prefer regular hours and the certainty of a steady paycheck? If the latter describes you, owning your own business might not be your cup of tea. Are you willing to work hard? Do you thrive on risk? Are you self disciplined? Think carefully about what it takes to be an entrepreneur and understand the risks; only you can choose the right course for you.

On the other hand, an uncertain job market can create new entrepreneurs out of necessity. If you can’t find the right job, making your own job is an option.

2) Get Professional Advice

The Small Business Administration and an organization called SCORE (Service Corps of Retired Executives) are among the organizations that offer free resources for entrepreneurs. Make full use of the resources available to ensure you get the best possible advice about starting your business. Also, meet with business attorneys and tax consultants (CPAs) to get questions answered about starting your business.

3) Find a Good Idea

Every business idea requires thought and research, even those that strike you with a sudden burst of inspiration. No matter how excited you are about your idea, it must meet a demand or solve a problem in the marketplace. As you’re brainstorming for ideas, ask yourself:

Does my product or service solve a problem or fill a need?
Does it improve upon an existing product or service?
If my product or service is similar to one already being offered, can I do a better job of selling it than my competition?

Whether your idea springs naturally from a hobby or requires intense brainstorming and research, find something that interests you, that you are passionate about and that you can sell.

4) Do Your Market Research

Once you have identified an idea, get some feedback from potential customers to make sure it’s viable. Search online for similar or identical businesses. Can you compete with others on price? Is there room for your idea in the marketplace?

Present your product or service to potential prospects to see how many would buy it and at what price. However you choose to test your idea, this step could save you time, money and disappointment. Market testing will not only reveal your idea’s potential, but it will also help you learn about your customers. Knowing your buyers makes it easier to target your marketing efforts.

5) Write a Business Plan

A written business plan makes it easier to take your new business from concept to reality. And if you need funding from lenders or investors, a business plan is essential. Even if you don’t need financing, writing a business plan will force you to do your research and help you establish the details of your new business, including sales and marketing goals, expenses, business structure, target markets, sales channels, anticipated profits, competitive analysis and much more. If you need help, the Small Business Administration offers free business plan writing resources.

6) Find Your Financing

Depending on the type of business you choose, you may or may not require outside financing, but you should expect to invest some capital to get started. Online businesses will probably require a smaller investment than a brick-and-mortar store, which requires a building, utilities and other overhead expenses. You might need to buy inventory, pay for website development or hire employees.

Besides the standard funding sources, such as small business loans, your sources of capital can come from “bootstrapping” (personal savings, income from a job, credit cards, etc.), loans from friends, venture capital or even online “crowdfunding,” which allows you to solicit very small investments from many sources, minimizing risk for any single investor and saving you the hassle of loan applications.

Get Started! There are many other elements to consider, such as business tax structure, location, business name, licenses, permits and others, and a good business plan will cover all of these details.

Starting a business can be a long, complex process, but if you lay the proper groundwork, you can save yourself time and money and ensure yourself the best possible chance of success.

CPA Salt Lake City

Divorce or Separation May Affect Taxes

Divorce Taxes

(IRS Tax Tip 2017-23)

Taxpayers who are divorcing or recently divorced need to consider the impact divorce or separation may have on their taxes. Alimony payments paid under a divorce or separation instrument are deductible by the payer, and the recipient must include it in income. Name or address changes and individual retirement account deductions are other items to consider.

IRS.gov has resources that can help along with these key tax tips:

Child Support Payments are not Alimony. Child support payments are neither deductible nor taxable income for either parent.
Deduct Alimony Paid. Taxpayers can deduct alimony paid under a divorce or separation decree, whether or not they itemize deductions on their return. Taxpayers must file Form 1040; enter the amount of alimony paid and their former spouse’s Social Security number or Individual Taxpayer Identification Number.
Report Alimony Received. Taxpayers should report alimony received as income on Form 1040 in the year received. Alimony is not subject to tax withholding so it may be necessary to increase the tax paid during the year to avoid a penalty. To do this, it is possible to make estimated tax payments or increase the amount of tax withheld from wages.
IRA Considerations. A final decree of divorce or separate maintenance agreement by the end of the tax year means taxpayers can’t deduct contributions made to a former spouse’s traditional IRA. They can only deduct contributions made to their own traditional IRA. For more information about IRAs, see Publications 590-A and 590-B.
Report Name Changes. Notify the Social Security Administration (SSA) of any name changes after a divorce. Go to SSA.gov for more information. The name on a tax return must match SSA records. A name mismatch can cause problems in the processing of a return and may delay a refund.

For more on this topic, see IRS Publication 504, Divorced or Separated Individuals.

CPA Salt Lake City

Five Tax Tips When Starting Your Own Business

(IRS Tax Tip 2017-18)

Starting Your Own Business New business owners may find the following five IRS tax tips helpful. These tips are the very first tax issues you need to consider as you organize your company for tax reporting:

1. Business Structure. An early choice to make is to decide on the type of structure for the business. The most common types are sole proprietor, partnership and corporation. The type of business chosen will determine which tax forms to file.

2. Business Taxes. There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax a business pays depends on the type of business structure set up. Taxpayers may need to make estimated tax payments. If so, use either IRS Direct Pay or estimated tax payment vouchers to make them.

3. Employer Identification Number (EIN). Most businesses are required to need to get an EIN for federal tax purposes. You can either complete form SS-4 and mail the application to the IRS or apply for and EIN online.

4. Accounting Method. An accounting method is a set of rules used to determine when to report income and expenses. Taxpayers must use a consistent method. The two most common are the cash and accrual methods:

a. Under the cash method, taxpayers normally report income and deduct expenses in the year that they receive or pay them.

b. Under the accrual method, taxpayers generally report income and deduct expenses in the year that they earn or incur them. This is true even if they get the income or pay the expense in a later year. (Please note that certain types of business are required to use the accrual method. For example, most businesses with inventory can only use the accrual method of accounting for reporting to the IRS.)

CPA Salt Lake City

8 Things that Could Trigger an IRS Business Audit

8 Things that Could Trigger a IRS Business Audit

IRS Business Audit

Whether you’re doing taxes for your own business or a tax professional prepares your business return, the small – but real – possibility exists for an audit.

Understanding the chances of an audit and what the Internal Revenue Service may pay particular attention to can help you and your taxpayer during an audit, if and when one occurs. What are some common triggers that might lead to an audit by the IRS?

Running a Home-Based Business

Operating a business from one’s home is becoming more and more common with high-speed Internet. However, the IRS is scrutinizing just how much of a home is actually used for a home office. Per IRS Publication 587, someone claiming a den or single room of their house will be more likely to have the deduction approved versus claiming their entire home. Similarly, the sole room or workspace must be used exclusively for one’s business, not for family entertaining or personal storage.

Reporting Business Losses

It is normal and often expected for a business to have losses during the first few years. However, if losses are still reported years after the business’ incorporation, the IRS might take a second look.

Higher Income, Higher Audit Chances

On average, the chances of an individual audited by the IRS is about 1 percent. However, the more income reported, the greater the likelihood of an audit. Tax returns showing incomes of $200,000 and more have an increased chance of an audit, about one in every 30. Filers making $1 million or more have an even greater chance of an audit – about 11 percent.

Lopsided and Unsubstantiated Charitable Deductions

Donating and not substantiating a high percentage of one’s income might raise a red flag with the IRS. Giving away half of one’s income, not appraising a car or similar valuable donation or forgetting to include IRS Form 8283 might have the IRS requesting an audit.

Major Currency Withdrawals and Deposits

Businesses that make deposits or withdrawals of $10,000 or more may trigger an IRS audit. The IRS gets countless reports of these types of withdrawals every day, and they will naturally pique the interest for an audit.

Medical Bills

Bills from medical problems might be deducted if they meet a certain threshold. If medical bills add up to more than 10 percent of a filer’s adjusted gross income and they are younger than 65, they might be deductible. However, gym membership fees, nonprescription medications and medical procedures for aesthetic purposes only do not qualify under the rules as medical expenses.

Partially Completed Tax Returns

Whether it’s a Social Security number, a signature or a 1099 Form not submitted, the IRS’ system and auditors often flag such returns. And sometimes computer or data entry mistakes result in an audit to ensure there are no other errors in the tax return.

Tally Up and Include All 1099s

Staying organized with all types of 1099s will help a tax return go smoother, reducing the chances of accidentally forgetting a 1099 and potentially triggering an audit. Whether it’s a 1099-MISC documenting income earned from self-employment, a 1099-INT for earned interest, a 1099-G documenting an income tax refund or another type of 1099, ensuring all necessary 1099s are included will ensure the IRS’ system is in agreement with the supplied 1099s.

The IRS can still choose to audit a business’ tax returns regardless of the circumstances. However, staying organized, following IRS regulations and maintaining one’s own records will help reduce the number of errors – which will make it a much smoother process for all involved during tax time.

CPA Salt Lake City

Tax Tips for Taxpayers Traveling for Charity

(IRS Tax Tip 2017-12)

During the summer, some taxpayers may travel because of their involvement with a qualified charity. These traveling taxpayers may be able to lower their taxes.

Here are some tax tips for taxpayers to use when deducting charity-related travel expenses:

Qualified Charities. For a taxpayer to deduct costs, they must volunteer for a qualified charity. Most groups must apply to the IRS to become qualified. Churches and governments are generally qualified, and do not need to apply to the IRS. A taxpayer should ask the group about its status before they donate. Taxpayers can also use the Select Check tool on IRS.gov to check a group’s status.
Out-of-Pocket Expenses. A taxpayer may be able to deduct some of their costs including travel. These out-of-pocket expenses must be necessary while the taxpayer is away from home. All costs must be:
- Unreimbursed,
- Directly connected with the services,
- Expenses the taxpayer had only because of the services the taxpayer gave, and
- Not personal, living or family expenses.
Genuine and Substantial Duty. The charity work the taxpayer is involved with has to be real and substantial throughout the trip. The taxpayer can’t deduct expenses if they only have nominal duties or do not have any duties for significant parts of the trip.
Value of Time or Service. A taxpayer can’t deduct the value of their time or services that they give to charity. This includes income lost while the taxpayer serves as an unpaid volunteer for a qualified charity.
Travel Expenses a Taxpayer Can Deduct. The types of expenses a taxpayer may be able to deduct include:
- Air, rail and bus transportation,
- Car expenses,
- Lodging costs,
- Cost of meals, and
- Taxi or other transportation costs between the airport or station and their hotel.
Travel Expenses a Taxpayer Can’t Deduct. Some types of travel do not qualify for a tax deduction. For example, a taxpayer can’t deduct their costs if a significant part of the trip involves recreation or vacation.

CPA Salt Lake City

Income Tax Tips When Selling Your Home

(IRS Tax Tip 2017-13)

Homeowners may qualify to exclude from their income all or part of any gain from the sale of their main home.

Below are tips to keep in mind when selling a home:

Ownership and Use. To claim the exclusion, the homeowner must meet the ownership and use tests. This means that during the five-year period ending on the date of the sale, the homeowner must have:

Owned the home for at least two years
Lived in the home as their main home for at least two years Gain. If there is a gain from the sale of their main home, the homeowner may be able to exclude up to $250,000 of the gain from income or $500,000 on a joint return in most cases. Homeowners who can exclude all of the gain do not need to report the sale on their tax return

Loss. A main home that sells for lower than purchased is not deductible.

Reporting a Sale. Reporting the sale of a home on a tax return is required if all or part of the gain is not excludable. A sale must also be reported on a tax return if the taxpayer chooses not to claim the exclusion or receives a Form 1099-S, Proceeds from Real Estate Transactions.

Possible Exceptions. There are exceptions to the rules above for persons with a disability, certain members of the military, intelligence community and Peace Corps workers, among others. More information is available in Publication 523, Selling Your Home.

Worksheets. Worksheets are included in Publication 523, Selling Your Home, to help you figure the:

Adjusted basis of the home sold
Gain (or loss) on the sale
Gain that can be excluded

Items to Keep In Mind:

Taxpayers who own more than one home can only exclude the gain on the sale of their main home. Taxes must paid on the gain from selling any other home.
Taxpayers who used the first-time homebuyer credit to purchase their home have special rules that apply to the sale. For more on those rules, see Publication 523. Use the First Time Homebuyer Credit Account Look-up to get account information such as the total amount of your credit or your repayment amount.
Work-related moving expenses might be deductible, see Publication 521, Moving Expenses.
Taxpayers moving after the sale of their home should update their address with the IRS and the U.S. Postal Service by filing Form 8822, Change of Address.
Taxpayers who purchased health coverage through the Health Insurance Marketplace should notify the Marketplace when moving out of the area covered by the current Marketplace plan.

CPA Salt Lake City

Making the Most out of Miscellaneous Deductions

Making the Most out of Miscellaneous Deductions (IRS Tax Tip 2017-09)

Miscellaneous deductions are tax breaks that generally don’t fit into a particular tax category. They can help reduce taxable income and the amount of taxes owed. For example, some employees can deduct certain work expenses like uniforms as miscellaneous deductions. To do that, they must itemize their deductions instead of taking the standard deduction on their tax return.

Here are several tips from the IRS about miscellaneous deductions:

The Two Percent Limit. Most miscellaneous costs are deductible only if the sum exceeds 2% of the taxpayer’s adjusted gross income (AGI). For example, before being able to deduct certain expenses, a taxpayer with $50,000 in AGI must come up with more than $1,000 in miscellaneous deductions. Expenses may include:
- Unreimbursed employee expenses.
- Job search costs for a new job in the same line of work.
- Job tools.
- Union dues.
- Work-related travel and transportation.
- The cost paid to prepare a tax return. These fees include the cost paid for tax preparation software. They also include any fee paid for e-filing a return.
Deductions Not Subject to the Limit. Some deductions are not subject to the 2% limit. They include:
- Certain casualty and theft losses. In most cases, this rule is for damaged or stolen property held for investment. This may include property such as stocks, bonds and works of art.
- Gambling losses up to the total of gambling winnings.
- Losses from Ponzi-type investment schemes.

Taxpayers can’t deduct some expenses. For example, personal living or family expenses are not deductible. To claim allowable miscellaneous deductions, taxpayers must use Schedule A, Itemized Deductions. For more about this topic, see Publication 529, Miscellaneous Deductions. Get them on IRS.gov/forms at any time.

Avoid scams. The IRS will never initiate contact using social media or text message. First contact generally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out.

CPA Salt Lake City

Newlyweds Should Think About Taxes

Summer Newlyweds Should Also Think About Taxes

(IRS Summertime Tax Tip 2017-08 – July 19, 2017)

Spring showers bring summer flowers and weddings typically aren’t far behind. Newlyweds have a lot to think about and taxes might not be on the list. However, there is good reason for a new couple to consider how the nuptials may affect their tax situation.

The IRS has some tips to help in the planning:

Report changes in:
- Name. When a name changes through marriage, it is important to report that change to the Social Security Administration. The name on a person’s tax return must match what is on file at SSA. If it doesn’t, it could delay any refund. To update information, file Form SS-5, Application for a Social Security Card. It is available on SSA.gov, by calling 800-772-1213 or at a local SSA office.
- Address. If marriage means a change of address, the IRS and U.S. Postal Service need to know. To do that, send the IRS Form 8822, Change of Address. Notify the postal service to forward mail by going online at USPS.com or at a local post office.
Consider changing withholding. Newly married couples must give their employers a new Form W-4, Employee’s Withholding Allowance Certificate, within 10 days. If both spouses work, they may move into a higher tax bracket or be affected by the Additional Medicare Tax. Use the IRS Withholding Calculator at IRS.gov to help complete a new Form W-4. See Publication 505, Tax Withholding and Estimated Tax, for more information.
Decide on a new filing status. Married people can choose to file their federal income taxes jointly or separately each year. While filing jointly is usually more beneficial, it’s best to figure the tax both ways to find out which works best. Remember, if a couple is married as of Dec. 31, the law says they’re married for the whole year for tax purposes.
Select the right tax form. Choosing the right income tax form can help save money. Newly married taxpayers may find they now have enough deductions to itemize them on their tax returns. Newlyweds can claim itemized deductions on Form 1040, but not on Form 1040A or Form 1040EZ.
Avoid scams. The IRS will never initiate contact using social media or text message. First contact generally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out.

CPA Salt Lake City

Members of the Armed Forces Get Special Tax Benefits

Members of the Armed Forces Get Special Tax Benefits (IRS Tax Tip 2017-06)

Members of the military may qualify for tax breaks and benefits. Special rules could lower the tax they owe or give them more time to file and pay taxes. In addition, some types of military pay are tax-free.

Here are some tips to find out who qualifies:

Combat Pay Exclusion. If someone serves in a combat zone, or provides direct support, part or even all of their combat pay is tax-free. However, there are limits for commissioned officers. See Earned Income Tax Credit below for important information.
Deadline Extensions. Some members of the military, such as those who serve in a combat zone, can postpone most tax deadlines. Those who qualify can get automatic extensions of time to file and pay their taxes.
Special Deductions:

Reservists’ Travel. Reservists whose duties take them more than 100 miles away from home can deduct their unreimbursed travel expenses on Form 2106, even if they do not itemize their deductions.
Moving Expenses. Taxpayers who serve may be able to deduct some of their unreimbursed moving costs on Form 3903. This normally applies if the move is due to a permanent change of station.
Uniform. Members of the military can deduct the cost and upkeep of their uniform, but only if rules say they cannot wear it off duty. Also, they must reduce their deduction by any uniform allowance they get for those costs.

Earned Income Tax Credit or EITC. If those serving get nontaxable combat pay, they may choose to include it in their taxable income to increase the amount of EITC. That means they could owe less tax and get a larger refund. For tax year 2016, the maximum credit for taxpayers is $6,269. It is best to figure the credit both ways to find out which works best.
Signing Joint Returns. Both spouses normally must sign a joint income tax return. If military service prevents that, one spouse may be able to sign for the other or get a power of attorney.
ROTC Allowances. Some amounts paid to ROTC students in advanced training are not taxable. This applies to allowances for education and subsistence. Active duty ROTC pay is taxable. For instance, pay for summer advanced camp is taxable.
Separation and Transition to Civilian Life. If service members leave the military and look for work, they may be able to deduct some job search expenses, including travel, resume and job placement fees. Moving expenses may also qualify for a tax deduction.
Tax Help. Most military bases offer free tax preparation and filing assistance during the tax filing season. Some also offer free tax help after the April deadline. Check with the installation’s tax office (if available) or legal office for more information.

For more, refer to IRS.gov/Military or Publication 3, Armed Forces’ Tax Guide, on IRS.gov.

CPA Salt Lake City

Year: 2017