5 tax write-offs you shouldn't forget
Updated On: Mar 22 2012 01:39:16 PM CDT
By Steve Thompson, Contributing writer
With every penny counting these days, it's no surprise that everybody is searching for every single tax deduction and write-off they can find.
After all, saving money on taxes in the spring can free up a significant amount of cash that you could be doing other things with the rest of the year.
Itemizing might save you money over taking the standard deductions, but you need to remember that not all deductions and write-offs are applicable to every situation.
Some are limited by scope or other criteria, so don't forget to read the small print. Working with an experienced accountant or checking your facts with the IRS will also save you headaches in the future.
Keep in mind that peppering your taxes with lots of these write-offs might arouse suspicion with the IRS, which doesn't tend to be too tolerant of mistakes.
No. 5: Bad debt
According to the IRS, bad debt can be converted into deductions and write-offs in certain business and nonbusiness cases.
Bad debt occurs when you extend credit to someone, offer a payment plan, but never receive the money you are owed.
The most important thing with this deduction is that you must have significant proof of the debt and establish that you have taken reasonable steps to collect.
Make sure you've saved the invoice or invoices that you submitted to the other individual or entity.
Be careful though; you must also show that a transaction could not be considered a gift. Therefore loans to relatives where there was an understanding it might not be repaid, or any loans to minor children to pay for basic needs, cannot be considered deductible bad debts.
No. 4: Eco-friendly home upgrades
If you've used Energy Star products to make some home improvements, you might qualify for a tax credit.
According to EnergyStar.gov, for the 2011 tax year, you can receive a tax credit worth either 10 percent of the cost up to $500 or a specific amount from $50 to $300 for certain products that were installed in an existing home you claim as your primary residence. That includes certain Energy Star-rated insulation, roofs, nonsolar water heaters, windows and doors, and biomass stoves installed by Dec. 31, 2011.
That tax credit is no longer available for upgrades made this year.
The government is also offering tax credits for qualifying geothermal heat pumps, small wind turbines, solar energy systems and fuel cells installed through 2016.
Be sure to save all receipts and the manufacturer's certification statement for your records. You can claim the credit using IRS Form 5695 and include the credit on line 52 of the 1040 form.
No. 3: Relocating
There are no deductions or tax write-offs if you've simply picked up and moved cross-country, but you can get some tax relief if you've moved more than 50 miles for a new job.
According to the IRS, you may be able to deduct your reasonable moving expenses but not any expenses for meals.
Besides the 50-mile "distance test," the IRS also requires a "time test." You must work full-time for at least 39 weeks during the first 12 months immediately following your move. The IRS offers exceptions to the time test in case of death, disability and involuntary separation, among other things.
Just remember that you cannot benefit twice from moving expenses. Many companies offer reimbursement for moving and travel expenses incurred by new employees, so if your boss has paid, Uncle Sam doesn't want to get the bill, too. This only applies if you've moved for a new job on your own dime.
No. 2: Business meals
PeopleJam.com advises consumers to consider business meals for deductions and write-offs.
For example, if you're taking a candidate for a lunch interview or entertaining sales clients at dinner, the bill might be deductible under certain scenarios.
Of course this only applies if you pick up the tab and business is actually discussed.
The most important thing to remember about business deductions and write-offs for taxes is that only half the bill is usually eligible for deductions, and this will vary depending on how much you spend and whether the meal seems legitimate.
As with relocation expenses, you also cannot claim meal costs on your taxes if your employer reimburses you for them.
Beware of going overboard though. The IRS forbids deductions of lavish and extravagant meals, and if you do get audited it may prove difficult to show the necessity of such expensive meals.
No. 1: Mileage expenses
If you use your vehicle for business, you'll want to keep one number in mind: 50.
That's how many cents each mile of your business-related driving -- not including your daily commute -- is worth as a write-off for your 2010 taxes.
But the IRS doesn't limit driving write-offs to just business traveling. You can also claim 16.5 cents for medical trips and 14 cents for each charity-related mile you drive, as long as you are making a dedicated trip to volunteer for a qualified nonprofit.
But the business driving expenses you can deduct don't stop with some help covering the ever-increasing cost of tax. You can also deduct any parking fees and tolls you pay as part of the business use of your vehicle.
If you feel that 50 cents per mile is a little low, you also have the option of calculating the actual costs of using your car for work. Details on how to claim those costs can be found on the IRS' website.
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