We’re in crunch time now with tax season as personal returns or extensions must be filed by next Tuesday, April 17th. Before filing, tax filers should review the return carefully to make sure that all of the expenses claimed are in fact tax deductible.
Credit card interest payments
If the credit card was for personal use only, then the interest and other fees are not tax deductible. Interest charges are only deductible when a credit card is used for business purposes. If a credit card is used for both business and personal purposes, then the cardholder must allocate the interest payment by adding up the credit card business & personal expenses separately and then dividing the business expense amount by the total (business + personal). If 70% of the total expenses were for business, then the tax filer can deduct 70% of the total interest payments. This may seem obvious but please keep in mind that business can only deduct the interest expense if that business paid for it. If it wasn’t paid or someone else paid it, it cannot be claim as a tax deduction.
Not all moving expenses are deductible
Some taxpayers mistakenly lump job related house hunting and temporary living expenses as deductible moving expenses. The tax laws can get complicated but a good rule of thumb is that any ordinary and necessary expense that is related to the transportation will likely be considered a deductible moving expense. Specifically, taxpayers can deduct moving expenses associated with lodging, transportation (airfare, vehicle mileage $0.19 per mile, parking fees and tolls), and the cost to package, crate, store, insure and transport actual household goods and personal property. But, this doesn’t apply to the cost of the meals while traveling. And, if your employer puts you up in temporary housing before you move, that’s considered income to you.
Property tax reserves
After purchasing a home, lenders often require that the borrower setup an escrow account with funds to pay for future property tax bills. This allows the lender to pay the tax easily and is an interest free loan to them as well. For the homeowner, this reserve is not an eligible deduction. The funds are only deductible when the lender actually uses it to pay the tax and is reported on Form 1098.
Local town services such as a trash collection
These services are not deductible when they are billed as a separate expense. However, if your property tax bill includes these costs as part of the tax, they are deductible when paid.
Broker commissions
Broker commissions aren’t deductible as an investment expense. If you are the buyer, the commission is added to your cost. If you’re the seller, it reduces the amount received and is reported as sale proceeds net of commissions.
Tax bill for Roth IRA conversion
Many taxpayers are trying to figure out ways to avoid paying the tax liability for converting a traditional IRA into a Roth IRA. Here’s one common question, “Can I use a capital loss carry forward from Schedule D to offset the tax penalty involved in making a conversion to a Roth IRA?” The answer is simple here – you cannot apply any capital loss carryforward to the penalty assessed in converting to a Roth IRA. Capital losses can only offset capital gains.
Do you have more tax deduction questions? Browse answers or ask tax deduction questions online.
Related Articles
->Major Tax Break May Expire For Homeowners That Are Underwater
->Is A Pet a Valid Tax Deduction?
->Lesser Known 2011 Tax Deductions to Claim on Your Personal Return
->Which Tax Records Do I Need to Keep on File?
->What Types of Travel and Entertainment Expenses Can You Writeoff?
->What Happens If I Don’t File a Tax Return?
->What are my chances of being audited by the IRS?
