Although you can’t deduct the value of time and energy spent on charitable endeavors, you can often write off unreimbursed expenses incurred while performing charitable duties. Here are some of the more commonly overlooked charitable deductions.
- Travel expenses: Generally, you can deduct travel expenses on behalf of a charity if you did not gain significant personal pleasure, recreation, or vacation. If you travel by car, you can use a flat rate of 14 cents per mile. But at times, qualified charitable expenses can include air, rail, or bus transportation, and tracking of actual vehicle expense. It can even include qualified lodging and meals.
- Electronic communications: Don’t forget to deduct specific charges for telephones, cell phones, fax machines, and computers incurred on behalf of a qualified charity. You may also write off costs for a separate landline in your home if used exclusively for charitable functions. The trick here is to clearly show the activity is related to the charity.
- Conventions: When you’re a designated delegate for a charity, unreimbursed expenses at a convention, including reasonable amounts for meals and lodging, are deductible. But the accommodations can’t be overly lavish.
- Entertainment expenses: You may be able to deduct reasonable costs of sending underprivileged youths to athletic events, movies, or dinners to help reduce juvenile delinquency. But expenses for your own ticket or tickets for your children are not deductible. If you host a fundraising dinner or party at your home, your out-of-pocket expenses for the event can be deductible.
- Exchange students: Taxpayers who provide a foreign exchange student with a place to live may deduct up to $50 monthly for each month the child attends high school. But the student must reside in the taxpayer’s home under a written agreement and cannot be a relative.
- Uniforms: Even the cost and upkeep of special uniforms needed to perform charitable services, such as Boy or Girl Scout uniforms for group leaders, are deductible.
This area of the tax code requires excellent recordkeeping. The IRS is quick to question large dollar amounts associated with charitable work, so keep your receipts and document your activities. Call Carl Heinemann, your Chattanooga CPA, if have questions.
Are you facing a tax liability on your 2016 return? There’s little you can do now to reduce the tax, but there’s at least one option at your disposal. If you qualify, Traditional IRA contributions made as late as the tax return due date — April 18 — may be wholly or partially deductible for 2016. In fact, if you act quickly enough, you can even use a tax refund to fund the contribution!
For starters, you can contribute up to $5,500 annually to a Traditional IRA ($6,500 if you’re age 50 or over). The contribution limit is indexed annually for inflation, but it remains the same in 2017. The deduction is phased out at certain income levels for active participants in employer-provided retirement plans.
The phase-out range for single filers who are active plan participants is between $61,000 and $71,000 of modified adjusted gross income (MAGI) and between $98,000 and $118,000 for joint filers. If only one spouse is an active participant, the phase-out range is between $184,000 and $194,000 of MAGI. These dollar figures are also indexed annually for inflation. There are slight increases for the 2017 tax year.
For example, a single filer, age 35, who has a MAGI of $66,000 for 2016 and participates in an employer’s 401(k) plan can deduct 50% of a $5,500 contribution, or $2,750.
You have until the tax return due date to make a deductible contribution. In some cases, deductions are approved where a taxpayer claimed a contribution on a tax return, obtained a refund, and then used the refund to actually make the IRA contribution by the deadline.
So if you are looking for a last-minute way to reduce your taxable income for 2016, consider a contribution to a Traditional IRA. There is still time, if you qualify.
It’s not unusual to pull up stakes after you land a new job. If your new employer does not reimburse you for your moving expenses, you may still be able to deduct them on your tax return. To qualify, your move must be due to starting a new job, undergoing a change in your job or moving the business to a new location. Conversely, if the move is for personal reasons — for example, you’re upsizing to accommodate a newborn or downsizing in retirement — you can’t claim a moving expense deduction.
To deduct your moving expenses you must meet two separate requirements concerning distance and time.
- Distance: Your new job location must be at least 50 miles farther from your old home than your old job location was from your previous home. The IRS relies on the shortest of the most commonly traveled routes to measure the distance between locations.
- Time: If you’re an employee, you must work full-time for at least 39 weeks during the first 12 months after you arrive in the general area of the new job. But you don’t have to work for the same employer as long as you meet the 39-week requirement. However, if you’re self-employed, you must also work full-time for a total of at least 78 weeks during the first 24 months after you arrive in the general area.
Assuming you meet both requirements, you’re entitled to write off the reasonable costs of moving household goods and personal effects as well as your travel expenses — including lodging, but not meals — between the two locations. Normally, this includes charges paid for a moving company or truck rentals. If you go by car, you can use the IRS-approved flat rate of 19 cents per mile on your 2016 return (decreasing to 17 cents per mile in 2017), plus tolls and parking fees. Alternatively, you can substantiate your actual expenses.
Moving is never easy, but deducting moving expenses relieves some of the financial burden. If you have specific questions about your job-related move, give Carl Heinemann, your Chattanooga CPA, a call.
Can you deduct interest expenses on your 2016 tax return? It depends. Generally, the tax law requires you to allocate interest payments under a complex set of rules. The tax results vary, based on whether the expense is characterized as mortgage interest, investment interest, business interest, or personal interest.
- Mortgage interest: This is interest paid on a mortgage used to secure a qualified home (technically called “qualified residence interest”). The home can be your principal residence or one other place, like a vacation home. Generally, your deduction is limited to interest paid on the first $1 million of acquisition debt and up to $100,000 of home equity debt.
- Investment interest: When you borrow money to invest in say, securities or investment real estate, the interest is deductible up to the amount of your “net investment income” for the year. This includes most income items such as royalties, interest, and annuity payments.
- Business interest: Interest paid for business purposes, including debts incurred by a self-employed individual, are fully deductible. Unlike the deductions for mortgage interest and investment interest, there are no annual limits. But you can’t write off any personal interest expenses the IRS deems is disguised as business interest.
- Personal interest: Finally, interest that doesn’t fall into any of the three previous categories is treated as personal interest. In virtually all instances, personal interest is not deductible. This includes amounts paid on most credit card debt and car loans. There is, however, a limited exception for interest paid on up to $2,500 of student loan debt, phased out for upper-income taxpayers.
This is a basic overview on tax treatment of various forms of interest expense. It does not account for variations or special rules such as limits on passive activity interest. When in doubt, seek advice for your personal situation.
Consider the following statistics: The cost of getting a higher education has risen substantially faster than the general inflation rate over the past decade. For the 2016-2017 school year, tuition and fees average over $7,100 at four-year, in-state public institutions; at private colleges average costs are substantially higher — over $32,400. Add thousands of dollars for room and board, supplies, and transportation, and it’s clear that attending college has become an increasingly expensive proposition.
How do students cover these costs? Some are fortunate enough to receive help from relatives; others apply for financial aid. Nearly 70% take out student loans to cover the cost of higher education. In fact, college students graduating in June 2016 finished their studies with average loan balances topping $37,000.
If you’re a student faced with the daunting task of paying for college, here are three tips for getting a college degree without taking on a mountain of debt.
- Postpone school to define goals. Many young people start college without a defined goal. They jump from class to class, major to major, all the while spending money on credits that may not count in the long run. Holding off on school, getting a job in a field that interests you, and saving money for college may provide a better return for your education dollars. Many former students have learned that a few years in the workplace can provide a taste of the “real world” and motivation to pursue an education more vigorously.
- Consider community college. Attending a local junior college for your first two years may substantially reduce overall college costs. In addition, you may benefit from smaller class sizes and a shorter commute. Just be sure to confirm that local college credits will transfer to the four-year institution of your choice.
- Live at home while attending school. Foregoing on-campus accommodations can slash thousands of dollars from college costs. Though not a decision to be taken lightly, residing with parents or other relatives while attending school may enable you to obtain your degree with minimal debt. And without ongoing loan payments, you’ll be in a better position to start your career on a solid financial footing.
If you’d like other suggestions for reducing the cost of higher education, give Carl Heinemann, your Chattanooga CPA, a call.
Why do people visit your business website? Generally speaking, potential customers want to know three things: What you’re offering, how much they can expect to pay, and whether the items are currently available.
Studies have shown that online visitors who peruse business websites tend to form an opinion of a company’s brand in about three seconds. A well-designed website may entice them to stick around for an additional 10 to 20 seconds. In other words, you don’t have much time to get and hold their attention.
Give visitors the information they want and you may make a sale. Annoy them, and they’ll look elsewhere. That’s why it’s crucial to consider the needs of busy customers when designing your website. Keeping those needs in mind, consider the following tips to create a website that generates business for your company.
- Focus on the customer, not the company. The company’s history and the CEO’s credentials may kindle positive feelings in you, but potential customers may find such details irrelevant. Remember that visitors want answers. Provide those answers quickly or they’ll click elsewhere.
- Keep it updated. Have you ever scanned to the bottom of a webpage and discovered that the latest revision happened three years ago? If the content on your website isn’t current, people may not trust the site’s information about products, services, and prices.
- Make navigation easy. Each webpage should have the same “look and feel.” Don’t make visitors wonder how to get back to the home page or main menu. If potential customers get disoriented in your website’s confusing maze, they’ll exit.
- Use text wisely and avoid data-hogging graphics. Most of the content on your site should be quick-to-load text. Don’t bombard visitors with flashing words or unnecessary distractions. A few strategically placed and relevant graphics can enhance an otherwise dull website. Remember: Short attention spans are the rule in cyberspace.
- Proofread. A website that’s riddled with typos, poor grammar, spelling errors, and bad formatting will give potential customers an unfavorable impression of your company and its offerings. Visitors may wonder, “If this business doesn’t care about the quality of its website, how can I trust the products in its warehouse?”
Once your website is built, don’t ignore it. A well-maintained, user-friendly website can build loyal customers who keep coming back.