Expenses — Are They

Given the high cost of higher education, this issue is more than academic — significant tax dollars may be at stake.


Job-related Education

Your cost of job-related education is deductible if the education:

  • Maintains or improves skills related to your existing job, trade, or business or
  • Is required — by law or your employer — to keep your position or job.

Conversely, you aren’t allowed to deduct the cost of education that’s required to enter a field or that qualifies you for a new trade or business.

These rules can be tricky to apply. For example, one taxpayer whose job duties involved sales, marketing, and management was allowed to deduct his cost of obtaining an M.B.A. since the education allowed him to do more complex tasks in those areas. But another taxpayer who got an M.B.A. was not permitted a deduction because the course work improved his general competency in business administration rather than specific employment skills.

If you are employed, you must claim any education expenses that qualify for a deduction as a miscellaneous itemized deduction. Only the amount (when combined with your other miscellaneous expenses) in excess of 2% of your adjusted gross income is deductible.

An Alternative

Depending on the specifics of your situation, you might be able to claim a tax credit (Lifetime Learning or American Opportunity) for a portion of your tuition and related expenses instead of taking a deduction. We can help you analyze your options

Looking Ahead

What’s in store for taxpayers in the not-too-distant future? Although it’s anyone’s guess what Congress will do, significant tax law changes are on the horizon. Absent new legislation to the contrary, in 2013:

  • Individual income-tax rates will increase.
  • Rates on long-term capital gains and dividends will increase.
  • Higher income taxpayers will pay additional Medicare taxes on earned income (0.9%) and a surtax on investment income (3.8%).
  • The top federal estate-tax rate will increase from 35% to 55%, and more estates may be taxable since the basic exclusion amount will decrease from $5.12 million to $1 million.

In view of these and other potential changes, savvy tax planning is more important than ever.


Combining Business and Vacation

Whether it’s responding to e-mail, talking to customers, or participating in meetings, it’s not unusual for taxpayers to stay connected with work while they’re on vacation. But just because you spend time working while sitting in your beach chair doesn’t mean your vacation expenses will be tax deductible.

Travel expenses represent potentially deductible business expenses only if they’re necessary, reasonable, and directly connected to the pursuit of your trade or business. It’s okay with the IRS if your trip mixes business and vacation, but you’ll have to jump through some hoops to be able to deduct a portion of your travel expenses.

Expenses

Getting there and back. When a trip is related primarily to your trade or business, you may deduct the cost of getting to and from your U.S. destination (e.g., plane or train fare or auto expenses if you drive). You can take a mini vacation, just be sure you devote more days to business activities so you can prove that business was the primary purpose of your trip.

Lodging. Hotel charges for the days you spend engaging in business-related activities are deductible.

Meals. You generally may deduct 50% of your reasonable meal expenses for the business portion of your trip. However, the cost of meals on your vacation days won’t be deductible.

Other. Business-related taxi, subway, or bus fare, as well as car rental fees for the business portion of your trip, are potentially deductible. And don’t overlook charges for business-related phone calls or using a hotel’s business center for work purposes.

We can help you sort through the rules and maximize deduction opportunities.



Expenses

Municipal Bond Statistics

The IRS reports there were 22,000 tax-exempt governmental bonds issued in 2009, raising $340.7 billion in proceeds for schools, transportation, utilities, and other public projects.

Expenses

Deductibility of Bonus Pool Payments

In a recent ruling, the IRS addressed the timing of a company’s deduction for bonus payments made after the close of the year to which they relate but within the next two and a half months. The company — which used the accrual method of tax accounting — was allowed to deduct the bonuses in the year they were accrued even though the company did not determine the allocation of individual bonuses by year-end. The amount payable to employees as a group — the bonus pool — or the formula for determining the pool was fixed by year-end, and other requirements for deductibility were met.

Expenses

Tax Collections Drop

The IRS collected 16% less income tax in 2009 than in 2008, the largest drop in more than 20 years. Taxpayers reported average adjusted gross income of $54,283 and average taxable income of $48,851 in 2009.

The general information in this publication is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purpose of avoiding tax