This post has been contributed by Cristine Colton, who works in public accounting in Raleigh, NC. She has specialized in tax accounting for over 8 years and is passionate about helping others understand tax complexities.
April 15 is quickly approaching and I’m sure you’ve spent hours pouring over all of the recent legislative changes to the tax laws in order to ensure that you’re not giving Uncle Sam (or H&R Block) a big bonus this year. No? Well, don’t feel too bad about it. I’ve highlighted the items that should be top of mind for every B2B Sales and Marketing Professional.
Related to Work:
1. Making Work Pay tax credit. You may have heard about this one back in 2009 or 2010 when you noticed your paycheck getting a little larger because your employer had adjusted your withholding. But you’ll lose out on the actual benefit if you don’t take this credit on your tax return. This is worth up to $400 each for working individual (so $800 for married couples filing jointly), as long as your adjusted gross income is below $95k, or $190k for married couples. Self-employed individuals are eligible for this credit as well.
2. Did I mention that you received a 2% raise this year? No butt kissing, begging, or selling your soul to head-hunters involved! For 2011, your share of FICA tax was reduced from 6.2% to 4.2%, in case you were wondering why your paycheck was few bucks higher. This is supposed to make up for the expiration of the Making Work Pay program. And don’t worry about paying less into the Social Security pool; there won’t be anything left by the time you retire anyway.
Related to Smartening Up for Sales and Marketing Excellence:
3. Student loan interest. If you’re like me, you’re still paying off the privilege of attending an institute of higher learning. Well, don’t forget that you can deduct the interest paid, up to $2,500 per year.
4. College and continuing education. You don’t have to be a 21 year old co-ed to benefit from all that tuition you’re paying. The Hope Credit can get you a $2,500 credit for tuition paid towards the first four years of college, after which the Lifetime Learning Credit kicks in for a credit of up to $2,000 to help pay for your higher learning. The credits start to phase out at $60k if you’re single or $120k if you’re married and file jointly. Make too much money to qualify for one of the credits? Well, Congress didn’t leave you out. Instead of the credit, you can deduct up to $4,000 of tuition expenses, and you don’t even have to itemize. Of course if you make THAT much money (as in more than $80k if you’re single or $160k for married filing joint), you’re out of luck for the deduction too. But don’t be too hard on yourself. It’s a bad economy. You’re still super lucky.
5. Job-related education. You don’t have to be enrolled in an MBA program to get a tax break for growing your skills. The cost of education that maintains or improves skills you use on the job, or that is required to maintain your job, are deductible if you itemize your deductions. You only get the amount of the expenses that exceed 2% of your adjusted gross income, but with the cost of education now days, that might not be too hard to reach.
Related to Changing Jobs or Telecommuting
6. Moving expenses. Did you move at least 50 miles for a great new job, or to save the rest of us from having to pay your unemployment? If so, you can deduct the cost of hauling your futon, family and other worldly possessions to your new home, including travel expenses. But only if you moved for a job at least 50 miles further than your old job, and one that you intend to stay at for at least a year. No double-dipping, though, so if your boss pays for the move, you can’t take the deduction.
7. Job hunting costs. It may not add up to much, but you’re unemployed so every cent counts. You can deduct expenses related to finding a new job, including resume preparation and printing, employment agency fees, business cards, postage and travel. You’ll have to itemize your deductions, and the costs are reduced by 2% of your adjusted gross income.
8. Home office deduction. There’s a lot of speculation about this deduction. If you’ve heard of it, then you’ve probably heard stories about how it’s a bad idea to take it because you’ll get audited. Take the deductions that you deserve and keep good records. The rules are fairly simple. Your home office must be your principal places of business and must be used exclusively for that purpose. If this is the case, do some legwork to line up your expenses. Divide the square footage of your office by the total area of your residence to get your business expense percentage. You get to multiply this percentage against utilities, insurance, cleaning, repairs and maintenance, HOA/condo dues, and your mortgage interest and property taxes. While those last two are already deductible if you itemize, you get extra benefit but allocating a portion to your business expenses because they’ll help reduce your self-employment taxes. In addition, you can take a depreciation deduction.
Other things you will want to keep in mind:
9. State and local sales tax deduction. If you itemize your deductions, you have the option of claiming as a deduction either the amount you paid for state/local income taxes or sales taxes during the year. If you live in a state with no income tax, such as Florida, Texas, Nevada, or Oregon (to name a few), this could mean easy cash. The IRS gives you the choice of saving all of your receipts and claiming the actual amount of sales tax paid during the year, or using the general sales tax tables. If you’re an Amazon addict, just skip right to the tables. And to sweeten the deal, if you use the general tables, you can also take an additional deduction for specified large purchases, equal to the actual sales tax paid on the purchase of items such as your motor vehicle, aircraft, boat, or even home. Use this handy calculator to see how much this could mean for you. And make sure that you don’t forget any state taxes that you paid in 2010 when you filed your 2009 return(s). If you made a payment, it’s deductible as part of your state income taxes.
10. Kids. If you don’t know if you can claim them as dependents, you might want to consult with TurboTax or some other online software. Once you’ve determined that they’re yours to claim, don’t miss out on the rest of the tax savings. These include the child tax credit, which has been extended at up to $1,000 per child; the adoption credit of up to $13,170; and the child care credit. You might have already figured out that it probably makes more sense to utilize the pre-tax paycheck deduction for child care expenses, but you may not know that if you have at least two kids you can still take a credit for a percentage of the difference between your pre-tax spending account (which maxes out at $5,000) and your total child care costs for the year. If you’ve got two kids, this could mean an extra $200 in your pocket.
11. Home improvements. If you made energy efficient improvements to your home you can deduct up to 30% of the costs, up to $1,500. Qualifying improvements include new windows, insulation, solar panels and other alternative energy, and high efficiency air conditioners, furnaces and water heaters. You can’t take the credit on a rental property or new home, but as a condolence, if you buy a plug-in electric vehicle before January 1, 2012, you can take a credit up to $2,500. So get your Green on.
Publication 534 can walk you through the calculation. You’ll have to recapture some of this when you sell your house, but when you consider the time value of money, that probably shouldn’t stop you from taking the deduction.
12. Non-cash charitable contributions. Do you itemize your deductions? If so, did you drop a few bags of clothing or some furniture at the local Goodwill or Salvation Army this year? Then you’ve got yourself a non-cash charitable contribution. Any donation to charity other than cash falls into this bucket. It’s a little bit of extra work to figure out how much you can deduct, but that time can translate into some very real dollars. Make a good listing of what you donated, and be sure to keep the receipts you get at drop-off. You’ll need to determine the fair market value of the items, which should be the thrift shop value unless you donated new items (such as to Toys for Tots), a car, stock, or a pricey collectible. For the new items you can use your purchase price, and for the other three the charity will help you determine the value. The Salvation Army has a good guide for figuring out values of most common items. Consider the age and condition of the items in picking within the range.
With more than 71,000 pages of tax code and Congress passing new tax legislature all the time, the idea of doing your taxes can be more than a little daunting. If you haven’t noticed the trend yet, I recommend using tax preparation software. Unless you have a flourishing business, spend a lot of time day trading, own a few rental properties, or have a bunch of offshore assets that you’re trying to hide, you should be able to do your taxes on your own. Tax preparation software is very user friendly, and most offers access to great resources such as live on-line or over the phone help and experts to answer questions. The IRS has a Free-File listing on their website, or you can check out the TurboTax free version (with no income limitations) at http://turbotax.intuit.com. And with the average turnover for CMOs and CSOs being less than two years, be sure to spend your refund wisely.
Please feel free to post questions about this post for Christine in the comments area.