Deducting Job Search Expenses

Job Search Expenses

People often change their job in the summer. If you look for a job in the same line of work, you may be able to deduct some of your job search costs. Here are some key tax facts you should know about if you search for a new job:

  • Same Occupation.  Your expenses must be for a job search in your current line of work. You can’t deduct expenses for a job search in a new occupation.
  • Résumé Costs.  You can deduct the cost of preparing and mailing your résumé.
  • Travel Expenses.  If you travel to look for a new job, you may be able to deduct the cost of the trip. To deduct the cost of the travel to and from the area, the trip must be mainly to look for a new job. You may still be able to deduct some costs if looking for a job is not the main purpose of the trip.
  • Placement Agency. You can deduct some job placement agency fees you pay to look for a job.
  • First Job.  You can’t deduct job search expenses if you’re looking for a job for the first time.
  • Substantial Job Break.  You can’t deduct job search expenses if there was a long break between the end of your last job and the time you began looking for a new one.
  • Reimbursed Costs.  Reimbursed expenses are not deductible.
  • Schedule A.  You usually deduct your job search expenses on Schedule “A”, Itemized Deductions. You’ll claim them as a miscellaneous deduction. You can deduct the total miscellaneous deductions that are more than two percent of your adjusted gross income.
  • Premium Tax Credit.  If you receive advance payments of the premium tax credit it is important that you report changes in circumstances, such as changes in your income or eligibility for other coverage, to your Health Insurance.
  • Marketplace. Other changes that you should report include changes in your family size or address.  Advance payments of the premium tax credit provide financial assistance to help you pay for the insurance you buy through the Health Insurance Marketplace. Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.

 

Husband & Wife Business – Sole Proprietorship or Partnership?

Can a Husband and Wife operate a business as a Sole Proprietorship or do they need to be a Partnership?

Unless a business meets the requirements listed below to be a “qualified joint venture”, a Sole Proprietorship must be solely owned by one spouse, and the other spouse can work in the business as an employee. A business jointly owned and operated by a husband and wife is a Partnership (and should file IRS Form 1065, U.S. Return of Partnership Income) unless the spouses qualify and elect to have the business be treated as a “qualified joint venture”, or they operate their business in one of the nine community property states.

A married couple who jointly own and operate a trade or business may choose for each spouse to be treated as a Sole Proprietor by electing to file as aqualified joint venture”.

Requirements for a “qualified joint venture”:

  • The only members in the joint venture are a husband and wife who file a joint tax return,
  • The spouses own and operate the trade or business as co-owners (and not in the name of a state law entity such as an LLC or LLP),
  • The husband and wife must each materially participate in the trade or business, or maintain a farm as a rental business without materially participating (for self-employment tax purposes) in the operation or management of the farm, and
  • Both spouses must elect qualified joint venture status on IRS Form 1040, U.S. Individual Income Tax Return, by dividing the items of income, gain, loss, deduction, credit and expenses in accordance with their respective interests in such venture. Each spouse files with the Form 1040 a separate Schedule “C” (IRS Form 1040), Profit or Loss From Business, Schedule “C-EZ” (IRS Form 1040), Net Profit From Business, Schedule “F” (IRS Form 1040), Profit of Loss From Farming, or IRS Form 4835, Farm Rental Income and Expenses, accordingly, and if required, a separate Schedule “SE” (IRS Form 1040), Self-Employment Tax, to pay self-employment tax.

The qualified joint venture rules are effective for taxable years beginning after December 31, 2006.

IRS REMINDER – TWO (2) COLLEGE TAX CREDITS

IRS REMINDER – Two (2) College Tax Credits for 2015

With another school year just around the corner, the Internal Revenue Service recently reminded parents and students that now is a good time to see if they will qualify for either of two (2) college tax credits or other education-related tax benefits when they file their 2015 federal income tax returns.

In general, the “American Opportunity Tax Credit” or “Lifetime Learning Credit” is available to taxpayers who pay qualifying expenses for an eligible student. Eligible students include the taxpayer, spouse and dependents. The American Opportunity Tax Credit provides a credit for each eligible student, while the Lifetime Learning Credit provides a maximum credit per tax return.

Though a taxpayer often qualifies for both of these credits, he or she can only claim one of them for a particular student in a particular year. To claim these credits on their tax return, the taxpayer must file Form 1040 or 1040A and complete IRS Form 8863, Education Credits.

The credits apply to eligible students enrolled in an eligible college, university or vocational school, including both nonprofit and for-profit institutions. The credits are subject to income limits that could reduce the amount claimed on their tax return.

To help determine eligibility for these benefits, taxpayers should visit the Education Credits web page or use the IRS’s Interactive Tax Assistant tool. Both are available on IRS.gov.

Normally, a student will receive a Form 1098-T from their institution by Jan. 31 of the following year. (For 2015, the due date is Feb. 1, 2016, because otherwise it would fall on a Sunday.) This form will show information about tuition paid or billed along with other information. However, amounts shown on this form may differ from amounts taxpayers are eligible to claim for these tax credits. Taxpayers should see the instructions to Form 8863 and IRS Publication 970 for details on properly figuring allowable tax benefits.

Many of those eligible for the American Opportunity Tax Credit qualify for the maximum annual credit of $2,500 per student. Students can claim this credit for qualified education expenses paid during the entire tax year for a certain number of years:

  • The credit is only available for four tax years per eligible student.
  • The credit is available only if the student has not completed the first four years of post-secondary education before 2015.

Here are some more key features of the credit:

  • Qualified education expenses are amounts paid for tuition, fees and other related expenses for an eligible student. Other expenses, such as room and board, are not qualified expenses.
  • The credit equals 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
  • Forty percent of the American Opportunity Tax Credit is refundable. This means that even people who owe no tax can get an annual payment of up to $1,000 for each eligible student.
  • The full credit can only be claimed by taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less. For married couples filing a joint return, the limit is $160,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $180,000 or more and singles, heads of household and some widows and widowers whose MAGI is $90,000 or more.

The Lifetime Learning Credit of up to $2,000 per tax return is available for both graduate and undergraduate students. Unlike the American Opportunity Tax Credit, the limit on the Lifetime Learning Credit applies to each tax return, rather than to each student. Also, the Lifetime Learning Credit does not provide a benefit to people who owe no tax.

Though the half-time student requirement does not apply to the lifetime learning credit, the course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. Other features of the credit include:

  • Tuition and fees required for enrollment or attendance qualify as do other fees required for the course. Additional expenses do not.
  • The credit equals 20 percent of the amount spent on eligible expenses across all students on the return. That means the full $2,000 credit is only available to a taxpayer who pays $10,000 or more in qualifying tuition and fees and has sufficient tax liability.
  • Income limits are lower than under the American Opportunity Tax Credit. For 2015, the full credit can be claimed by taxpayers whose MAGI is $55,000 or less. For married couples filing a joint return, the limit is $110,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $130,000 or more and singles, heads of household and some widows and widowers whose MAGI is $65,000 or more.

Eligible parents and students can get the benefit of these credits during the year by having less tax taken out of their paychecks. They can do this by filling out a new IRS Form W-4, claiming additional withholding allowances, and giving it to their employer.

There are a variety of other education-related tax benefits that can help many taxpayers. They include:

  • Scholarship and fellowship grants — generally tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
  • Student loan interest deduction of up to $2,500 per year.
  • Savings bonds used to pay for college — though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years old.
  • Qualified tuition programs, also called 529 plans, used by many families to prepay or save for a child’s college education.

Taxpayers with qualifying children who are students up to age 24 may be able to claim a dependent exemption and the Earned Income Tax Credit.

The general comparison table in Publication 970 can be a useful guide to taxpayers in determining eligibility for these benefits. Details can also be found in the Tax Benefits for Education Information Center on IRS.gov.

Moving Expense Deduction

Moving Expense Deduction

If you move your home you may be able to deduct the cost of the move on your federal tax return next year. This may apply if you move to start a new job or to work at the same job in a new location. In order to deduct your moving expenses, your move must meet three (3) requirements:

  1. Your move must closely relate to the start of work.  In most cases, you can consider moving expenses within one (1) year of the date you start work at a new job location. Additional rules apply to this requirement.
  2. Your move must meet the distance test.  Your new main job location must be at least 50 miles farther from your old home than your prior job location. For example, let’s say that your old job was three (3) miles from your old home. To meet this test, your new job must be at least 53 miles from your old home.
  3. You must meet the time test.  You must work full-time at your new job for at least 39 weeks the first year after the move. If you’re self-employed, you must also meet this test. In addition you must work full-time for a total of at least 78 weeks during the first two (2) years at the new job site. If your tax return is due before you meet the time test, you can still claim the deduction if you expect to meet it.

If you qualify for this deduction, here are a few more tips from the IRS:

  • Travel.  You can deduct certain transportation and lodging expenses while moving. This applies to costs for yourself and other household members while moving from your old home to your new home. You may not deduct your travel meal costs.
  • Household goods and utilities.  You can deduct the cost of packing, crating and shipping your property. This may include the cost to store or insure the items while in transit. You can deduct the cost to disconnect or connect utilities at your old and new homes.
  • Expenses you can’t deduct.  You may not deduct:
    o Any part of the purchase price of your new home.
    o The cost of selling your home.
    o The cost of breaking or entering into a lease.
  • Reimbursed expenses.  If your employer later pays you for the cost of a move that you deducted on your tax return, you may need to include the payment as income. You must report any taxable amount on your tax return in the year you get the payment.
  • Address change.  When you move, make sure to update your address with the IRS and the U.S. Post Office. To notify the IRS, file IRS Form 8822, Change of Address.

Premium Tax CreditChanges in Circumstances.  If you purchased health insurance coverage from the Health Insurance Marketplace, you may receive advance payments of the premium tax credit. It is important that you report changes in circumstances, such as when you move to a new address, to your Marketplace. Other changes that you should report include changes in your income, employment, family size, or eligibility for other coverage. Advance credit payments provide premium assistance to help you pay for the insurance you buy through the Marketplace. Reporting changes will help you get the proper type and amount of premium assistance so you can avoid getting too much or too little in advance.

 

Are You Subject to the “Individual Shared Responsibility” Provisions?

Are You Subject to the “Individual Shared Responsibility” Provision?

The Affordable Care Act (“ACA”) includes the “Individual Shared Responsibility” provision that requires you, your spouse, and your dependents to have qualifying health insurance for the entire year, report a health coverage exemption, or make a payment when you file.

Who is subject to this provision?

All U.S. citizens living in the United States are subject to the individual shared responsibility provision.

Children are subject to the individual shared responsibility provision.

  • Each child must have minimum essential coverage or qualify for an exemption for each month in the calendar year. Otherwise, the adult or married couple who can claim the child as a dependent for federal income tax purposes will generally owe a shared responsibility payment for the child.

Senior citizens are subject to the individual shared responsibility provision.

  • Both Medicare Part A and Medicare Part C – also known as Medicare Advantage – qualify as minimum essential coverage.

All permanent residents and all foreign nationals who are in the United States long enough during a calendar year to qualify as resident aliens for tax purposes are subject to the individual shared responsibility provision.

  • Foreign nationals who live in the United States for a short enough period that they do not become resident aliens for federal income tax purposes are not subject to the individual shared responsibility payment even though they may have to file a U.S. income tax return.

  • Individuals who are not U.S. citizens or nationals and are not lawfully present in the United States are exempt from the individual shared responsibility provision. For this purpose, an immigrant with Deferred Action for Childhood Arrivals status is considered not lawfully present, and therefore is eligible for this exemption even if he or she has a social security number. Claim coverage exemptions on Form 8965, Health Coverage Exemptions.

  • S. citizens living abroad are subject to the individual shared responsibility provision.

  • However, U.S. citizens who are not physically present in the United States for at least 330 full days within a 12-month period are treated as having minimum essential coverage for that 12-month period. In addition, U.S. citizens who are bona fide residents of a foreign country or countries for an entire taxable year are treated as having minimum essential coverage for that year.

  • All bona fide residents of the United States territories are treated by law as having minimum essential coverage.

IRS WARNING – New Tax Scam Tricks

IRS WARNING – Don’t Fall for New Tax Scam Tricks by IRS Posers

Though the tax season is over, tax scammers work year-round. The IRS advises you to stay alert to protect yourself against new ways criminals pose as the IRS to trick you out of your money or personal information. These scams first tried to sting older Americans, newly arrived immigrants and those who speak English as a second language. The crooks have expanded their net, and now try to swindle virtually anyone. Here are several tips from the IRS to help you avoid being a victim of these scams:

  • Scams use scare tactics.  These aggressive and sophisticated scams try to scare people into making a false tax payment that ends up with the criminal. Many phone scams use threats to try to intimidate you so you will pay them your money. They often threaten arrest or deportation, or that they will revoke your license if you don’t pay. They may also leave “urgent” callback requests, sometimes through “robo-calls,” via phone or email. The emails will often contain a fake IRS document with a phone number or an email address for you to reply.

  • Scams use caller ID spoofing. Scammers often alter caller ID to make it look like the IRS or another agency is calling. The callers use IRS titles and fake badge numbers to appear legit. They may use online resources to get your name, address and other details about your life to make the call sound official.

  • Scams use phishing email and regular mail. Scammers copy official IRS letterhead to use in email or regular mail they send to victims. In another new variation, schemers provide an actual IRS address where they tell the victim to mail a receipt for the payment they make. All in an attempt to make the scheme look official.

  • Scams cost victims over $20 million.  The Treasury Inspector General for Tax Administration, or TIGTA, has received reports of about 600,000 contacts since October 2013. TIGTA is also aware of nearly 4,000 victims who have collectively reported over $20 million in financial losses as a result of tax scams.

The real IRS will not:

  • Call you to demand immediate payment. The IRS will not call you if you owe taxes without first sending you a bill in the mail.
  • Demand that you pay taxes and not allow you to question or appeal the amount that you owe.
  • Require that you pay your taxes a certain way. For instance, require that you pay with a prepaid debit card.
  • Ask for credit or debit card numbers over the phone.

  • Threaten to bring in police or other agencies to arrest you for not paying.

If you don’t owe taxes or have no reason to think that you do:

  • Do not provide any information to the caller. Hang up immediately.

  • Contact the Treasury Inspector General for Tax Administration (TIGTA). Use TIGTA’s “IRS Impersonation Scam Reporting” web page to report the incident.

  • You should also report it to the Federal Trade Commission (FTC). Use the “FTC Complaint Assistance” on FTC.gov. Please add “IRS Telephone Scam” in the notes.

If you know you owe, or think you may owe taxes:

  • Call the IRS at 800-829-1040.

IRS Tax Problems – Taxpayer Advocate Service (TAS)

IRS TAX PROBLEMS – the Taxpayer Advocate Service  (TAS)

  1. TAS is Your Voice at IRS.  The Taxpayer Advocate Service, or “TAS”, is your voice at the IRS. TAS is an independent organization within the IRS.
  2. TAS Helps Resolve Problems.  TAS helps individuals, businesses and exempt organizations who are not able to resolve their tax problems with the IRS. TAS service is always free. TAS can help if:
    • Your problem is causing financial difficulty for you, your family, or your business.
    • You, your business or your organization is facing an immediate threat of adverse action.
    • You have tried repeatedly to contact the IRS but no one has responded.
    • We will also help if the IRS has not responded by the date promised.
  1. Taxpayer Bill of Rights.  The IRS has adopted a “Taxpayer Bill of Rights” that includes Ten (10) basic rights that every taxpayer has when interacting with the IRS:
    • The right to be informed.
    • The right to quality service.
    • The right to pay no more than the correct amount of tax.
    • The right to challenge the IRS’s position and be heard.
    • The right to appeal an IRS decision in an independent forum.
    • The right to finality.
    • The right to privacy.
    • The right to confidentiality.
    • The right to retain representation.
    • The right to a fair and just tax system.
  2. TAS Protects Your Rights.  TAS protects taxpayers’ rights by ensuring that the IRS treats all taxpayers fairly and that you know and understand your rights.

  1. TAS on the Web Toolkit Can Help.  The TAS Tax Toolkit at TaxpayerAdvocate.irs.gov explains common tax issues. It also offers self-help videos and documents. You can use the site’s information to solve your tax problem or help you understand it when you work with the IRS and your tax preparer.
  2. Report a Problem that Affects Many Taxpayers.  TAS also handles large-scale or “big picture” problems that affect many taxpayers.
  3. TAS in Every State.  We have offices in every state, the District of Columbia, and Puerto Rico. Your local advocate’s number is in your local directory and at TaxpayerAdvocate.irs.gov. You can also call us at 877-777-4778.
  4. TAS on Social Media.  Keep up with TAS via social media:

Starting a New Business

Starting a Business

When you start a business, a key to your success is to know your tax obligations. You may not only need to know about income tax rules, but also about payroll tax rules. Here are some tax tips that can help you get your business off to a good start.

  1. Business Structure.  An early choice you need to make is to decide on the type of structure for your business. The most common types are sole proprietor, partnership, limited liability company (LLC), and corporation. The type of business you choose will determine which tax forms you will file.
  2. Business Taxes.  There are four (4) general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax your business pays depends on the type of business structure you set up. You may need to make estimated taxes payments.
  3. Employer Identification Number.  You may need to get an EIN for federal tax purposes. Search “do you need an EIN” on IRS.gov to find out if you need this number. If you do need one, you can apply for it online.
  4. Accounting Method.  An accounting method is a set of rules that you use to determine when to report income and expenses. You must use a consistent method. The two that are most common are the cash and accrual methods. Under the cash method, you normally report income and deduct expenses in the year that you receive or pay them. Under the accrual method, you generally report income and deduct expenses in the year that you earn or incur them. This is true even if you get the income or pay the expense in a later year.
  5. Employee Health Care.  The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees. A small employer is eligible for the credit if it has fewer than 25 employees who work full-time, or a combination of full-time and part-time. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities.

    The Employer Shared Responsibility provisions of the Affordable Care Act affect employers employing at least a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees). These employers’ are called applicable large employers. ALEs must either offer minimum essential coverage that is “affordable” and that provides “minimum value” to their full-time employees (and their dependents), or potentially make an employer shared  responsibility payment to the IRS. The vast majority of employers will fall below the ALE threshold number of employees and, therefore, will not be subject to the employer shared responsibility provisions.

Health Law – Employer “Shared Responsibility” Provisions

Employer “Shared Responsibility” Provisions

The Affordable Care Act contains specific responsibilities for employers. The size and structure of your workforce – small, large, or part of a group – helps determine what applies to you. Employers with 50 or more full-time equivalent employees will need to file an annual information return reporting whether and what health insurance they offered employees. In addition, they are subject to the Employer Shared Responsibility provisions. All employers that are applicable large employers are subject to the Employer Shared Responsibility provisions, including federal, state, local, and Indian tribal government employers.

An employer’s size is determined by the number of its employees. Generally, if your organization has 50 or more full-time or full-time equivalent employees, you will be considered a large employer. For purposes of this provision, a full-time employee is an individual employed on average at least 30 hours of service per week.

Under the Employer Shared Responsibility provisions, if an applicable large employer does not offer affordable health coverage that provides a minimum level of coverage to their full-time employees and their dependents, the employer may be subject to an Employer Shared Responsibility payment. They must make this payment if at least one of its full-time employees receives a premium tax credit for purchasing individual coverage through the Health Insurance Marketplace.

The Employer Shared Responsibility provisions generally are effective at the beginning of this year. Employers will use information about the number of employees they have and those employees’ hours of service during 2014 to determine if they are an applicable large employer for 2015.

If you are a self-insured employer – that is, an employer who sponsors self-insured group health plans – you are subject to the information reporting requirements for providers of minimum essential coverage whether or not you are an applicable large employer under the employer shared responsibility provisions.

For more information, visit the Employer Shared Responsibility page on IRS.gov/aca. For information about transition relief available for employers related to the Shared Responsibility provision, visit IRS.gov/aca.