When Itemizing Tax Deductions, Hold the SALT
March 27, 2018
No matter where you live in the U.S., you have to pay taxes (sorry). But the type and amount you pay do depend on where you live. Now, taxpayers in high-cost areas who’ve enjoyed cushy itemized deductions for state and local taxes (SALT) may not catch a break anymore.
To itemize or not to itemize? It depends.
Taxpayers have two options for tax deductions: itemize or take the standard set by the IRS. This year’s tax season has no restriction on the total amount of SALT deductions you can have, but that will all change starting next year. The Tax Cuts and Jobs Act (TCJA) will cap taxpayer’s combined state property, income, and sales tax to the following deduction limits:
- Single filers: $10,000
- Married filing jointly: $10,000
- Married filing separately: $5,000
The high-income household shift to standardized deductions
A third of filers pick itemizing over standard deductions, according to the IRS. And of those itemizers, 95 percent choose to deduct their SALT. Most of the SALT-deducting taxpayers live in high-cost states such as New York, California, Oregon, and New Jersey, where property taxes alone can easily exceed the $10,000 threshold. So why the cap?
The SALT itemization cap is meant to encourage taxpayers to use the standard deduction, which sits at:
- Single filers: $12,000
- Head of household: $18,000
- Married filing jointly: $24,000
This is meant to simplify tax preparation as people opt to take the standard. But residents of costly states knew this would be bad for their wallets, and some tried to pre-pay 2018 property taxes before 2017 came to a close. Unfortunately, it doesn’t work that way, and the IRS already added a rule against prepayment.
When it comes down to it, it won’t be worth itemizing your SALT deductions next year unless you’re able to diversify them. Ask your tax preparer if taking the standard is in your best interest and how you can prepare to handle additional tax reform changes.
Need more tax help? Call us for a free, confidential consultation today at 877-588-1098.
How Much Vacation Fun Can You Write Off On Your Taxes?
July 7, 2016
With summertime in full swing, you may be considering some much-needed time away from home (and we don’t blame ya). Whatever your travel plans, you might want to consider whether or not you’ll be able to take tax breaks for your time off. Believe it or not, there’s a chance that you’ll be able to take some tax deductions for that much-needed vacation.
Mix Business and Pleasure
The best way to maximize your tax savings when you’re on the road is to incorporate your job into your travel plans; or, perhaps more accurately, squeeze pleasure time in between work activities. Your plane fare, lodging, and even meals can be written off if the expenses are made under working conditions. So, just because you have to meet with clients doesn’t mean you can’t enjoy a dip in the hotel pool.
Passive vs. Active Business Trips
There are two types of common work-related trips: passive and active. A passive trip is educational in nature, such as a software training or an industry conference. An active venture involves actual work functions, like business meetings or factory inspections. Expenses for both passive and active trips may be deducted on your taxes – but just make sure that you’re actually paying the bill for these items. In other words, don’t try to write off expenses that your company is covering.
The Acceptable and the Unsuitable
The IRS will allow some tax deductions while rejecting others. Examples of acceptable tax deductions while you’re out of town for work include:
- Your rental car
- Luggage fees
- Hotel wifi service
If you’re combining your vacation with work, you can still take the above deductions if they’re for work activities. What you don’t want to do is attempt to write off expenses for your friend, companion or relative as work-related (unless he or she is a legitimate co-worker). Here are some examples of what not to include:
- Mom’s pedicure while you’re meeting with potential clients
- The kids’ theme park tickets while you’re on conference calls
- Family dinner after your seminar
If your family is tagging along and sharing your hotel room while you’re on the clock, that’s completely acceptable, but don’t try writing off obvious leisure and non-work items. Most importantly, don’t forget to keep receipts for every individual item you write off. While you want to take every deduction you can, you also want to avoid making a fatal error on your return.
How to Play It Smart
It’s a good idea to ask for help when you’re writing off vacation expenses. If the IRS sees anything they perceive as questionable, you might be in for an uncomfortable discussion about your return. A licensed tax professional can help you prevent any IRS issues from mistaken deductions or resolve an existing tax issue.
Taking Tax Breaks for Your Vehicle Expenses
July 5, 2016
You probably take for granted just how much time you spend in your car every week. What you do notice is the cost you incur for fuel, general maintenance and ill-timed auto repairs. If you’re looking for a way to save when you hit the road this summer, you can’t afford to overlook some vehicle-related tax deductions.
There are plenty of driving activities which will actually net you some helpful tax savings when it comes time to file next year. Starting as early as the summer months can ensure you have something to show for your various auto excursions. Consider what deductions you can take on your car, and how to simultaneously avoid having a collision with the IRS over some basic filing mistakes.
First, the good stuff: Philanthropy can benefit your community as well as your taxes. Your expenses for driving to volunteer activities are tax-deductible. This includes money you spend on fuel and tolls; even parking at your charity gig is able to be written off.
In the event that you pull up stakes to take a new job, you can deduct some of the moving costs – including the actual distance that you have to travel to make the transition. You have to be sure that you’re at least 50 miles away from your previous workplace in order to take this deduction. The really good news? You can take a tax deduction even if you’re using your car on your quest for a new position.
If you find yourself in a fender-bender or worse, there may be a silver lining in your tax return. When your car loses value as a result of the damage, this may be deductible. Also, should you have a crash where the other liable motorist’s insurance doesn’t completely cover your damages, you can deduct the cost difference.
You might have a little extra income from property you rent, which you no doubt understand is taxable. But did you know that you can actually write off expenses when you’re going back and forth to this location? As long as you’re using your car to visit the rental for landlord duties like maintenance, you’re able to take the deduction.
While you should definitely take advantage of every vehicle tax break you can get, proceed with caution. First, any expense you want to write off should be accompanied by a receipt. A good rule of thumb: if you don’t have valid documentation, don’t take the deduction. Any random audit on your return will result in trouble if you don’t have the proper receipts in hand.
It’s easy to make filing mistakes in your tax break endeavors. If you have any question about whether or not you’re on the right track, consult with a tax professional first. And if you’re face with an IRS issue over tax breaks you’ve taken in error, don’t hesitate to contact a licensed tax professional. The last thing you want is the IRS in your blind spot.