Sunday, August 27, 2017

Do You Know Job Search Expenses Can be Tax Deductible?

IRS Tax Tip August 25, 2017
Taxpayers who are looking for a new job that is in the same line of work may be able to deduct some job-hunting expenses on their federal income tax return, even if they don’t get a new job.
Here are some important facts to know about deducting costs related to job searches:
  1. Same Occupation. Expenses are tax deductible when the job search is in a taxpayer’s current line of work.
  2. Résumé Costs. Costs associated in preparing and mailing a résumé are tax deductible.
  3. Travel Expenses. Travel costs to look for a new job are deductible. Expenses including transportation, meals and lodging are deductible if the trip is mainly to look for a new job. Some costs are still deductible even if looking for a job is not the main purpose of the trip.
  4. Placement Agency. Job placement or employment agency fees are deductible.
  5. Reimbursed Costs. If an employer or other party reimburses search related expenses, like agency fees, they are not deductible.
  6. Schedule A. Report job search expenses on Schedule A of a 1040 tax return and claim them as miscellaneous deductions. The total miscellaneous deductions cannot be more than two percent of adjusted gross income.

Taxpayers can’t deduct these expenses if they:

  • Are looking for a job in a new occupation,
  • Had a substantial break between the ending of their last job and looking for a new one, or
  • Are looking for a job for the first time.
For more on job hunting, refer to Publication 529, Miscellaneous Deductions. IRS tax forms and publications are available any time on IRS.gov/forms.

Saturday, August 19, 2017

Moving Expenses May Be Deductible

  Print - Click this link to Print this page
IRS Summertime Tax Tip Aug 16, 2017
Taxpayers may be able to deduct certain expenses of moving to a new home because they started or changed job locations. Use Form 3903, Moving Expenses, to claim the moving expense deduction when filing a federal tax return.
Home means the taxpayer’s main home. It does not include a seasonal home or other homes owned or kept up by the taxpayer or family members. Eligible taxpayers can deduct the reasonable expenses of moving household goods and personal effects and of traveling from the former home to the new home.
Reasonable expenses may include the cost of lodging while traveling to the new home. The unreimbursed cost of packing, shipping, storing and insuring household goods in transit may also be deductible. 
Who Can Deduct Moving Expenses?
  1. The move must closely relate to the start of work. Generally, taxpayers can consider moving expenses within one year of the date they start work at a new job location.
  2. The distance test. A new main job location must be at least 50 miles farther from the employee’s former home than the previous job location. For example, if the old job was three miles from the old home, the new job must be at least 53 miles from the old home. A first job must be at least 50 miles from the employee’s former home.
  3. The time test. After the move, the employee must work full-time at the new job for at least 39 weeks in the first year. Those self-employed must work full-time at least 78 weeks during the first two years at the new job site.
Different rules may apply for members of the Armed Forces or a retiree or survivor moving to the United States.
Here are a few more moving expense tips from the IRS: 
  • Reimbursed expenses. If an employer reimburses the employee for the cost of a move, that payment may need to be included as income. The employee would report any taxable amount on their tax return in the year of the payment.  
  • Nondeductible expenses. Any part of the purchase price of a new home, the cost of selling a home, the cost of entering into or breaking a lease, meals while in transit, car tags and driver’s license costs are some of the items not deductible.
  • Recordkeeping. It is important that taxpayers maintain an accurate record of expenses paid to move. Save items such as receipts, bills, canceled checks, credit card statements, and mileage logs. Also, taxpayers should save statements of reimbursement from their employer.
  • Address Change. After any move, update the address with the IRS and the U.S. Post Office. To notify the IRS file Form 8822, Change of Address.

Sunday, August 13, 2017

Tax Tips for Short Term Rental

By Turbottax

With the rising popularity of Airbnb and other vacation rental companies, more and more people are renting their homes and learning about a new set of tax issues that come with it. When you offer your home, or a room in your home, as a short-term rental through services such as Airbnb, HomeAway, VRBO, FlipKey and many others, you can keep your income taxes to a minimum — and sometimes eliminate them entirely — if you follow some of these useful tax tips.

1. Learn about the 14-day rule

Tax laws are full of exceptions, but the 14-day rule — sometimes called the "Masters exception" because of its popularity in Georgia during the annual Masters golf tournament — is the most important for anyone considering renting out a vacation home. Under this rule, you don't pay tax on income you earn from the short-term rental, as long as you:
Rent the property for no more than 14 days during the year AND
Use the vacation house yourself 14 days or more during the year or at least 10% of the total days you rent it to others.

Portland resident Alice Chan earns extra income by renting out her vacation home on the Oregon Coast several times a year. These days, she is careful to keep the total rental time under 14 days — a tactic she recommends to others.

"The first year, I accepted guests for two one-week stays, plus 10 days over Christmas," Chan says. "I ended up paying hefty taxes and investing a lot of time in trying to figure out my tax deductions and finances. Now, I just stick to the 14-day limit."

2. Learn About Exceptions for Rooms

If you just rent out one room in your house, the 14-day rule applies in the same way as if you rent out your whole house. Fourteen days or less, you don’t even have to report the income on your taxes, but you cannot take any deductions either.

3. Don't Panic if You Get an IRS Letter

The rule is simple: you don't have to report rental income if you stay within the 14-day rule. However, because of reporting laws, companies like Airbnb, HomeAway and VRBO may report to the IRS all income you receive from short-term rentals, even if you rent for less than two weeks.

If this happens, and you don't include the income on your tax return, you may hear from the IRS. Don't panic. You'll simply need to prove the income qualifies for the 14-day exception.

4. Keep Flawless Records of Rental Periods

You'll have a much easier time with tax issues on your short-term vacation rental if you treat it as a business from the get-go and keep meticulous records.

If you rent out your place for two weeks or less, keep careful track of both rental days and those days you used the residence yourself. If you rent for longer than the 14-day exception period, detail the dates precisely so you can properly divide out personal and business expenses, like mortgage interest.

5. Document All Business Expenses

You are entitled to deduct all “ordinary and necessary” expenses to operate your rental business. Like the "B&B" in Airbnb, think of your rental as a bed-and-breakfast. If you buy new towels for your guests, repaint the guestroom or put a bottle of wine on the table for incoming guests, you can deduct these expenses from your rental income.

By keeping clear records and recording all money you spend on the business, you won't have to go back through credit card statements for proof for the IRS.

6. Apportion Mortgage Interest and Taxes if You Rent Room Only

If you rent out a room, rather than the entire house, for over 14 days, you pay taxes on the rental amount and you can take business expenses. However, you can’t deduct 100% of expenses like mortgage interest and property taxes. These must be apportioned between personal and business use of your residence.

7. Fill Out Form W-9 Taxpayer Identification Number

Airbnb, HomeAway, VRBO, FlipKey and similar companies must withhold a full 28% of your rental income if you don't provide them with a W-9 form. In most cases, your effective tax rate will be lower than 28%.

There's no reason to let the tax authorities hold your overpayment all year, so file that W-9. Once you do, the rental company can reduce the withholding percentage, giving you immediate access to the maximum amount of rental income.

8. Deduct the Guest-Service or Host-Service Fees

Airbnb, FlipKey and other short-term rental companies usually charge a percentage fee, called a guest-service fee or a host-service fee that is taken off the top of the rent that guests pay. When these companies send you and the IRS a 1099 form reflecting your house rental earnings for the year, it includes the amount of service fees.

If you rented out your home or apartment for more than 14 days in the year, you can and should deduct this fee from your reported rental income. Since 100% of the fee was directly related to the rental use of the property, you can deduct the entire amount paid.

9. Learn About Applicable Occupancy Taxes

Some state and local governments impose occupancy taxes on short-term rentals. These vary widely from one jurisdiction to the next, from the name of the tax — hotel tax in some states, transient lodging tax in others — to the rates and rules.

In many cases, the host is required to collect the occupancy tax directly from renters and submit the money to the tax authority, but some companies, like Airbnb, collect and submit the taxes in certain cities and states.

10. Pay Self-Employment Taxes

If you are self-employed, you have to pay self-employment taxes, as well as income taxes. Self-employment taxes cover Social Security and Medicare contributions for income you make when you are in business for yourself.

When you rent out your home, make bookings and provide amenities, like coffee or breakfast, the IRS may treat you as being self-employed in the vacation rental business.

Sunday, August 6, 2017

Tax Tips on Gambling Winnings and Losses

IRS Summertime Tax Tip 2017-15
Taxpayers must report all gambling winnings as income. They must be able to itemize deductions to claim any gambling losses on their tax return.
Taxpayers who gamble may find these tax tips helpful:
  1. Gambling income. Income from gambling includes winnings from the lottery, horseracing and casinos. It also includes cash and non-cash prizes. Taxpayers must report the fair market value of non-cash prizes like cars and trips to the IRS.
  2. Payer tax form. The payer may issue a Form W-2G, Certain Gambling Winnings, to winning taxpayers based on the type of gambling, the amount they win and other factors. The payer also sends a copy of the form to the IRS. Taxpayers should also get a Form W-2G if the payer withholds income tax from their winnings.
  3. How to report winnings. Taxpayers must report all gambling winnings as income. They normally should report all gambling winnings for the year on their tax return as “Other Income.” This is true even if the taxpayer doesn’t get a Form W-2G.
  4. How to deduct losses. Taxpayers are able to deduct gambling losses on Schedule A, Itemized Deductions, but keep in mind, they can’t deduct gambling losses that are more than their winnings.
  5. Keep gambling receipts. Keep records of gambling wins and losses. This means gambling receipts, statements and tickets or by using a gambling log or diary.
See Publication 525, Taxable and Nontaxable Income, for rules on gambling and Publication 529, Miscellaneous Deductions, for more information on losses. Publication 529 also lists specific types of gambling records a taxpayer may want to keep. Download and view IRS publications on IRS.gov/forms at any time.
Avoid scams. The IRS does not initiate contact using social media or text message. The first contact normally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out.