Find out which job-related expenses can help lower your taxes.
Money Girl
261 MG Deduction Dangers, Part 2: Job Expenses
Hey Fidelity. How can I remember to invest every month? With the Fidelity app, you can choose a schedule and set up recurring investments in stocks and ETFs. Oh, that sounds easier than I thought. You got this. Yeah, I do. Now, where did I put my keys? You will find them. Where you left them. Investing involves risk, including risk of loss, Fidelity brokerage services, LLC member NYSE SIPC. This episode is brought to you by AARP. 10 years from today, Lisa Schneider will trade in her office job to become the leader of a pack of dogs. As the owner of her own dog rescue, that is, a second act made possible by the reskilling courses Lisa's taking now with AARP to help make sure her income lives as long as she does. And she can finally run with the big dogs and the small dogs who just think they're big dogs. That's why the younger you are, the more you need AARP. Learn more at AARP.org/skills. Hi, friends. I'm Laura Adams, and you're listening to the Money Girl Podcast. I'm back with a second in a special three-part series about tax deduction dangers. I want to thank iTunes for featuring this series and welcome listeners who are new Money Girl subscribers. In the first installment of this three-part series, I gave you common mistakes to avoid when claiming the mortgage interest deduction. In this episode, I'll tell you about another tax break that could put money in your pocket, job-related expenses. Remember those uniforms you had to buy, or the professional dues you had to pay to keep the boss happy? Well, if you weren't reimbursed for those expenses, they could help you pay less tax. The reason you should pay attention to tax deductible expenses is because they reduce your taxable income, the less taxable income you have, the less you'll owe Uncle Sam. Some tax deductions are subject to certain conditions, and that's the case with job-related expenses, which the IRS calls employee business expenses. You have to jump over the following two hurdles to claim them. Number one, you must file taxes on Form 1040 and itemized deductions on Schedule A. And two, you can only claim the total amount that exceeds 2% of your adjusted gross income, or AGI. For example, if you have AGI of 40,000, 2% is $800. That means only the amount of employee expenses above 800 are tax deductible. If your job related expenses total 1,000, you could only deduct 200, not 1,000. And if your total expenses are $800, or less, you're out of luck. Additionally, there are some employee expenses that have further restrictions, and I'll cover those in just a moment. The types of expenses you can deduct for your work must be considered ordinary and necessary to perform your job or trade. But what you need to keep in mind is that they don't have to be required by your employer to be considered necessary. Here are some of the many expenses that you might be able to write off. Dues to a chamber of commerce or professional organization. Subscriptions to trade magazines or professional journals. Work clothes and uniforms if they're required and are not suitable for everyday use. Protective clothing like safety glasses, shoes, or hard hats. Union dues and expenses. Work related education expenses. Licenses, regulatory fees, and occupational taxes. Medical exams required by an employer. Passport fees for a business trip. Depreciation on a computer you're required to use for your job. Tools and supplies. Travel expenses like transportation, lodging, meals, and entertainment. Home office expenses and job search expenses. This isn't a complete list, so be sure to refer to IRS Publication 529, called Miscellaneous deductions for more information. The last three categories of expenses that I mentioned related to travel, working at home, and searching for a new job have special requirements, so let's dive a little deeper into what you need to know about them. If you're an employee and travel for work, you can deduct unreimbursed expenses for your hotel, airfare, ground transportation, and laundry services. But note that the cost of commuting between home and your job don't qualify as a deduction. Meals and entertainment are also allowable deductions, but you can only deduct 50% of those expenses. To claim your travel related expenses, you also have to complete Form 2106 and submit it with your tax return. If you use a part of your residence for work, you may be able to deduct a portion of your home expenses and depreciation, but here's the deal. Just doing some paperwork at home on the weekends doesn't count as having a legitimate home office. To qualify for this deduction, your home must be your principal office or a place where you meet customers on a regular basis for the convenience of your boss. For complete information, be sure to check out IRS Publication 587 called Business Use of Your Home. The last deduction I mentioned is job hunting expenses. If you're looking for a new job, you can deduct many expenses related to your search, even if you haven't landed a new job yet. But there's a catch. You must be looking for a job in your same field. So if you're trying to make a major career change, or you're hunting for your very first job, those expenses won't qualify for a deduction. I love learning and anything that makes learning easier. If you're a parent and your child needs some homework help, then IXL is a right for your family. IXL is an online learning program for kids covering math, language arts, science, and social studies. IXL has interactive practice problems for topics from pre-K to 12th grade and everything is organized by grade and subject. As kids practice, they get positive feedback, awards, and explanations for wrong answers. IXL figures out what your kids need more help with and recommends more topics to practice. Their videos, lessons, sample problems, and learning games, too. One subscription to IXL gets you all subjects and all grade levels. Membership started just $9.95 a month. It's no wonder IXL is used in 95 of the top 100 school districts. I think the positive feedback that IXL gives is really crucial when it comes to learning. So make an impact on your child's learning. Get IXL now and money girl listeners can get an exclusive 20% off IXL membership when they sign up today at ixl.com/moneygirl. Visit ixl.com/moneygirl to get the most effective learning program out there at the best price. This episode is brought to you by AARP. 10 years from today, Lisa Schneider will trade in her office job to become the leader of a pack of dogs. As the owner of her own dog rescue, that is. A second act made possible by the reskilling courses Lisa's taking now with AARP to help make sure her income lives as long as she does. And she can finally run with the big dogs and the small dogs, who just think they're big dogs. That's why the younger you are, the more you need AARP. Learn more at aarp.org/skills. Earning your degree online doesn't mean you have to go about it alone. At Capelli University, we're here to support you when you're ready. From enrollment counselors who get to know you and your goals, to academic coaches who can help you form a plan to stay on track. We care about your success and are dedicated to helping you pursue your goals. Going back to school is a big step, but having support at every step of your academic journey can make a big difference. Imagine your future differently at Capella.edu. Some examples of tax-deductible job hunting expenses include employment agency fees, resume costs and postage, and travel for interviews. Take a look at IRS publication 463 travel entertainment gift and car expenses for more information. If you fall short of having enough total unreimbursed employee expenses to meet the 2% income threshold, delay paying as many expenses as possible until the following tax year. Bunching up deductions in a single tax year instead of spreading them out over two years maximizes their value. For example, wait and buy new uniforms in January instead of in November or December. That way you give yourself the chance to accumulate enough expenses to claim the deduction next year. Or if you know you'll have plenty of job-related expenses to qualify for the deduction in the current year, prepay expenses like professional dues or the cost of new tools. That way you rack up as many money-saving tax deductions as possible. Bunching up expenses typically means you'll only qualify for a tax deduction every other year, but that's better than not qualifying for the deduction at all. Stay tuned for the final installment about deduction dangers. To get links to everything I mentioned, plus more resources, the show transcript is on the MoneyGirl page at quickanddirtytips.com. And while you're there, get more money tips by signing up for the free MoneyGirl newsletter. Join the MoneyGirl Facebook page, connect with me on Google+, and follow on Twitter, where my username is @LaraAdams. To learn more about taxes and smart ways to manage your money, get a copy of my award-winning book MoneyGirl's Smart Moves to Grow Rich. It tells you what you need to know about money without bogging you down with what you don't. It's available at your favorite bookstore in print, or is an e-book for your Kindle, Nook, iPad, PC, Mac, or smartphone. You can even download two free book chapters when you visit smartmoves2growrich.com. I'm glad you're listening. To change. That's all for now. Courtesy of MoneyGirl, your guide to a richer life. [Music] Earning your degree online doesn't mean you have to go about it alone. At Capelli University, we're here to support you when you're ready. From enrollment counselors who get to know you and your goals, to academic coaches who can help you form a plan to stay on track, we care about your success, and are dedicated to helping you pursue your goals. Going back to school is a big step, but having support at every step of your academic journey can make a big difference. Imagine your future differently at Capella.edu.