As a tireless business warrior and traveler, this time of year can be a bit perplexing with the April 15 breathing down your neck.
Here’s a list of the 11 most overlooked tax deductions for 2008 and some clarity around what business travelers can deduct on their taxes this year:
- State sales taxes: This write-off makes sense primarily for those who live in states that do not impose an income tax. You must choose between deducting state and local income taxes, or state and local sales taxes. There is big savings here if you’ve purchased big-ticket items in the last year.
- Reinvested dividends: This isn’t really a deduction, but it is a subtraction that can save you a lot of money. If, like most investors, you have mutual fund dividends automatically invested in extra shares, remember that each reinvestment increases your “tax basis” in the fund. That, in turn, reduces the taxable capital gain (or increases the tax-saving loss) when you redeem shares.
- Out-of-pocket charitable contributions: It’s hard to overlook the big charitable gifts you made during the year by check or payroll deduction. But the little things add up, too, and you can write off out-of-pocket costs you incur while doing good deeds.
- Student loan interest paid by Mom and Dad: Until recently, if parents paid back a student loan incurred by their children, no one got a tax break. To get a deduction, the law held that you had to be both liable for the debt and actually pay it yourself. But now there’s an exception. If Mom and Dad pay back the loan, the IRS treats it as though they gave the money to their child, who then paid the debt. So a child who’s not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by Mom and Dad.
- Moving expense to take first job: If you moved more than 50 miles, you can deduct the cost of getting yourself and your household goods to the new area, including 19 cents per mile for moves during the first six months of 2008, and 27 cents per mile for job move-related driving after June 30 (plus parking fees and tolls) for driving your own vehicle.
- Military reservists’ travel expenses: If you are a member of the National Guard or military reserve, you may earn a deduction for travel expenses to drills or meetings. To qualify, you must travel more than 100 miles and be away from home overnight.
- Child care credit: A credit is so much better than a deduction—it reduces your tax bill dollar for dollar. Until a few years ago, the child care credit applied to no more than $4,800 of qualifying expenses. The law allows you to run up to $5,000 of such expenses through a tax-favored reimbursement account at work.Now, however, up to $6,000 can qualify for the credit, but the old $5,000 limit still applies to reimbursement accounts.
- Estate tax on income in respect of a decedent: This sounds complicated, but it can save you a lot of money if you inherited an IRA from someone whose estate was big enough to be subject to the federal estate tax. Basically, you get an income tax deduction for the amount of estate tax paid on the IRA balance.
- State tax you paid last spring: Did you owe tax when you filed your 2007 state tax return in the spring of 2008? Then remember to include that amount with your state tax deduction on your 2008 return, along with state income taxes withheld from your paychecks or paid via quarterly estimated payments.
- Refinancing points: When you buy a house, you get to deduct points paid to obtain your mortgage in one fell swoop. When you refinance a mortgage, however, you have to deduct the points over the life of the loan. That means you can deduct 1/30th of the points a year if it’s a 30-year mortgage—that’s $33 a year for each $1,000 of points you paid. Doesn’t seem like much, but why throw it away?
- Jury pay paid to employer: Some employers continue to pay employees’ full salary while they are doing their civic duty, but ask that they turn over their jury fees to the company coffers. The only problem is that the IRS demands that you report those fees as taxable income. You’ve always had a right to deduct the amount so you weren’t taxed on money that simply passed through your hands.
A good tax software package like TurboTax or online tax service like TurboTax Online, can help make it easy to get all of these deductions and more.
And … just how much of that business travel can I deduct?: Go out on the town with your clients, pick up the bill and get a tax deduction. What could be easier? Just make sure that the outing is business-related. In other words, any payments you deduct for travel, meals and entertainment must be ordinary and necessary in your trade or business. In general, entertainment expenses must be directly related to, or associated with, the conduct of your trade or business.
Travel expenses include those for ordinary and necessary travel away from your home for your business. You must meet two conditions to take the travel expense deduction:
- Your duties must require you to be away from home (your regular place of business, regardless of where you maintain your family home) substantially longer than an ordinary day’s work.
- You need sleep or rest to meet the demands of your work while you’re away.
If your trip meets these requirements, you can deduct a wide variety of travel-related expenses, including costs for:
- Transportation (using a plane, train, bus or car) between your home and your business destination, including taxi, commuter bus and limousine fares
- Shipping items such as samples or display material
- Maintaining your own vehicle if you use your car or truck for business travel
- Tolls and parking
- Rental cars
- Meals and overnight lodging. You may deduct only 50% of the cost of business meals
Other deductible expenses include costs for dry cleaning and laundry care, telephone calls, use of fax machines and tips. For more information on travel, see IRS Publication 463: Travel, Entertainment, Gift and Car Expenses.
Entertainment expenses fall into a broad category and include any activity generally considered to provide amusement or recreation. Some examples include hosting clients at social, athletic or sporting clubs, theaters, yacht trips, hunting or fishing, vacations and the like.
And if you are on the road traveling, and just have not had the time to get your taxes in, you can always use TurboTax’s free online extension filling service.