J.K. Lasser's 1001 Deductions and Tax Breaks 2017 E-Book

Barbara Weltman

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: J.K. Lasser
• Sprache: Englisch

Seitenzahl: 820

Veröffentlichungsjahr: 2016

Beschreibung

The complete guide to all deductions and credits for individual taxpayers J.K. Lasser's 1001 Deductions and Tax Breaks shows you just how much money you can save on your taxes--legally--simply by taking advantage of what's out there. Millions of Americans overpay their taxes by billions of dollars every year, because constantly evolving laws and regulations make keeping track of deductions and breaks next to impossible for the everyday taxpayer. This book helps you put a stop to overpayment so you can keep more of your hard-earned money. J.K. Lasser has compiled a complete list of every possible deduction and credit available to American taxpayers, and provides clear, easy-to-follow instructions for claiming what is rightfully yours. Fully updated to reflect the latest rulings and laws--including an e-supplement with the latest tax developments from the IRS and Congress--this book answers all of your "Can I claim..." questions with guidance from the nation's most trusted tax advisors. Many taxpayers are so afraid of an audit that they fail to take advantage of perfectly legal write-offs. You are entitled to this money. Tax breaks and deductions are written into tax law to help everyday Americans like yourself keep more of what you've earned. This book is your ticket to a streamlined filing and potentially substantial savings. * Identify all deductions that apply to your situation * Find the most up-to-date requirements for your 2016 filing * Mine your expenses, business, and job for deduction opportunities * Learn how to claim deductions and breaks correctly Forget complex tax strategies, and don't bother trying to game the system. The opportunities to save are all laid out in black and white, and J.K. Lasser has parsed the fine print so you don't have to. J.K. Lasser's 1001 Deductions and Tax Breaks is the definitive guide to filing your 2016 taxes with a smile.

Leseprobe

J.K. LASSER'STM

1001 DEDUCTIONS AND TAX BREAKS 2017

Your Complete Guide to Everything Deductible

Barbara Weltman

Cover design: WileyCopyright © 2017 by Barbara Weltman. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.

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ISBN 978-1-119-24886-6 (paper) ISBN 978-1-119-24887-3 (ePDF) ISBN 978-1-119-24908-5 (ePub)

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

CONTENTS

Introduction

Chapter 1: You and Your Family

Marital Status

Personal Exemption

Dependency Exemption

Child Tax Credit

Earned Income Credit

Dependent Care Expenses

Adoption Costs

Foster Care

Child Support

Alimony

ABLE Accounts

Chapter 2: Medical Expenses

Employer-Provided Health Insurance

Premium Tax Credit

Health Coverage Tax Credit

Itemized Medical Expenses

Self-Employed Health Insurance Deduction

Long-Term Care Coverage

Flexible Spending Arrangements for Health Care

Health Reimbursement Arrangements

Health Savings Accounts

ABLE Accounts

COBRA Coverage

Medicare

Continuing Care Facilities and Nursing Homes

Accelerated Death Benefits

Decedent's Final Illness

Medical Insurance Rebates

Chapter 3: Education Costs

FAFSA Submissions

Employer-Paid Courses

Scholarships, Fellowships, and Grants

American Opportunity Credit

Lifetime Learning Credit

Job-Related Education

Tuition and Fees Deduction

Student Loan Interest

Interest on U.S. Savings Bonds

Coverdell Education Savings Accounts

Qualified Tuition Programs (529 Plans)

ABLE Accounts

Seminars

Educational Travel

Cancellation of a Student Loan

Penalty-Free Withdrawals from IRAs

Government Reimbursements

Chapter 4: Your Home

Mortgages

Mortgage Interest Tax Credit

Home Equity Loans

Points

Refinancing

Prepayment Penalties

Late Payment Penalties

Mortgage Insurance

Reverse Mortgages

Cancellation of Mortgage Debt

Penalty-Free IRA Withdrawals for Home-Buying Expenses

Real Estate Taxes

Cooperative Housing

Minister's Housing Allowance

Home Sale Exclusion

Moving Expenses

Energy Improvements

ABLE Accounts

Chapter 5: Retirement Savings

Traditional IRAs

Roth IRAs

IRA Rollovers

MyRAs

401(k) and Similar Plans

Self-Employed Retirement Plans

SEPs

SIMPLEs

Retirement Saver's Credit

Custodial/Trustee Fees

Employer-Paid Retirement Planning Advice

Charitable Transfers of IRA Distributions

Loans from Retirement Plans

Chapter 6: Charitable Giving

Cash Donations

Appreciated Property Donations

Used Clothing and Car Donations

Intellectual Property Donations

Real Estate Donated for Conservation Purposes

Bargain Sales

Volunteer Expenses

Tickets to Fund-Raisers, Raffles, and Sporting Events

Membership Fees to Nonprofit Organizations

Student Exchange Program

Donor-Advised Funds

Appraisal Fees and Other Costs

IRA Transfers to Charity

Record Keeper for Your Charitable Giving

Chapter 7: Your Car

Business Use of Your Personal Car

Employer-Provided Car

Vehicle Registration Fees

Car Accidents and Other Car-Related Problems

Donating Your Car

Credit for Electric Drive Vehicles

Chapter 8: Investing

Penalty on Early Withdrawal of Savings

Loss on Bank Deposits

Capital Losses

Capital Gains and Qualified Dividends

Worthless Securities

Loss on Section 1244 Stock

Margin Interest and Other Investment-Related Borrowing

Safe-Deposit Box Rental Fee

Subscriptions to Investment Newsletters, Online Services, and Apps

Computers and Tablets Used for Investments

Fees for Financial Advice

Amortization of Bond Premium

Municipal Bonds

Savings Bonds

Gain on the Sale of Small Business Stock

Gain on Empowerment Zone Assets

Foreign Taxes on Investments

Exercise of Incentive Stock Options

Losses from Investment Ponzi Schemes

Chapter 9: Travel

Business Travel

Temporary Work Assignments

Conventions

Medical Travel

Charitable Travel

Moving for Work

Educational Travel

National Guard and Military Reservist Travel

Frequent Flier Miles

Recordkeeping for Travel Expenses

Chapter 10: Entertainment

Meals and Entertainment

Company Holiday Parties and Picnics

Sporting and Theater Events

Home Entertainment

Entertainment Facilities and Club Dues

Recordkeeping for Meals and Entertainment Expenses

Gambling Losses

Chapter 11: Real Estate

Vacation Home

Home Office

Timeshares

Rentals

Low-Income Housing Credit

Rehabilitation Credit

Deduction for Energy-Efficient Commercial Buildings

Leasehold, Restaurant, and Retail Improvements

Conservation Easements

Special Breaks for Certain Disaster Victims

Chapter 12: Borrowing and Interest

Home Mortgage Interest

Student Loan Interest

Borrowing from Retirement Plans

Investment-Related Interest

Business Interest

Accrued Interest on Bond Purchases

Below-Market Loans

Bad Debts

Debt Forgiveness

Chapter 13: Insurance and Catastrophes

Casualty and Theft Losses

Disaster Losses

Disaster Relief Payments

Damages

Disability Coverage

Accelerated Death Benefits

Legal Fees

Appraisal Fees

Damage from Corrosive Drywall

Identity Theft

Identity Theft and Tax Relief

Chapter 14: Your Job

Job-Hunting Expenses

Dues to Unions and Professional Associations

Work Clothes and Uniforms

Subscriptions to Professional Journals, Newsletters, and Podcasts

Chapter 15: Your Business

Start-Up Costs

Equipment Purchases

Payment for Services

Supplies

Gifts

Hobby Losses

Self-Employment Tax Deduction

Home Office Deduction

Farming-Related Breaks

Domestic Production Activities Deduction

Other Business Deductions

Business Credits

Net Operating Losses

Chapter 16: Miscellaneous Items

State and Local Income Taxes

State and Local Sales Taxes

Certain Federal Taxes

Tax Refunds

Tax Preparation Costs

Tax Audits

Legal Fees

Gifts You Receive

Inheritances

Life Insurance Proceeds

Estate Tax Deduction on Income in Respect of a Decedent

Rebates and Discounts

Government Benefits

Alternative Minimum Tax

Appendix A: Items Adjusted Annually for Inflation

Appendix B: Checklist of Tax-Free Items

Appendix C: Checklist of Nondeductible Items

Nondeductible Items

Index

EULA

List of Tables

Introduction

Table I.1

Table I.2

Table I.3

Chapter 1

Table 1.1

Table 1.2

Table 1.3

Table 1.4

Table 1.5

Table 1.6

Table 1.7

Table 1.8

Table 1.9

Chapter 2

Table 2.1

Table 2.2

Table 2.3

Table 2.4

Table 2.5

Chapter 3

Table 3.1

Table 3.2

Table 3.3

Table 3.4

Table 3.5

Table 3.6

Chapter 5

Table 5.1

Worksheet 5.1

Worksheet 5.2

Table 5.2

Chapter 6

Table 6.1

Table 6.2

Chapter 7

Table 7.1

Table 7.2

Table 7.3

Chapter 8

Table 8.1

Table 8.2

Chapter 9

Table 9.1

Table 9.2

Chapter 10

Table 10.1

Table 10.2

Chapter 11

Table 11.1

Table 11.2

Chapter 14

Table 14.1

Table 14.2

Chapter 15

Table 15.1

Chapter 16

Worksheet 16.1

Table 16.1

Table 16.2

Guide

Cover

Table of Contents

Introduction

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Introduction

Say the word “taxes” and most people groan. There are good reasons for this response: First of all, the cost of paying your taxes annually can be a financial burden. You may feel taken to the cleaners every time you view your paycheck after withholding for federal income taxes (not to mention state income taxes as well as Social Security and Medicare taxes). And taxes are time consuming—costing individuals 6 billion hours annually to file their returns.

Second, you may not even have to deal personally with taxes, other than paying them. The IRS says that about 60% of taxpayers use paid preparers for their returns.

Third, the tax law is very complicated and changing all the time. According to the Tax Foundation, the Internal Revenue Code (Tax Code) had 7.7 million words. There were only 11,400 words in the Tax Code in 1914, one year after the constitutional amendment authorizing the levy of an income tax. Between 2001 and 2012, there were 4,600 changes (which works out to more than one a day). Today the Tax Code is twice as long as it was in 1985. There have been major changes in the tax law nearly every year over the past 50 years—and this year is no exception! In addition, new court decisions and IRS rulings appear each day, providing guidance on how to interpret the law.

Fourth, you have to know what the tax rules are and can't claim ignorance to avoid taxes and penalties. Even if you use a tax professional or tax preparation software to prepare your return, you remain responsible for your taxes. The Tax Court has noted that using software is not an automatic excuse to avoid underpayment penalties.

How can you combat the feeling of dread when it comes to taxes? It helps to know that the tax law is peppered with many, many tax breaks to which you may be entitled. These breaks allow you to not report certain economic benefits you enjoy or to subtract certain expenses from your income or even directly from your tax bill. As the famous jurist Judge Learned Hand once stated (in the 1934 case of Helvering v. Gregory in the Court of Appeals for the Second Circuit):

Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike, and all do right, for nobody owes any public duty to pay more than the law demands.

So get your tax affairs in order and reduce what you pay each year to Uncle Sam!

In getting a handle on how to do this by taking advantage of every tax break you may be entitled to without running afoul of the Internal Revenue Service (IRS), there are some simple rules to keep in mind. They include:

You must report all of your income unless a specific law allows you to exclude or exempt it (so that it is never taxed) or defer it (so that it is taxed at a later time).

You can claim deductions only when and to the extent the law allows. Deductions are referred to as a “matter of legislative grace;” Congress doesn't have to create them and does so only for some purpose (for example, to encourage economic activity or to balance some perceived inequity in the tax law).

Tax credits are worth more than tax deductions. A credit reduces your tax payment on a dollar-for-dollar basis; a $1,000 credit saves you $1,000 in taxes. A deduction is worth only as much as the top tax bracket you are in. Suppose you are in the 28% tax bracket, which means this is the highest rate you pay on at least some of your income. If you have a $1,000 deduction, it is worth $280 (28% of $1,000) because it saves you $280 in taxes you would otherwise have to pay.

Even if your income is modest, you may have to file Form 1040 (the so-called long form), rather than a simplified return (Form 1040A or 1040EZ), in order to claim certain tax benefits.

In a number of cases, different deduction rules apply to the alternative minimum tax (AMT), a shadow tax system that ensures you pay at least some tax if your regular income tax is lower than it would have been without certain deductions.

Whether you prepare your return by hand (as 3% of filers do), use computer software or an online solution (37%), or rely on a professional (60%), this book is designed to tell you how to get every tax edge you're entitled to. Knowing what to look out for will help you plan ahead and organize your activities in such a way that you'll share less of your hard-earned money with Uncle Sam.

Tax-Favored Items

There are 5 types of tax-advantaged items receiving preferential or favorable treatment under the tax law:

Tax-free income---income you can receive without any current or future tax concerns. Tax-free income may be in the form of exclusions or exemptions from tax. In many cases, tax-free items do not even have to be reported in any way on your return.

Capital gains---profits on the sale or exchange of property held for more than one year (long-term). Long-term capital gains are subject to lower tax rates than the rates on other income, such as salary and interest income, and may even be tax free in some cases. Ordinary dividends on stocks and capital gain distributions from stock mutual funds are taxed at the same low rates as long-term capital gains.

Tax-deferred income---income that isn't currently taxed. Since the income builds up without any reduction for current tax, you may accumulate more over time. However, at some point the income becomes taxable.

Deductions---items you can subtract from your income to reduce the amount of income subject to tax. There are 2 classes of deductions: those “above the line,” which are subtracted directly from gross income, and those “below the line,” which can be claimed only if you itemize deductions instead of claiming the standard deduction (explained later).

Credits---items you can use to offset your tax on a dollar-for-dollar basis. There are 2 types of tax credits: one that can be used only to offset tax liability (called a “nonrefundable” credit) and one that can be claimed even if it exceeds tax liability and you receive a refund (called a “refundable” credit). Usually you must complete a special tax form for each credit you claim.

This book focuses on different types of tax-favored items: exclusions (tax-free income), above-the-line deductions that don't require itemizing, itemized deductions, tax credits, and other benefits, such as subtractions that reduce income. At the end of this Introduction you'll see symbols used to easily identify the type of benefit being explained.

Limits on Qualifying for Tax-Favored Items

In many cases, eligibility for a tax benefit, or the extent to which it can be claimed, depends on adjusted gross income (AGI) or modified adjusted gross income (MAGI).

Adjusted gross income is gross income (all the income you are required to report) minus certain deductions (called “adjustments to gross income”). Adjustments or subtractions you can make to your gross income to arrive at your adjusted gross income are limited to the following items:

Alimony payments

Archer Medical Savings Accounts (MSAs) (for accounts set up prior to 2008)

Business expenses

Capital loss deductions of up to $3,000

Domestic production activities deduction

Educator expenses up to $250

Employer-equivalent portion of self-employment tax

Forfeiture-of-interest penalties because of early withdrawals from certificates of deposit (CDs)

Health Savings Account (HSA) contributions

Individual Retirement Account (IRA) deductions

Jury duty pay turned over to your employer

Legal fees for unlawful discrimination claims

Moving expenses

Net operating losses (NOLs)

Performing artist's qualifying expenses

Qualified retirement plan contributions for self-employed individuals

Rent and royalty expenses

Repayment of supplemental unemployment benefits required because of the receipt of trade readjustment allowances

Self-employed health insurance deduction

Simplified employee pension (SEP) or savings incentive match plan for employees (SIMPLE) contributions for self-employed individuals

Student loan interest deduction up to $2,500

Travel expenses to attend National Guard or military reserve meetings more than 100 miles from home

Tuition and fees deduction up to $4,000

Figuring AGI may sound complicated, but in reality it's merely a number taken from a line on your tax return. For example, AGI is the figure you enter on line 37 of the 2016 Form 1040, line 21 of the 2016 Form 1040A, or line 4 of 2016 Form 1040EZ.

Modified adjusted gross income is merely AGI increased by certain items that are excludable from income and/or certain adjustments to gross income. Which items are added back varies for different tax breaks. For example, the MAGI limit on eligibility to claim the student loan interest deduction is AGI (disregarding the student loan interest deduction) increased by the tuition and fees deduction as well as the exclusion for foreign earned income and certain other foreign income or expenses. All of these items are explained in this book.

Household income is a term in tax law used to determine eligibility for the premium tax credit under the Affordable Care Act, as well as whether a penalty applies to individuals who don't have minimum essential health coverage for 2016 and are not exempt from this requirement. Household income is explained further in this book in connection with these tax rules.

Standard Deduction versus Itemized Deductions

Every taxpayer, other than someone who can be claimed as a dependent on another taxpayer's return, is entitled to a standard deduction. This is a subtraction from your income, and the amount you claim is based on your filing status. Table I.1 shows the standard deduction amounts for 2016. In 2014, 69.3% of all filers used the standard deduction.

Table I.1 Standard Deduction Amounts for 2016

Filing Status

Standard Deduction

Married filing jointly

$12,600 

Head of household

9,300 

Single (unmarried)

6,300 

Qualifying widow(er) (surviving spouse)

12,600 

Married filing separately

6,300 

In addition to the basic standard deduction, certain taxpayers can increase these amounts. An additional standard deduction amount applies to those age 65 and older and for blindness. For 2016, the additional amount is $1,550 for individuals who are not married and are not a surviving spouse and $1,250 for those who are married or a surviving spouse.

Example

In 2016, you are single, age 68, and not blind (and do not own a house and did not buy a car this year). Your standard deduction is $7,850 ($6,300 + $1,550).

Instead of claiming the standard deduction, you can opt to list certain deductions separately (i.e., itemize them). Itemized deductions include:

Medical expenses

Taxes

Interest payments

Gifts to charity

Casualty and theft losses

Unreimbursed employee business expenses

Investment expenses

Legal fees to earn income

Gambling losses

Estate tax payments on income in respect of decedents

You cannot claim any additional standard deduction that applies to those 65 or older and/or blind if you choose to itemize deductions in lieu of claiming the basic standard deduction amount.

Generally, claim the standard deduction when it is greater than the total of your itemized deductions. However, it may save overall taxes to itemize, even when total deductions are less than the standard deduction, if you are subject to the alternative minimum tax (AMT). The reason: The standard deduction cannot be used to reduce income subject to the AMT, but certain itemized deductions can.

If a married couple files separate returns and one spouse itemizes deduction, the other must also itemize and cannot claim a standard deduction.

Overall Limit on Itemized Deductions

High-income taxpayers have an overall limit on the total amount of itemized deductions they can claim. Itemized deductions are reduced by the lesser of 3% of the amount that adjusted gross income (AGI) exceeds the applicable threshold amount (see Table I.2) or 80% of itemized deductions subject to the phaseout. Thus you cannot lose more than 80% of itemized deductions subject to the phaseout.

Table I.2 2016 Thresholds for the Itemized Deduction Phaseout

Filing Status

MAGI Start of Phaseout

Married filing jointly

$311,300 

Head of household

285,350 

Single (unmarried)

259,400 

Qualifying widow(er) (surviving spouse)

311,300 

Married filing separately

155,650 

Itemized deductions subject to the phaseout include taxes, interest (other than investment interest), charitable contributions, and miscellaneous itemized deductions not subject to the 2%-of-adjusted-gross-income limit (other than gambling losses). Itemized deductions not subject to the phaseout are medical expenses, investment interest, casualty and theft losses, and gambling losses. These itemized deductions are already subject to special limitations.

Impact of Deductions on Your Chances of Being Audited

Did you know that the IRS collects statistics from taxpayers to create profiles of average deductions? If you claim more than the average for your income range, the computer may select your return for further examination.

Table I.3 shows the average itemized deductions for taxpayers in various adjusted gross income ranges.

Table I.3 Average Itemized Deductions for 2014*

AGI

Medical

Taxes

Interest

Donations

Under $15,000

$8,787 

$3,566 

$7,129 

$1,427 

$15,000 ≤ 30,000

8,477 

3,376 

6,619 

2,339 

$30,000 ≤ 50,000

8,209 

4,098 

6,511 

2,594 

$50,000 ≤ 100,000

9,614 

6,679 

7,553 

3,147 

$100,000 ≤ 200,000

11,123 

10,983 

9,147 

4,130 

$200,000 ≤ 250,000

18,092 

17,763 

11,698 

5,786 

$250,000 and over

38,992 

50,679 

16,982 

21,596 

*The latest year for which statistics are available.

Tax experts agree that you should claim every deduction you are entitled to, even if your write-offs exceed these statistical ranges. Just make sure to have the necessary proof of your eligibility and other records you are required to keep in case your return is examined.

How to Use This Book

The chapters in this book are organized by subject matter so you can browse through them to find the subjects that apply to you or those in which you have an interest.

Each tax benefit is denoted by an icon to help you spot the type of benefit involved:

Exclusion

Above-the-line deduction

Itemized deduction (a deduction taken

after

figuring adjusted grossincome)

Credit

Other benefit (e.g., a subtraction other than an above-the-line or itemized deduction that reduces income)

For each tax benefit you will find an explanation of what it is, starting with the maximum benefit or benefits you can claim if you meet all eligibility requirements. You'll learn the conditions or eligibility requirements for claiming or qualifying for the benefit. You'll find both planning tips to help you make the most of the benefit opportunity as well as pitfalls to help you avoid problems that can prevent your eligibility. You'll see where to claim the benefit (if reporting is required) on your tax return and what records you must retain to support your tax position.

You'll find hundreds of examples to show you how other taxpayers have successfully taken advantage of the benefit. Over the years, taxpayers have been able to write off literally thousands of items; not every one is listed here because space does not allow it. And you'll learn what isn't allowed even though you might otherwise think so. There are references to free IRS publications on a variety of tax topics that you can download from the IRS web site (www.irs.gov) or obtain free of charge by calling 800-829-1040. Also included are titles of other J.K. Lasser books on various topics throughout this book.

In the appendices, you'll find a listing of items that can be adjusted each year to reflect cost-of-living changes so you can plan ahead, as well as a checklist of items that are tax free, and a checklist of items that are not deductible.

Throughout the book you will find alerts to possible changes to come. For a free update on tax developments, look for the Supplement to this book in February 2017, by going to www.jklasser.com, as well as to my website, www.barbaraweltman.com.