DARRIN T. MISH: Good morning! I am Darrin T. Mish, the IRS Solution attorney. Welcome.
KATRINA MADEWELL: Welcome, I’m your cohost, Katrina Madewell. Darrin is in a super spunky mood today. Did you notice that, Pat?
PAT GEORGE: I did. He was in court last week; it must have been good news.
DARRIN T. MISH: I’m caffeinated. That’s because today’s show is all about the 50 tax write-offs that you don’t know about. Since we have about 40 minutes of actual talk time after we get through this, the train commercials, and the train wreck…
KATRINA MADEWELL: Did you say train commercials? I think you did!
DARRIN T. MISH: Train commercials? Really?
KATRINA MADEWELL: I trip over my words all the time, and you laugh at me, so now it’s my turn.
DARRIN T. MISH: It’s because my brain is running so fast, my mouth can’t catch up.
KATRINA MADEWELL: I like you on caffeine. What did you have?
DARRIN T. MISH: Like 14 diet Cokes. No, I’m just going. We have 50 tax write-offs that you don’t know about, and we have 40 minutes to go through them.
KATRINA MADEWELL: If we talk too fast, we’ll repeat, and we are streaming live on Facebook so that you can watch it again.
DARRIN T. MISH: I think the better solution is to go to the website at getirshelp.com and find the transcript of this show in a day or two and the video because we’re going to go fast.
KATRINA MADEWELL: And you can go to getirshelp.com if you have an IRS problem or you want to talk to Darrin.
DARRIN T. MISH: In the interest of full disclosure, when I was doing the research for this show, I found a website called gobankingrates.com.
KATRINA MADEWELL: That is such an attorney thing to say, “In the interest of full disclosure.” Well, of course, you do research for every show. Pat, is there any show you produce that does not do research from somewhere else, even if they’re scooping other media for the show?
PAT GEORGE: Well, they get close.
KATRINA MADEWELL: Media has scooped my show, so I know they do.
PAT GEORGE: There’s a Morgan Streetman show with three hours of material and then gets frustrated because he can’t get it all in. You guys are a very fast hour also.
KATRINA MADEWELL: Today is going to be fast.
DARRIN T. MISH: The reason I brought it up is that you can go to the website at gobankingrates.com and find the post that’s the basis of this show and there will be more information there. If there’s something, you’re interested in.
KATRINA MADEWELL: I don’t know what prompted it, but it’s good information. I think anybody listening today would enjoy knowing 50 tax write-offs that you don’t know about. If there are any CPA’s listening today, we’re going to encourage you to call in and maybe hold on. If you can chime in on some of these, we’d love to have your input. It’s 888-404-1010. If you’re a CPA and you want to give your professional information and opinion, 888-404-1010.
DARRIN T. MISH: We have to go through 50 tax write-offs in 40 minutes, and she’s inviting callers to tell us what they think.
KATRINA MADEWELL: I have to keep you on your toes.
Tax write-offs #1:
MEDICAL AND DENTAL EXPENSES
DARRIN T. MISH: The first one is medical and dental expenses. Many people don’t know this, but mental and dental expenses can be deducted for you, your spouse, and your dependents. The catch is, it must exceed 10% of your adjusted gross income. So, if you’re middle to high income, it’s probably not going to be a good deduction. If you’re lower income and have high medical expenses, it could be good for you.
KATRINA MADEWELL: Number two is, tax preparation fees. Most people probably know this one.
DARRIN T. MISH: I don’t know that people know this one.
KATRINA MADEWELL: Really? It’s a professional service.
DARRIN T. MISH: If you paid a preparer to prepare your taxes, you get to write that off on the following year’s return.
KATRINA MADEWELL: What about your W-2 people that don’t have a lot of tax write-offs and they’re taking a standard deduction, does it apply?
DARRIN T. MISH: No, it doesn’t apply. A lot of these won’t apply. If you’re filing a 1040 EZ and you get a W-2, and you get a big refund, and you don’t itemize. Probably most of these will not apply to you.
HOME RENOVATION DEDUCTIONS
KATRINA MADEWELL: The third one on our list is home renovation deductions.
DARRIN T. MISH: Now, it’s not as good as it sounds.
KATRINA MADEWELL: Sure, it is.
DARRIN T. MISH: Well, it’s good, but it’s not as good as it sounds. It sounds like, “Oh, I’m going to renovate my home and deduct the cost.” No, only if you’re renovating the home for medical purposes. Like adding an entrance and exit for wheelchair ramps; lowering cabinets for better accessibility; maybe redoing the bathroom for wheelchair modifications. Those renovations would be deductible.
KATRINA MADEWELL: There are some, for example, there are rebates for solar, which is a whole other topic for another day.
DARRIN T. MISH: I need to look into that because I want to do that.
JOB SEARCH EXPENSES
KATRINA MADEWELL: This one floors me, Job Search Expenses?
DARRIN T. MISH: If you itemize, you can deduct expenses you incurred during a job search. You have to have searched in the same line of work as your current or most recent jobs. Different kinds of expenses you can deduct include transportation. So, if you’re driving to job interviews and things like that. Preparing, printing, mailing out your resume. Other fees related to job searches may be…I don’t know if there are paid job boards.
KATRINA MADEWELL: It’s so nice that they will let use your expenses for income you don’t have as tax write-offs.
DARRIN T. MISH: It makes sense because if small business owners can deduct ordinary and necessary business expenses in their business, isn’t a job search sort of analogist to that? The bottom line is it’s necessary to produce income. To get a job, you have to look for a job. If it costs you money, then you should be able to deduct that.
KATRINA MADEWELL: That makes sense. This next one is a bit baffling, but Hobby Expenses. How in the heck can you use hobby expenses as tax write-offs?
DARRIN T. MISH: This is a weird one. I’m going to give you the best example I can think of. In the horse business, you have a lot of people that live on farms and have a couple of horses. What they do is they try to create a business, maybe they do a little training or boarding or something like that. So, they create a business. Horses are expensive. I was offered an opportunity to have a free horse yesterday, and I was like only if my wife must have one.
KATRINA MADEWELL: Happy wife, happy life.
DARRIN T. MISH: Horses are extremely expensive so what people do is they incur losses because horses are expensive to keep and then they want to write the losses off. The IRS is not going to be down with that. Although I have won this issue before. In the hobby loss rule…your hobby expenses can be written off, but only to the extent, they don’t create losses. That’s the bottom line. You also must write-off any hobby income as well.
KATRINA MADEWELL: They’re letting you write stuff off if you have income.
DARRIN T. MISH: Exactly.
KATRINA MADEWELL: Like if you were trading car parts or something?
DARRIN T. MISH: Trading car parts is probably more not a hobby. Gun collecting, for example, would be a hobby.
KATRINA MADEWELL: Gunsmith?
DARRIN T. MISH: Probably not a gunsmith. The best example is the horse thing because people have a couple of horses and realize how expensive they are.
KATRINA MADEWELL: We live in a neighborhood in a subdivision with an HOA that does not allow any horses so that we wouldn’t know about that.
DARRIN T. MISH: One of my good friends and clients just popped in on Facebook live, and he indicated that even peer to peer membership expenses like for LinkedIn. Those would be deductible as well. If you’re on LinkedIn and you’re trying to find a job, those fees would be deductible.
STATE AND LOCAL SALES TAXES
KATRINA MADEWELL: The next one on the list is state and local sales taxes.
DARRIN T. MISH: Don’t forget that state and local income taxes can be deducted on your tax returns. Florida’s a unique situation; we don’t have an income tax here. Typically, what you see is we write-off our sales tax. It’s just a formula based on how much income you have. They say if you have this much income, you’ll likely have paid this much sales tax. It goes onto schedule A and helps you itemize your deductions.
In other states where you have income taxes, those income taxes are offset too. It kind of makes sense. If you’re living in Massachusetts and you’re paying $8,000 a year in state income tax, shouldn’t that be with pre-tax money? You shouldn’t have to pay that state tax after you’ve already paid the Federal tax. That’s the concept of why they’re deductible.
STATE AND LOCAL FOREIGN TAXES
KATRINA MADEWELL: We won’t even get on the topic of double taxation because that exists in some areas. State and local foreign taxes are the next on the list.
DARRIN T. MISH: Different taxes like personal property taxes, some states have personal property taxes. I think Florida has an intangible tax.
KATRINA MADEWELL: We do .002%.
DARRIN T. MISH: I don’t deal with ever.
KATRINA MADEWELL: I would know. We have an intangible tax and state tax on the mortgage.
DARRIN T. MISH: Foreign local and state real estate taxes…your state real estate taxes on your primary residence are going on your schedule A. Don’t forget your rentals.
KATRINA MADEWELL: It’s interesting it says you can write-off foreign taxes as well? Foreign property taxes on income taxes?
DARRIN T. MISH: Sure, if you owned a house in the Bahamas or a rental in the Bahamas and you have to pay tax in the United States on that foreign rental income. You write those off. Don’t forget if you’re a U.S. citizen; you have to pay taxes on your rental income. If you’re living in Saudi Arabia and you’re paying taxes over there, you get to write-off the first 100K or so of your foreign income. Any taxes you pay, you get to write those off as well.
STATE BALANCE DUE
KATRINA MADEWELL: Then state balance due? What is that?
DARRIN T. MISH: If you owed additional taxes on a prior year state tax return and you paid them in the current year, you might be able to deduct those taxes this year.
KATRINA MADEWELL: Ok, makes sense. If you’re just tuning into the show, this is the IRS Solution Attorney Show, I’m your co-host Katrina Madewell, and that’s Mr. Darrin Mish. Today’s show is all about 50 tax write-offs you don’t know you can take. We’re going to keep going with this conversation when we come back after the break. If you have a question, we’ll do our best to answer it today. We have 50 of these things we need to cover. It’s 888-404-1010, we’ll be back in a minute. Thanks for the Facebook love!
KATRINA MADEWELL: That’s par for the course.
DARRIN T. MISH: That’s Pat’s opinion of what we need to be doing to get through these 50 tax write-offs that you didn’t know about. We went through eight in the first segment, so that’s good. We don’t have time to recap them, so if you missed that part of the show or you’re interested, you can visit the website at getirshelp.com, or you can visit the podcast or app at the IRS Solution Attorney.
JURY DUTY PAY
KATRINA MADEWELL: Catch the whole show in its entirety. The next one on the list is jury duty pay.
DARRIN T. MISH: It’s not as good as it sounds. Typically, when you go through jury duty, you can get paid somewhere between 10-20 dollars a day.
KATRINA MADEWELL: What are you going to do with that? I don’t even know if that’s enough to take an Uber.
DARRIN T. MISH: What you can do is if you gave your jury pay to your employer because he continued to pay your salary while you served on a jury, then you can deduct your jury pay from your taxable income. That’s a cheater one because unless you’re in a long trial, I don’t think your jury pay is going to amount to much.
KATRINA MADEWELL: Does jury duty pay change if you’re in a long trial?
DARRIN T. MISH: I don’t think so. I think it’s set by state law per day and it’s not a whole lot.
KATRINA MADEWELL: They must have set it during the early 1900’s.
DARRIN T. MISH: Incidentally, I’ve been selected for jury duty three times since I’ve been an attorney.
KATRINA MADEWELL: Did you serve?
DARRIN T. MISH: I served on the grand jury in Pasco County for an entire term of six months. When they called me for selection, I was like there’s no way. I used to be a criminal defense attorney. The state attorney for the circuit was there during, and he asked me a couple of questions, and he didn’t say this, but he was like “ok, that guy will do.”
KATRINA MADEWELL: What do they ask you?
DARRIN T. MISH: Where I worked and who I worked for and if I thought I could be fair.
KATRINA MADEWELL: Usually they’ll ask if you have someone in your family in law enforcement, you’re out.
DARRIN T. MISH: But I’m not in law enforcement.
KATRINA MADEWELL: But I have law enforcement in my family.
DARRIN T. MISH: I think he picked me because, on the grand jury in Florida, we only hear cases that are potentially capital matter, like death penalty, murder type cases. He knew I would understand the burden of proof at the grand jury level was extremely low. Most people don’t get it. They want to prove the case in the indictment. That’s not what you do. You just have to show probable cause.
KATRINA MADEWELL: They probably want you to leave the jury.
DARRIN T. MISH: It was a vice four person, so it worked out. The greatest thing was, during my entire six-month term, there were only two cases. It felt good living in a fairly safe place, as opposed to some of the more urban counties in the area.
PENALTY FOR EARLY WITHDRAWAL OF SAVINGS
KATRINA MADEWELL: It’s full all the time. Moving right along, the penalty for early withdrawal on savings is tax deductible.
DARRIN T. MISH: If you withdraw your money early from a certificate of deposit or IRA or similar account or investment, then the penalty you pay could qualify as a tax deduction, even if you don’t itemize on your 1040. You’re going to have to check that out, though.
VOLUNTEER FOR WORK DONATIONS
DARRIN T. MISH: This is pretty much a mileage thing. If you volunteer for a charity, then you can deduct the cost of gas and oil for example. If you don’t want to do actual expenses, then you get a whopping 14 cents a mile. Hey, it’s better than nothing.
BAD DEBT DEDUCTION
KATRINA MADEWELL: Bad debt deduction, that’s a good one, isn’t it?
DARRIN T. MISH: Well, it’s not as good as you might think. If you loaned money you never got back, it’s considered a bad debt, which might make you eligible for a tax repay. But, to deduct a bad debt, you have to have previously included the amount in your income or loaned it as cash. Here’s what it means.
KATRINA MADEWELL: That’s the little hook.
DARRIN T. MISH: Most taxpayers are on what is called a cash basis, which means when you receive the money, you put it on the books. If you’re an accrual basis taxpayer, then you put the money on the books when you send the invoice.
KATRINA MADEWELL: So, anticipated income.
DARRIN T. MISH: You put it on the books when you invoice it, not when you get the money. So naturally, if you have an invoice that wasn’t paid, you can deduct that. It’s not applicable to most people; I don’t think.
KATRINA MADEWELL: Next one is Moving Expenses
DARRIN T. MISH: If you meet the IRS distance and time test after you relocate for a new job, you can take a moving expense deduction. The qualified expenses include the cost of moving your belongings, traveling to your new home. The standard rate is 19 cents a mile. You can also deduct the cost of lodging, but not meals, for yourself and other household members. I’ve seen a lot of people qualify for this.
KATRINA MADEWELL: What’s the distance and time test?
DARRIN T. MISH: It must be more than 50 miles I think. I don’t remember the time test, but it’s basically you can’t move and then move three months later. There must be a certain amount of time on the job. I had a buddy who was vice president for Office Depot, and he moved from Virginia to California and obviously had a big moving deduction. He was in the same field.
MORTGAGE INSURANCE PREMIUM DEDUCTIONS
KATRINA MADEWELL: The next one is mortgage insurance premium deductions.
DARRIN T. MISH: If you obtained a mortgage insurance policy in 2007 or later, you might qualify for a deduction on the amount you paid towards the premiums as part of the protecting Americans from tax hikes Act. This will remain in the code through the end of 2016, but not 2017.
KATRINA MADEWELL: To be clear, this is not your homeowner’s insurance. This is your lender loss insurance.
DARRIN T. MISH: It’s PMI, right?
KATRINA MADEWELL: Or MIP, they’re the same. One is for the government loan, and one is for a conventional loan.
DARRIN T. MISH: It’s if you’re getting a VA loan…
KATRINA MADEWELL: No, VA has no MIP because it’s guaranteed by the Veteran’s Affairs.
DARRIN T. MISH: FHA does?
KATRINA MADEWELL: FHA does, conventional does if it has less than 20%, they all have MIP or PMI. MIP is for the government, PMI is for conventional.
DARRIN T. MISH: Of course, we need more acronyms in our life.
KATRINA MADEWELL: It’s the same thing, though. It’s interest against the lender’s default. You pay insurance if you default, that’s what it is.
MORTAGE INTEREST DEDUCTION
KATRINA MADEWELL: Mortgage interest deduction. One of my favorites. I know that National Association of Realtors, NAR, work very hard to make sure this stays on the table for homeowners to deduct.
DARRIN T. MISH: This would be a travesty if it came out of the code.
KATRINA MADEWELL: They’ve been trying for a long time.
DARRIN T. MISH: It would kill the economy. One of the big incentives for buying an expensive house is the mortgage interest deduction.
KATRINA MADEWELL: Or getting the loan. Some people like to pay cash.
DARRIN T. MISH: Most taxpayers who itemize are eligible to deduct the interest you paid on mortgages. You can deduct the interest you paid on loans of up to a million dollars or less. If you’re married and filing separately, you can deduct interest on loans up to a half million.
KATRINA MADEWELL: It’s a big one. I think if they ever try to get rid of this, it will repeal quickly.
DARRIN T. MISH: I don’t think either party is that interested in…
KATRINA MADEWELL: No, because everybody has a home that they want that deduction.
DARRIN T. MISH: Housing is a vital part of the economy. When the housing is down, the economy is down. Period. End of story.
KATRINA MADEWELL: Look what happened back in the hay day. It was almost a global economic collapse because the housing market in the United States collapsed.
KATRINA MADEWELL: Mortgage points. To be clear, this is discount points, not origination.
DARRIN T. MISH: What it says is if you itemize, you can deduct the points of prepaid interest you paid to purchase or build your primary home. If you can deduct all the interest you paid on your mortgage you can also deduct all the points. This one applies to me. I bought a house this year, and there’s some points or something on there. I know there was a bunch of stuff that I’m going to get to deduct. I’m happy about that.
KATRINA MADEWELL: Also, your appraisal fees. This one is a little bit of a surprise. Appraisal fees?
DARRIN T. MISH: You can’t deduct appraisal fees if they went towards the purchase of a home. You can deduct them as a miscellaneous deduction if the property was donated, but only if the fees totaled more than 2% of your adjusted gross income.
KATRINA MADEWELL: I’m sure that happens regularly.
DARRIN T. MISH: Yeah, this one is maybe…probably not.
KATRINA MADEWELL: The next one is your home sale.
DARRIN T. MISH: I wish this were even better, but it’s a pretty good break. If you sold your home at a profit, you could exclude up to $250,000, or $500,000 for a married couple filing jointly, of the gains from your income.
KATRINA MADEWELL: This is good. This captures most people. Even if you’re above that $500,000 threshold, you still get that grace up to that period.
DARRIN T. MISH: It captures most people in Florida. It captures most people in the lower housing cost areas in the country. It doesn’t cover most people like in California and New York. It needs to be increased. I wish they would just do away with capital gains for the sale of primary residence. It would make the economy absolutely boom.
KATRINA MADEWELL: No way, we must disagree on this one.
DARRIN T. MISH: Why do you think that?
KATRINA MADEWELL: Because capital gains taxes, you can avoid paying taxes on your home. That’s an incentive. There are people that we have that are clients that move every two years.
DARRIN T. MISH: If you did away with the tax on the capital gains…
KATRINA MADEWELL: Oh, the tax period. I thought you meant the deduction.
DARRIN T. MISH: If you did away with the tax on those gains, what you would have is more activity.
KATRINA MADEWELL: Yes, sorry.
DARRIN T. MISH: It would cause more speculation too.
KATRINA MADEWELL: There would be more investment property and that kind of stuff. I misunderstood. I thought you were saying get rid of the deduction.
DARRIN T. MISH: I’ve made that comment on the air before, and you had a similarly violent reaction. I was thinking I don’t even understand where she’s coming from.
KATRINA MADEWELL: Because of that, along with the mortgage interest deduction is one that gets attacked a lot.
SELF-EMPLOYED HEALTH INSURANCE
KATRINA MADEWELL: Self-employed health insurance.
DARRIN T. MISH: Health insurance is tax deductible for self-employed taxpayers. It’s one of the breaks you do get if you’re self-employed. If you’re self-employed in 2016, you can deduct premiums you paid on medical and dental insurance. As well as for long-term care insurance. It’s a little break. If you paid for health insurance yourself, you’re going to get a deduction for that.
FEES TO COLLECT INTEREST AND DIVIDENDS
KATRINA MADEWELL: Couple more, really quick. Fees to collect interest and dividends.
DARRIN T. MISH: Any fees you pay to a broker, bank, trustee, that kind of thing on taxable bond interest or dividends, then those are deductible. Investment fees and expenses, same sort of idea. If you had investment fees that were required to earn the income from the investments, then they’re going to be deductible.
KATRINA MADEWELL: If you’re just tuning in, this is the IRS Solution Attorney show. Today’s topic is 50 tax write-offs that you didn’t know about. Which is why we’re going in super speed mode. We’ll continue when we come back.
DARRIN T. MISH: Welcome back to the IRS Solution Attorney show. I am the IRS Solution Attorney, Darrin T. Mish.
KATRINA MADEWELL: I’m your cohost, Katrina Madewell. Today’s show is all about 50 tax write-offs that you don’t know about. Some you maybe shouldn’t be taking.
DARRIN T. MISH: I don’t know what number we’re on, but we’re moving along. The next one is IRA losses. You can claim losses on traditional and Roth IRA’s as a miscellaneous itemized deduction, but only in rare cases. I’m going to leave it at that. Look it up. Just be aware it exists and look it up.
REPAYMENT OF INCOME
KATRINA MADEWELL: Repayment of income, that’s on the list.
DARRIN T. MISH: If you were on social security and there was an overpayment, and you had to pay that back, then you can deduct that. Makes sense because you already paid taxes on it.
KATRINA MADEWELL: Legal fees. So, your people that come to you for help with their IRS problem, they get to write off your legal fees.
DARRIN T. MISH: My favorite on the list is legal fees. If you can itemize, you can deduct certain legal fees related to doing or keeping your job. Collecting taxable alimony. Or any fees dealing with tax advice. It’s debatable, what I do. It’s debatable. I solve tax problems, is that tax advice? I think it’s tax advice.
KATRINA MADEWELL: We’ve talked about this a million times on the show. The idea is to get the taxpayer back in the system, so they’re getting revenue. So why wouldn’t that be tax deductible?
DARRIN T. MISH: Just remember that the deductions are subject to the 2% rule, which means the fees must equal at least 2% of your adjusted gross income. If you paid $2,000 to an attorney and you make a half million dollars a year, no Bueno.
KATRINA MADEWELL: You can’t write it off.
DARRIN T. MISH: Not going to work because it’s subject to the 2% rule.
KATRINA MADEWELL: Maybe they’ll pay more.
DARRIN T. MISH: I’ll tell you the problem with taking in as much caffeine as I did today is my brain is working faster than I can talk.
KATRINA MADEWELL: Now you know why I talk the way I do.
DARRIN T. MISH: So, I need to take a chill pill for the next show.
KATRINA MADEWELL: I love it, I think it’s awesome. I think you should drink more Diet Coke on the way in. Don’t you, Pat? He’s way more fun all hopped up on caffeine.
PAT GEORGE: Yes, he is, and you’re getting through all these top 50.
KATRINA MADEWELL: He saw the list of 50 and started drinking. The next one is directed at you, Pat. That’s gambling losses.
DARRIN T. MISH: Here’s the funny thing about gambling losses. People always want to deduct their losses, but they never want to pay tax on their winnings. The reason I don’t gamble is that every time you gamble, you have a silent partner in your gambling called Uncle Sam. If you win, he’s got his hand out. If you’re going to deduct the gambling losses, and I can tell you this from personal experience. Not from my gambling, but representing clients with the gambling loss issues on their audits. You better have records.
PAT GEORGE: You better keep those lottery tickets. The losers.
DARRIN T. MISH: Kind of. I’ll tell you what doesn’t work is to go to the race track and scoop up all the tickets off the ground.
KATRINA MADEWELL: But it’s all cash.
DARRIN T. MISH: The best thing to do is not use all cash for gambling. Use a player’s club loyalty card and stick with the same club. They will give you your records of wins and losses. They don’t like to because they don’t want to put it in writing how much you’ve lost to them, but they will. That’s the best way to get around the gambling loss.
KATRINA MADEWELL: Plus, they must report that as income, don’t they?
DARRIN T. MISH: Yeah, let’s move on.
SAFETY DEPOSIT BOX RENTAL FEES
KATRINA MADEWELL: Safety deposit box rental fees.
DARRIN T. MISH: This is a quirky one. You can deduct safety deposit box rental fees paid for storing documents and items that are reasonably related to tax-related investments. The deductible fees, however, are also subject to the 2% rule. Probably not going to come up for most people. What does a safety deposit box cost to rent?
PAT GEORGE: Not a whole bunch.
KATRINA MADEWELL: IF you wanted to put something in that that you didn’t want to burn in your house. I don’t even know what people store in those anymore.
DARRIN T. MISH: I have no idea. My only experience with safety deposit box is watching movies where people put bad stuff in there. Passports, cash, and guns.
PAT GEORGE: When I was young, my mom would store S&H green stamps, the books she filled out when she was trying to buy a house with stamps.
KATRINA MADEWELL: I remember those. Back in the Glendale Federal days. Now I’m dating myself, so I’m going to shut up.
DARRIN T. MISH: I remember my mother saving blue chip stamps when I was a kid so we could get a toaster or waffle iron.
KATRINA MADEWELL: Next on the list is alimony.
DARRIN T. MISH: If you pay alimony as part of a divorce or separation situation, which we don’t have in Florida. You can deduct the amount you paid. There are a bunch of tests as far as what is alimony, but if the court calls it alimony, it’s going to be deductible. Your spouse or your former spouse is going to have to pay tax on the alimony.
CAR REGISTRATION FEES
KATRINA MADEWELL: Car registration fees, you may be able to deduct these too.
DARRIN T. MISH: If you meet certain requirements, you might be able to deduct some or all your vehicle registration fees. Probably related to your self-employment and how much use of the car in the business. You’ll have to look that up.
CASUALTY DISASTER AND THEFT LOSSES
KATRINA MADEWELL: Casualty disaster and theft losses.
DARRIN T. MISH: Yeah, we forget this one. Casualty losses would be like a storm. It is the same thing as a disaster and theft losses.
KATRINA MADEWELL: Or if your house burned down.
DARRIN T. MISH: I’ve had a couple of clients who fell for these schemes that we talk about sometimes on the show where somebody calls from the Middle East and talks them out of their life savings. Those are theft losses and can be deducted. If you get talked out of $200,000, you should be able to write that off. The one case I’m thinking about, the IRS denied the write-off but we’re going to get that case settled in an offer in compromise anyway.
PAT GEORGE: A lot of patios are not covered by insurance policies any more so if you put up an aluminum patio and it gets blown away, you can take that off your taxes if it costs you $1500 to put it back up?
DARRIN T. MISH: Potentially. Speaking of those patios, yesterday’s storm knocked down a whole bunch of signs all over town. There’s a veterinarian next to my office, that sign blew over. There’s a lawyer in town; I saw a picture of his sign blown over. It happens a lot. Any hurricane or tropical storm is going to blow your pool cage apart.
KATRINA MADEWELL: Those metal real estate signs fly everywhere. We zip tie ours on.
PAT GEORGE: I would replace that with my money, but I would get the entire thing tax deductible?
DARRIN T. MISH: I’m not going to say you’re going to get the entire thing. What I’m going to say since we don’t have a lot of time is you’re going to have to look it up to make sure. But keep it in mind, is the point of this show. You’re going to have to do a little investigation on each one of these. If the layperson, the taxpayer is aware these things exist then you have a better opportunity of taking the deduction. Most tax preparers aren’t going to sit with you for two hours and ask you all this stuff. They don’t have time.
KATRINA MADEWELL: This is something you can even raise a point to them. Just make sure you don’t miss it.
MILITARY RESERVE TRAVEL EXPENSES
KATRINA MADEWELL: The next one is military reserves travel expenses, that’s a good one. I had no idea this would be on the list.
DARRIN T. MISH: If you’re in the Reserve or the Guard and you’re traveling more than 100 miles from your home for serving, if you’re drilling, you can subtract the travel expenses from the income you report on your tax return. Different qualifying expenses include transportation, meals, lodging. There are some exceptions like there is for everything. Pretty much every morning I’m driving south on I-75, and I’m seeing the heroes that are in the Reserve driving their military vehicles north. They’re going up to Camp Blanding, I think.
PAT GEORGE: Camp Blanding. But that’s not tax deductible.
DARRIN T. MISH: No, because they’re riding in the military vehicle. But I see those guys pretty much every Friday.
HEALTH SAVINGS CONTRIBUTIONS
KATRINA MADEWELL: HSA contributions or health savings account contributions.
DARRIN T. MISH: I love health savings accounts, and I think health savings accounts are the answer to the health care crisis that we have in America.
KATRINA MADEWELL: I think it’s a big chunk of it, that’s for sure.
DARRIN T. MISH: What they are is tax exempt accounts you can use to pay or reimburse certain medical expenses. You can claim a tax deduction on the contributions that you or someone else made as well. They’re good. I forget what the numbers are because I don’t have one this year because Obamacare knocked me out of that deal. But for a family, you get about six or seven thousand dollars’ worth of contributions. Those are made with pretax money, which is a deduction, only a little bit better. Then you can use that money to pay for almost everything medical related including over the counter medicine.
KATRINA MADEWELL: We take the max every year, and we use it. Every year.
DARRIN T. MISH: I had one for between seven to nine years, and we used it all as well. A family of four, you’re going to go through seven grand on this stuff.
KATRINA MADEWELL: Somebody’s always in the hospital every year.
DARRIN T. MISH: Lately it seems like I’m paying dentists’ kids to go to college. Everybody in the family has to go, and it’s expensive.
KATRINA MADEWELL: The next one is IRA contributions, which is a great one. You see it a lot mailed out the beginning part of the year because you have all the way until April 15th.
DARRIN T. MISH: Don’t forget, you don’t get to deduct contributions for Roth IRA contributions. If you’re making contributions into a traditional IRA, then you get to write those contributions off. People may not remember, the Roth IRA, the money you’re putting in is after tax, so it’s not taxable later when you make a withdrawal with all the growth, so that’s a great thing.
KATRINA MADEWELL: So, the earlier you do that, the better.
DARRIN T. MISH: Dave Ramsay talks about them all the time.
KATRINA MADEWELL: He loves Roth’s.
DARRIN T. MISH: The traditional IRA, you’re taking the deduction, but the downside is you’re paying taxes when you retire. It may not be a big deal, if you don’t have a lot of income, you won’t have to pay a lot of income tax.
KATRINA MADEWELL: The only thing that worries me about that is you’re paying taxes on the unknown. You don’t know what that’s going to be.
DARRIN T. MISH: The other problem is there are income requirement restrictions on the Roth. So, after you earn a certain amount of income, you’re not eligible for a Roth. So, all you can do is a traditional IRA.
KATRINA MADEWELL: I would push it while you can and take advantage of that.
PERSONAL EXEMPTIONS AND DEPENDENTS
KATRINA MADEWELL: The next one on the list is personal exemptions and dependents.
DARRIN T. MISH: For personal exemptions and dependents, you can deduct up to $4,050 for 2016. That’s an increase of $50. Yay. There are income limits on these deductions. Just remember, don’t forget the kids and dependents in the household. Sometimes people do.
KATRINA MADEWELL: 401K contributions.
DARRIN T. MISH: 401K plans provide special tax status for retirement savings and have immediate tax benefits. If you contribute to your 401k, you effectively lower the amount of your taxable income, so there’s a smaller impact on your take home pay. It’s a deduction because the money that goes into the 401K is not being taxes.
DEPENDENT CARE FLEXIBLE SPENDING ACCOUNT
KATRINA MADEWELL: Dependent care flexible spending account.
DARRIN T. MISH: A dependent care flexible spending account lets you set aside pretax money for expenses related to caring for a child, disabled spouse, parent, or other mentally or physically handicapped dependent. You’re allowed to contribute up to $5,000 towards an FSA every year. The amount you contribute won’t be taxed. It’s like an HSA, but for these special expenses.
TUITION AND FEE DEDUCTIONS
KATRINA MADEWELL: The next one we’ll be moving into soon, and that’s tuition and fee deductions.
DARRIN T. MISH: Regardless if you take the standard deduction or you itemize, you can deduct up to $4,000 in higher education tuition and fees you pay for yourself, your spouse, or a dependent. So that’s kind of neat, I guess.
KATRINA MADEWELL: We’ll take it. We didn’t do college prepaid.
DARRIN T. MISH: I’m going to have a couple of kids in college in a few years, and I’m going to need all the help I can get.
KATRINA MADEWELL: Next one is union dues. Turn that music down, Pat! We have 50 of these to go through!
DARRIN T. MISH: You can deduct union dues and other expenses related to the union. If being in the union is a requirement of your job and it’s subject to the 2% rule.
KATRINA MADEWELL: Work uniforms, for you nurses.
DARRIN T. MISH: This does not mean lawyer’s business suits. If you’re required to wear certain clothes for the job, then they’re going to be considered work uniforms. The example I always think of is the mechanic, and his name tag says Bubba.
KATRINA MADEWELL: Can I make this tax-deductible?
DARRIN T. MISH: She’s pointing at her polo shirt with Tampa Home Talk. I’m going to go with “no,” but you could try it.
KATRINA MADEWELL: I make my people wear it, what are you talking about?
DARRIN T. MISH: I might be able to represent you.
KATRINA MADEWELL: Business use of your home is our next one, and we’ll be back to talk about that.
DARRIN T. MISH: Welcome back to the IRS Solution Attorney Show, I am the IRS Solution Attorney, Darrin T. Mish.
KATRINA MADEWELL: I’m your cohost, Katrina Madewell. Today’s show has been very exciting, even if you don’t have an IRS problem. We’re talking about 50 tax write-offs that you probably don’t know about.
DARRIN T. MISH: Some of them you do. But when you’re trying to come up with a list of 50, some of these are a little bit of a stretch.
KATRINA MADEWELL: But there are people that can use them.
BUSINESS USE OF YOUR HOME
DARRIN T. MISH: Business use of your home. You can deduct certain expenses for using a part of your home for business to qualify for this deduction you must use part of your home, it must be the primary location, it must be a location you use for a meeting with patients or clients. You can use it as a storage facility. Here’s what I want to say about this one. You’re going to have to look it up. But don’t forget the business use of your home could be a deduction.
KATRINA MADEWELL: I thought this was a big trigger for an audit.
DARRIN T. MISH: It can be. There’s also some new rules relating to this. There’s a safe harbor for the home office.
KATRINA MADEWELL: I legit could have taken that for many years because I didn’t want to trigger an audit. Who needs that mess?
BUSINESS USE OF YOUR CAR
KATRINA MADEWELL: Next one is business use of your car.
DARRIN T. MISH: I think this one is obvious. I think people are used to writing off mileage for the business use of their car. You better have good records. This is an issue that comes up in virtually every audit I work on. Proof of mileage.
KATRINA MADEWELL: I have five cars, and one of them is all real estate related.
DARRIN T. MISH: That’s a good practice. Here’s another little tip. On your tax return, if you drove exactly 20,000 miles for some reason for the year, my advice would be to claim 19,988. I don’t want to see a big round number on there. It’s obvious.
KATRINA MADEWELL: My numbers are never big and round. They’re always weird and off because that’s what they are.
DARRIN T. MISH: It’s kind of obvious that you estimated. You probably estimated high. That’s what most people do. One more thing I’m going to say about the business use of your car. There’s a bunch of apps to track your mileage, but the best one I’ve seen is called mile IQ, and it tracks every single trip you take in your car. It’s audit proof.
KATRINA MADEWELL: Even self-employed for business is good. It keeps track of all those expenses and turns it on automatically. It’s cool.
BUSINESS TRAVEL EXPENSES
KATRINA MADEWELL: Business travel expenses.
DARRIN T. MISH: Again, I think this is obvious. If you must go to seminar or convention. Or travel way outside of your…I think it’s 50 miles outside of your area…you can write off the travel expenses. So, air far, car, certain meals. There is a caveat. These expenses should not be considered extravagant. What’s extravagant even mean?
KATRINA MADEWELL: Can you go to a club in Vegas and have 25 bottles of Vodka?
DARRIN T. MISH: I don’t think liquor is ever deductible as a travel expense.
KATRINA MADEWELL: Really?
DARRIN T. MISH: No, I don’t think so. It could be meals and entertainment, but I think there’s a limitation on that.
KATRINA MADEWELL: 50%?
DARRIN T. MISH: I don’t think alcohol is even…
KATRINA MADEWELL: If you’re in our business, that might be debatable.
KATRINA MADEWELL: Education expenses is next.
DARRIN T. MISH: Under the American Opportunity tax credit which has been extended through 2017, you can deduct up to $2500 per student for four years or post-secondary education. That’s another good one. I’m going to remember it in a few years when I have two kids in college. We’ll be taking advantage of all these different educational tax credits.
EMPLOYEE BUSINESS EXPENSES
KATRINA MADEWELL: Employee business expenses.
DARRIN T. MISH: This one is a trap. Typically, employers pay for their employee’s expenses that are related to business. Let’s say you’re a lawyer and you had to go to the courthouse every day, or often enough that you had to pay for parking. Who pays for parking? If the employer pays for parking, then the employee doesn’t get to deduct it. But if the employee pays for it, they can deduct it as an employee business expense.
KATRINA MADEWELL: I should tell this story quick. I had an agent work for me, and we paid all her dues and expenses. She was mad because she couldn’t use it as tax write-offs. So, I told her if she wanted to write it off, she could pay for it.
DARRIN T. MISH: What happens is people double dip on this one. The employer pays for the expense, and the employee claims it too. It’s going to lead to an audit.
KATRINA MADEWELL: I’m curious how they know, but we don’t have time to talk about that.
EARNED INCOME CREDIT
KATRINA MADEWELL: Earned Income Credit is the next one on the list.
DARRIN T. MISH: It’s a commonly overlooked tax credit for low to moderate income individuals. It’s not a deduction, but it’s a refundable tax credit. Which means you can get more money back from the government than you paid in. Just remember, EITC.
KATRINA MADEWELL: Educator expenses is on the list.
DARRIN T. MISH: Teachers can deduct up to $250 of unreimbursed expenses for books and supplies.
KATRINA MADEWELL: Lord knows they probably spent more than that.
STUDENT LOAN INTEREST
KATRINA MADEWELL: Student loan interest deduction.
DARRIN T. MISH: You can deduct the student loan deduction up to $2500.
KATRINA MADEWELL: Cash Donations.
DARRIN T. MISH: Cash donations and non-cash donations. You better have proof.
KATRINA MADEWELL: Proof. Documentation.
DARRIN T. MISH: You can’t just make this stuff up anymore.
SENIOR TAX DEDUCTION
KATRINA MADEWELL: A Senior tax deduction.
DARRIN T. MISH: If you or your spouse are 65 or older, you get an extra higher standard deduction amount.
STANDARD TAX DEDUCTIONS
KATRINA MADEWELL: The last one on our list of 50 tax write-offs you probably don’t know about are the standard tax deductions.
DARRIN T. MISH: This one, you probably do know about. If you don’t itemize, you’re entitled to the standard tax deductions.
KATRINA MADEWELL: Amend your taxes if you don’t know that one.
DARRIN T. MISH: If you don’t know that one and you’re doing your taxes, we have a problem, Houston.
KATRINA MADEWELL: Amend it!
IRS TRAIN WRECK OF THE WEEK
DARRIN T. MISH: That sound means we’re in the homestretch. We’re on the IRS Train Wreck of the week. Today’s story is about an elderly gentleman. He is now retired and living on a fixed income. He ended up with a tax bill of $40,370. He came into the office and said, “Darrin, the IRS wants about $750/month, I’m living on about $1700/month.”
KATRINA MADEWELL: He was elderly, like living on social security elder?
DARRIN T. MISH: Yeah, he was about 65. I don’t think 65 is elderly. But he is receiving social security. He’s living on about $1700/month. We filed something called an Offer in compromise which is where you can make a deal to settle for less. He ended up having some equity and assets. He had a couple of cars and a motorcycle I recall. What happened is he had to pay back the value of the equity in those assets, so that was $7700 and change, to the IRS to settle the $48,000 tax debt.
We talk about the absolute home runs on this show a lot. Where you owe $250,000, and you settle for $250. That’s not one of these cases, but is $7700 better than $48,000? Absolutely!
KATRINA MADEWELL: Did he have to pay it right away?
DARRIN T. MISH: It got put through as a cash offer, which means he has five months to pay it. He let me know after it was accepted that he would rather have 24 months to pay it, so we’re right in the middle of making that a 24-month offer.
KATRINA MADEWELL: So, what happens? Do they keep it?
DARRIN T. MISH: I don’t think it’s going to be a problem, we just need to talk to the right people and get them to change the terms. It’s not going to change the amount; it will just change the terms.
KATRINA MADEWELL: Today’s show was super fun. It’s all about 50 tax write-offs you don’t know about. We’ll have to do another show another day on some of the tax write-offs you shouldn’t take that often get people in trouble. This is how they land in Darrin’s office.
PAT GEORGE: Can I have that list?
DARRIN T. MISH: Yes, you can have it. You can also visit the website at getirshelp.com. Don’t forget the podcast and the app, which is the IRS Solution Attorney.
KATRINA MADEWELL: And you can get Darrin at 888-GET-MISH.
DARRIN T. MISH: 888-438-6474.
KATRINA MADEWELL: Darrin Mish is your host, I’m your co-host Katrina Madewell, so glad you’re here. Thank you for watching on Facebook and listening. We’ll be back same time, the same place next week.
DARRIN T. MISH: For this week, we’re out.