No matter what kind of business you are in, you constantly need to keep up-to-date on new techniques, new products, new laws and regulations, new marketing techniques, etc. People call continuing education by many different names including: educational expense, professional development, seminar expense, and conference expense. Whatever you call it or classify it in your accounting program, it all boils down to continuing education.
Continuing education is anything you go to or subscribe to that will give you information about how to operate your business. It can be for the business owner or to educate employees. Often people go to a seminar or trade show and don’t think about the cost of traveling there, staying there, or even the cost of the event as tax deductible. Also, this is where travel and vehicle expense combine with educational expense.
There are a few types of continuing education that you should be careful with. One is the personal development seminar. These can be a gray area in the tax deduction arena. There are a lot of promoters of personal development, positive thinking, etc. that have been very popular over the past few years. These events can be tax deductible as long as the information can lead to improving your business. An event about improving your marriage would not be tax deductible. But one about learning how to relate to others and develop business relationships could be deductible. Just make sure you keep good records about what the seminar taught. Or you can keep information about what the seminar advertised it would teach can help verify that the event was considered tax deductible. If you can determine the event is educational, all of the expenses are deductible as previously mentioned.
There are many things you can count as continuing education. Check out our MP3 “Vehicle, Travel, & Continuing Education” to learn more about ways that you can deduct continuing education on your taxes. Just visit www.avoidbeingaudited.com.
Whether you have your taxes done or you are about to have them done, you are probably wishing you had kept better records. Good record keeping can alleviate a lot of tax time drama. And keeping good records of your expenses can save you money at tax time.
So let’s talk about some basic ideas for keeping track of your expenses. There are many systems out there, but the most important thing is to have a system that you understand. If you get audited the burden of proof is on you. If you understand how you kept track of your expenses, it will be much easier to explain it to an auditor if necessary.
The first step to developing your own system is to understand what a receipt is. A receipt is anything that proves you spent money and what you spent it on. Of course the paper receipt you get when you purchase an item at a store is a receipt. But other things that can be considered a receipt include cancelled checks and your bank account statements, which show your debit card transactions. Credit card statements are also considered receipts. Also, a statement from any place you have an account with is a receipt. If you have a business, your suppliers often keep track of your purchases and can provide you with a statement listing your purchases, which function as a receipt. And what do you do with all those receipts? You need to keep them where you can find them easily at tax time. Develop a storing system that works for you.
It’s also good to track your expenses in a software program or a paper ledger. If you are computer savvy, there are programs that you can purchase to record your transactions. For a business, QuickBooks has programs on different levels that would be appropriate and that are reasonably user friendly. However, QuickBooks does require a basic knowledge of accounting, but there are classes that you can take to help you. For your personal finances, Quicken is a friendly program that can help you track not only your income and expenses, but it can help you balance your checkbook and track loans, credit cards, and investments. If you plan to use a computerized program, the biggest problem we see is that people don’t take the time to enter their receipts into the program. But if you do it on a regular basis, it can be a great tool for you not only at tax time but throughout the year, and you can see exactly where your business and finances are.
We hope this gives you an idea of where to start keeping track of your expenses. Of course there is always more to learn, so check out our other resources at www.avoidbeingaudited.com.
A very commonly missed deduction is the unreimbursed employee business expense. You can deduct anything that is required by your job that you personally have to pay for and don’t get reimbursed for. There are more things in this category than you might think that could be deductible. The most common are transportation, travel, and meals and entertainment. Here are a few others you might not know about:
- Business use of your home if it is required by your employer.
- Certain educational expenses to improve your existing profession.
- Legal fees related to your job.
- Damages paid to a former employer for breach of an employee contract.
One thing that is really important to know about unreimbursed employee business expenses are that they are limited to over 2% of your income. For example, if you earned $50,000 then 2% of your income would be $1000. That means the first $1000 of your unreimbursed employee business expense is not deductible. So if you spend $1500 in this situation, $500 would be deductible.
Sometimes people get really close to the 2% limit but they aren’t quite there. Well, there is not need to give up because there are some other things you can add to the 2% limitation that aren’t business related. So if you don’t think you have enough business expense to count, you may have some of the following expenses that will still give you a deduction:
- Legal fees related to producing or collecting taxable income.
- Legal fees related to doing or keeping your job.
- Legal fees related to divorce as long as the bill specifies the amount.
- Cost of managing and maintaining income producing investments including investment fees, custodial fees, clerical help, office rent, and any other expenses.
- Appraisal fees for determining a casualty loss or the value of a charitable contribution.
- Safety deposit box.
- Tax preparation and tax advice fees.
We can’t cover everything in with unreimbursed employee expenses in this post because the unreimbursed deduction can be pretty confusing. Check out www.avoidbeingaudited.com to learn a more about it!
This week we are going to go over an itemized deduction category that is commonly missed on tax returns, casualty and theft losses. If you have property that is destroyed or stolen you can deduct a portion of the loss. Most people who are in the middle of a disaster don’t always think about the fact that it might be tax deductible. As with most deductions there are some limits. The loss you can deduct will be the amount you lost after any reimbursement from insurance. The loss has to be over $100, and it is limited to over 10% of your adjusted gross income.
There are two types of losses you can deduct. In this post we are only going to cover casualty loss, which is a loss of property from fire, storm, shipwreck, or other casualty. A casualty caused by things such as drywall rot and black mold are also allowed. Usually a casualty loss is covered by insurance, so by the time you get reimbursed, your deductible is often not more than the 10% of your income limitation. But, if you have a high deductible or no insurance you may qualify for the deduction.
Let me give you an example of this type of loss using a flood that occurred few years ago in St. George, UT. The St. George River runs through St. George. Most people wouldn’t even call it a river because for over 90 years it was not much more than a trickle. Because there was not much water in the river for so long, people began to build houses closer and closer to the river. Also, insurance and mortgage companies did not require flood insurance because they never thought it would be a problem. Several years ago St. George got a tremendous amount of rain, way more than normal and more than they had received in years. This caused the St. George River to dramatically increase in volume. Hundreds of people had to evacuate their homes. Many homes received thousands of dollars in flood damage, and tragically, some houses actually completely washed away. Because no one carried flood insurance, none of the damages were covered. Eventually, there was some government assistance. But the out of pocket expense that these home owners experienced would qualify them for the casualty loss deduction.
When you experience a casualty loss you can take the deduction the year you experience the loss or you can actually go back and amend the previous year’s tax return, take the deduction, and get a refund. For example, if you experienced a flood loss in 2010 you could claim the casualty loss on the 2010 tax return or you can amend your 2009 return, take the loss and get a refund for that year.
As we said earlier, there is also a theft loss you can claim as well. Check out our MP3 #8, “Itemized Deductions and Gambling Winnings” on http://www.avoidbeingaudited.com to learn more about the property loss deductions.