adjusted gross income

Job Search Expenses May Lower Your Taxes

September is often a time of transition, when people decide to make major life decisions–such as changing jobs. If you’re looking for a new job, then you may be able to claim a tax deduction for some of your job hunting expenses–as long as it’s in your same line of work.

Here are seven things you need to know about deducting these costs:

1. Your expenses must be for a job search in your current occupation. You may not deduct expenses related to a search for a job in a new occupation. If your employer or another party reimburses you for an expense, you may not deduct it.

2. You can deduct employment and job placement agency fees you pay while looking for a job.

3. You can deduct the cost of preparing and mailing copies of your resume to prospective employers.

4. If you travel to look for a new job, you may be able to deduct your travel expenses. However, you can only deduct them if the trip is primarily to look for a new job.

5. You can’t deduct job search expenses if there was a substantial break between the end of your last job and the time you began looking for a new one.

6. You can’t deduct job search expenses if you’re looking for a job for the first time.

7. You will usually claim job search expenses as a miscellaneous itemized deduction, but can deduct only the amount of your total miscellaneous deductions that exceed two percent of your adjusted gross income.

Give us a call if you have any questions about tax deductions related to a job search.

The Facts: Medical & Dental Expenses and Your Taxes

If you, your spouse or dependents had significant medical or dental costs in 2012, you may be able to deduct those expenses when you file your tax return. Here are eight things you should know about medical and dental expenses and other benefits.

1. You must itemize. You deduct qualifying medical and dental expenses if you itemize on Schedule A on Form 1040.

2. Deduction is limited. You can deduct total medical care expenses that exceed 7.5 percent of your adjusted gross income for the year.

3. Expenses must have been paid in 2012. You can include medical and dental expenses you paid during the year, regardless of when the services were provided. Be sure to save your receipts and keep good records to substantiate your expenses.

4. You can’t deduct reimbursed expenses. Your total medical expenses for the year must be reduced by any reimbursement. Normally, it makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.

5. Whose expenses qualify. You may include qualified medical expenses you pay for yourself, your spouse and your dependents. Some exceptions and special rules apply to divorced or separated parents, taxpayers with a multiple support agreement, or those with a qualifying relative who is not your child.

6. Types of expenses that qualify. You can deduct expenses primarily paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body. For drugs, you can only deduct prescription medication and insulin. You can also include premiums for medical, dental and some long-term care insurance in your expenses. Starting in 2011, you can also include lactation supplies.

7. Transportation costs may qualify. You may deduct transportation costs primarily for and essential to medical care that qualifies as a medical expense, including fares for a taxi, bus, train, plane or ambulance as well as tolls and parking fees. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses, which is 23 cents per mile for 2012.(This rate increases to 24 cents in 2013.)

8. Tax-favored saving for medical expenses. Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if used to pay qualified medical expenses including prescription medication and insulin.

Please give us a call if you need help figuring out what qualifies as a medical expense.

6 Tax Changes That Benefit Taxpayers for 2012

Thanks to the passage of the American Taxpayer Relief Act of 2012 (ATRA), many tax provisions that expired in 2011 were retroactively extended (or made permanent) that are of benefit to taxpayers filing 2012 returns this year. Here are six of them:

1. Education-Related Tax Deductions

ATRA extended, through 2017 and retroactive to 2012, two popular and widely used education-related tax benefits that expired in 2011: the deduction for qualified tuition and related expenses and the deduction for certain expenses of elementary and secondary school teachers. Both are above-the-line deductions, which means that they can be taken before calculating adjusted gross income (AGI).

2. Limited Non-Business Energy Property Credits

Non-business energy credits expired in 2011, but were extended (retroactive to 2102) through 2013 by ATRA. For 2102 (as in 2011), this credit generally equals 10 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $500 (down significantly from the $1,500 combined limit that applied for 2009 and 2010).

Because of the way the credit is figured however, in many cases, it may only be helpful to people who make energy-saving home improvements for the first time in 2012. That’s because homeowners must first subtract any non-business energy property credits claimed on their 2006, 2007, 2009, 2010, and 2011 returns before claiming this credit for 2012. In other words, if a taxpayer claimed a credit of $450 in 2011, the maximum credit that can be claimed in 2012 is $50 (for an aggregate of $500).

The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items do not.

3. Mortgage Insurance Deductible as Qualified Interest

ATRA extended, through 2013 (and retroactive to 2102), a tax provision that expired in 2011 that allows taxpayers to deduct mortgage insurance premiums as qualified residence interest. As such, taxpayers can deduct, as qualified residence interest, mortgage insurance premiums paid or accrued before Jan. 1, 2014, subject to a phase-out based on the taxpayer’s AGI.

4. AMT “Patch” Made Permanent

The AMT ‘patch” was made permanent by ATRA; however, exemption amounts for 2012 and beyond are higher than in years’ past and are now indexed to inflation. For tax-year 2012, the alternative minimum tax exemption amounts increase to the following levels:

  • $78,750 for a married couple filing a joint return and qualifying widows and widowers, up from $74,450 in 2011.
  • $39,375 for a married person filing separately, up from $37,225 in 2011.
  • $50,600 for singles and heads of household, up from $48,450 in 2011.

5. Transportation “Fringe Benefits”

Parity for transportation fringe benefits provided by employers for the benefit of their employees expired at the end of 2011; however, ATRA reinstated this parity retroactive to 2012. As such, the monthly limit for qualified parking is $240 and the benefit for transportation in a commuter highway vehicle or a transit pass is $245 for tax year 2012.

6. State and Local Sales Taxes

Retroactive to 2012, ATRA extended (through 2013) the tax provision that allows taxpayers who itemize deductions the option to deduct state and local general sales and use taxes instead of state and local income taxes.

If you have questions about these or other tax changes, please call us. We’d be happy to assist you.

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