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Tax Tip: Deduct Job Hunting Expenses

With many people getting laid off and unable to secure employment, some job-seekers may be able to deduct job hunting expenses from their federal tax obligations. While consulting with legal and tax professionals, the following information should give you some insight into what tax write-offs you may be able to take advantage of.

Deduction Guidelines

Contributor for Monster.com, John Rossheim, gives four guidelines to see if your job search expenses might reduce your year-end tax obligations:

  • Stay on a similar career path. Job seekers that stay within their same career path, such as teaching, accounting are more likely to be able to deduct job hunting expenses. However, if your last position was in accounting, but now you are looking to become a teacher, it’s virtually impossible to write of your job-hunting expenses.
  • Don’t wait too long. While the IRS doesn’t have a defined time-frame for workers who stop looking for a job, waiting too long can disqualify you entirely. If you decide to homeschool your children or go back to school for a different career path, the IRS is less likely to look sign off on deductions. You need to be actively engaged in your career and job search.
  • First-time job seekers are ineligible. If you are looking for your first professional job in your desired career path, the IRS does not allow deductions for job-hunting expenses. Only individuals who have held a job in their respective career, and are now actively looking for one, may be able to deduct such expenses. If you held a full time job while in school that relates to your first post-grad job search, though, you should be able to take the deduction.
  • Expenses must top 2 percent of your adjusted gross income. Along with other miscellaneous deductions, job-hunting expenses must top 2% or more of the tax year’s gross adjusted income. The good news here is that even if you don’t land a new job within the tax year, if you have allowable tax expenses you can still take advantage of the tax benefits.

Understanding the theory behind the deductions is essential to keeping track of your eligibility. The following list will give you a list of real-world examples the IRS permits:

  • Staffing Expenses: The IRS permits job-hunters who pay staffing agencies fees to help them find a job.
  • Stationary & Postage: Cost related to preparing and sending out copies of your resume may be deductible.
  • Travel: If you have to take a plane, drive your car, hop on a train or otherwise travel to search for a new position, it may be tax deductible. However, IRS regulations stipulate the trip’s primary reason is your job search. For example, you cannot go on a family vacation and sneak in a interview and expect the trip to be tax deductible.
  • Continuing Education: If you take a course to brush up on existing skills or want to learn a new one during your job search, the cost of the software or the course may be tax deductible.
  • Learning how to market yourself: Taking courses, seminars and other educational resources that help you market yourself and help you develop your career may be used as a job-hunting
  • Job-hunting marketing expenses: If you have to make phone calls or place wanted advertisements looking for work, you may be able to deduct these costs. Any expenses related to actively selling yourself (business cards, etc.) to potential employers may be able to be written off during tax time.

Since everyone’s tax situation is different, certain deductions may or may not apply to your individual situation. Speaking with a certified public account and competent legal professionals is your only way to determine what deductions you may be entitled to.

Photo: Dick Thomas Johnson

How to Find a Good Tax Attorney

When looking for tax relief, how to find a good tax attorney is critical.

Tax law is complicated and highly technical. In the legal world, the field of tax law is considered one of the more demanding specialties. Tax law covers a wide range of situations and the rules and laws are continually changing. Not only does a tax lawyer need to have superlative legal skills to succeed, they also need certain personality traits.

What makes a good tax lawyer? Consider these academic and professional guidelines for tax attorneys when looking for tax relief.

  • A good tax attorney has specific experience in the field of taxation. For example, are your tax issues related to a real estate transaction? Or are you running a business and need assistance with a sales tax challenge? Or with filing your income tax? A good tax lawyer will concentrate within certain fields and will be familiar with the laws and the protocols needed to address those particular areas of tax relief.
  • Being associated with an office that is exclusively focused on tax related matters is another important quality for a tax attorney.
  • Having an LLM (Masters Legal Degree in Law) in taxation is a sign that your attorney is serious about his profession and is academically qualified to work within the field of tax law.
  • A good tax lawyer has first hand experience working with the IRS.
  • Successful tax attorneys are continually refreshing their knowledge and keeping up with the continually changing nature of tax law.
  • Tax lawyers should be in good standing with the Better Business Bureau and their local state bar.
  • Good tax attorneys keep their clients informed and up-to-date during the tax relief process.

Tax attorneys also need to have certain personal skills and abilities to succeed in the area of tax relief.

  • A good tax lawyer has high level oral communication skills. They are the intermediary between you and the tax authorities. They need to be able to explain complicated issues and represent your case in a clear manner.
  • Above average written communication skills are another important qualification of a good tax attorney. Tax lawyers write complaints, documents and lawsuit responses.
  • Critical thinking skills are necessary when your attorney is working on a tax relief case. A good tax lawyer can take a look at a case, pick up on any weaknesses, and choose which course of action to take based on the specifics of the case.
  • Having an analytical and organized personality is highly important for a tax attorney. Tax relief cases are usually very complicated and involve numbers and specific, detailed information. A good tax attorney will be able to stay on top of all of the elements of the case.
  • Good interpersonal skills are critical for a tax attorney to work effectively with a client in a tax relief case. They need to be able to communicate effectively with both the client and with the tax authorities.
  • Having a committed and persevering personality are necessary qualities for the person who will be representing your tax relief case.

Taxes are complicated and the laws are constantly changing. Your financial future is often at stake in a legal situation involving taxes. Getting appropriate representation for tax relief is very important and knowing what makes a good tax lawyer is a very important first step in getting a resolution.

Need some tax relief? Solutions start here. Contact us and let’s get started.

Two Education Credits Help Pay Higher Education Costs

Source: IRS Newswire

The American Opportunity Credit and the Lifetime Learning Credit may help you pay for the costs of higher education. If you pay tuition and fees for yourself, your spouse or your dependent you may qualify for these credits.

Here are some facts the IRS wants you to know about these important credits:

The American Opportunity Credit

  • The AOTC is worth up to $2,500 per eligible student.
  • The credit is available for the first four years of higher education at an eligible college, university or vocational school.
  • The credit lowers your taxes and is partially refundable. This means you could get a refund of up to $1,000 even if you owe zero tax.
  • An eligible student must be working toward a degree, certificate or other recognized credential.
  • The student must be enrolled at least half time for at least one academic period that began during the year.
  • You generally can claim the costs of tuition and required fees, books and other required course materials. Other expenses, such as room and board, do not qualify.

The Lifetime Learning Credit

  • The credit is worth up to $2,000 per tax return per year. The yearly limit applies no matter how many students are eligible for the credit.
  • The credit is nonrefundable. This means the amount you can claim is limited to the amount of tax you owe.
  • The credit is available for all years of higher education. This includes courses taken to acquire or improve job skills.
  • You can claim the costs of tuition and fees required for enrollment or attendance. This includes amounts you were required to pay to the institution for course-related books, supplies and equipment.

You cannot claim either of these credits if someone else claims you as a dependent on his or her tax return. Both credits are subject to income limitations and may be reduced or eliminated depending on your income.

Keep in mind that you can’t claim both credits for the same student in the same year. You may not claim both credits for the same expense. Parents or students claiming either credit should receive a Form 1098-T, Tuition Statement, from their educational institution. You should make sure it is complete and correct.

Find out more details about these credits and other college tax benefits in Publication 970, Tax Benefits for Education. You can get the booklet at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional IRS Resources:

Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits)

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House Damaged In a Natural Disaster? Claim Your Loss!

Via LearnVest By Alden Wicker ~

House Damaged In a Natural Disaster? Claim Your Loss!

Let’s face it: 2012 wasn’t a great year for homeowners and we’re not even talking about foreclosures.

There were wildfires, tornadoes, flooding, mudslides, more wildfires, more tornadoes and, oh, yeah, Hurricane Sandy.

Even if you have homeowner’s insurance, it may not have covered all of the damage to your home if you fell victim to one of these disasters. You may even have lost your house, along with other possessions. If so, you should know that you can deduct the damage not covered by your insurance to reduce your tax bill.

However, as with most things in the tax code, it’s not a super-simple process. Here’s what you need to know if you’re claiming a natural disaster loss.

What It Is

The official term for damage done to property is known as “casualty loss.” The I.R.S. says that you can take this deduction if you suffered the damage, destruction or loss of property from an identifiable event that is sudden, unexpected or unusual. This includes car accidents, fires, floods, storms and hurricanes. (Plus some odd things, like sonic booms. Anyone live near an Air Force base?) Read I.R.S. Publication 547 to see if you qualify.

How It Works

This deduction isn’t just for your home. It can also apply to the loss of a car, furniture, jewelry or anything else that you could have gotten money for had you sold it. You can even apply this to landscaping if you had to hire someone to remove downed trees and branches.

Hurricane Sandy tax deduction

If insurance renter’s, homeowner’s or automobile reimbursed you partially for the loss, your casualty loss only applies to what the insurance company didn’t cover. So if your loss was $21,000, and your insurance company gave you $10,000, then your casualty loss is $11,000. (This is why the deduction is especially useful for homeowners who realized too late that they weren’t covered for flood insurance.) And if you’re still waiting to find out what your insurance company will reimburse,  ask for an automatic, six-month extension to file your taxes.

RELATED: What Hurricane Sandy Taught Me About Money

If you received payments from the Federal Emergency Management Agency (FEMA) for repairs or a replacement of your damaged or destroyed home, those must also be subtracted from the casualty loss. But other FEMA payments for food and temporary housing don’t have to be deducted. So think of your casualty loss as what you’ll have to pay out of pocket to get your home back to where it was before disaster struck.

You can only deduct your losses if they are worth more than 10% of your adjusted gross income, plus $100. So, for example, if your AGI is $75,000, you can only deduct your losses if they’re worth more than $7,600. You also can only deduct your loss if you’re itemizing.

How to Determine the Value of the Loss

This all begs the question: How do you figure out your loss in the first place?

You can only base your loss on what the property was worth right before the storm. Let’s say your car was flooded, and it’s now unrecoverable. If the Kelley Blue Book value of the make, model and year of the car is $10,000 meaning you could have sold it for $10,000 before the flooding then that’s what you base the car’s value on, and not what you paid for it in the first place. The same goes for furniture and other property. Note: Sentimental value doesn’t count it’s only what you’d get on the market for an item.

Alternatively, you can also base the loss on how much it takes to repair the property. Drywall replacement is a good example: Your loss is what it costs to replace all of the drywall in your flooded home, plus other necessary repairs. Just don’t upgrade while you’re at it and then try to claim that expense as a loss.

Oh, and there is one hitch: You can’t claim more than what you originally paid for the property, plus improvements. So if you bought your house for $300,000 in 1990, and then added an addition that cost you $75,000, you can’t claim more than $375,000 in loss if your house was destroyed. And that’s even if it had a market value of $500,000 in 2011. The I.R.S. wants you to start with the number that’s smaller either adjusted basis ($375,000, in this example) or fair market value.

How to Calculate What You Can Deduct

We just covered how to determine the value of your loss, but it’s not the same as what you can deduct. To figure this out, multiply your AGI by 10%, and then subtract that figure and $100 from the amount of damage that’s not reimbursed.

Let’s say your home sustained $20,000 in hurricane damage, but you were only reimbursed $10,000 by your insurance company:

$20,000-$10,000 = $10,000 in unreimbursed damage

Your AGI is $75,000, so $70,000 x 10% = $7,500

$10,000 $7,600 = $2,400 in deductible damage

You’ll make this calculation on Form 4684. From there, the amount is carried to Schedule A of Form 1040, where itemized deductions are listed.

However, after some previous devastating hurricanes, Congress removed the requirement that a casualty loss be reduced by 10% of your AGI, and there’s a chance that they could do so again in light of Hurricane Sandy. So this is yet another reason to request an extension to see if that happens. In fact, the I.R.S. announced on February 1 that it is extending tax relief by postponing various penalties and payment deadlines that occurred starting in late October, such as fourth-quarter individual estimated taxes, which are normally due January 15. Those affected by the storm can get more details here.

Should You File an Amended Return?

If your income in 2012 was lower than it was in 2011, it might be a good idea to file an amended 2011 return, and claim your loss for that year. That’s because you’ll be charged less in taxes for 2012 because of your lower income, so you’d want to put your losses against your higher 2011 income.

If your loss is so large that the deduction is equal to or more than an entire year’s income, you can file amendments going back three years or carry forward the loss for up to 20 years to reduce your taxable income in the future.

Photo credit: Flickr/Randy Le’Moine Photography

LearnVest is the leading lifestyle and personal finance website for women.

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Study Says Even Savers Spend Their Refunds

Via LearnVest By Alden Wicker ~

tax refundThe refund checks are in the mail, and millions of Americans are feeling a bit flush this tax season.

(Still haven’t done your taxes? Start here.)

You might be one of the smart Americans who plan to use their refund to reach a financial goal. According to a TD Ameritrade survey released last month, of the almost half of Americans expecting a check, 47% plan to save some of it and 44% plan to pay off debt with the money.

Only 15% wanted to use the whole thing to splurge on something discretionary.

While the savers will mostly go through with their plan, TODAY reports that they still might treat themselves to something, even unconsciously.

Research shows that there’s an immediate, though small, bump in spending among people who receive tax refunds the week they get it, even if they planned on saving it. Then there’s another small bump in spending in August, indicating people might be using the money to augment their summer vacation.

So you might as well make it official. Set aside 10% of your refund to treat yourself, you deserve it for navigating that tax maze! Then use the rest to help reach a financial goal or two.

LearnVest is the leading lifestyle and personal finance website for women.

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