Friday, July 29, 2011

Job Hunting Expenses

You may be able to deduct some of your job hunting expenses. To qualify for a deduction, the expenses must be spent on a job search in your current occupation. You may not deduct expenses you incur while looking for a job in a new occupation.

You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income, up to the amount of your tax benefit in the earlier year.

You can deduct amounts you spend for preparing and mailing copies of your résumé to prospective employers as long as you are looking for a new job in your present occupation.

If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.

You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one. And you cannot deduct job search expenses if you are looking for a job for the first time.

The amount of job search expenses that you can claim on your tax return is limited. You can claim the amount that is more than 2 percent of your adjusted gross income. You figure your deduction on Schedule A.

For more information about job search expenses, write or message me.

More in IRS Publication 529, Miscellaneous Deductions. This publication is available on or by calling 800-TAX-FORM (800-829-3676).

from IRS

Thursday, July 28, 2011

Paying Employee Moving Expenses

An employer writes to ask if moving expenses paid to entice a new employee are deductible and are excluded from payroll taxes.

Certain fringe benefits that are offered to or given to employees can be excluded from an employee’s income because the expenses would normally be deductible on an individual’s personal income tax return. A moving or relocation expense is one such benefit.

An individual who relocates because of a change in employment may attach a Form 3903 to his annual Form 1040 to deduct certain qualified moving expenses. And employers may either pay or reimburse an employee’s moving expenses without taxing the payments if the expenses would otherwise have been deductible using Form 3903.
Employers who pay for the relocation expenses of an employee have the freedom to pay for whatever expenses they wish, but only those expenses that qualify as deductible can be excluded from the employee’s income. All other expenses paid or reimbursed are subject to withholding for federal income, social security, and Medicare taxes.

For an employee’s relocation expenses to be qualified moving expenses, the employee must meet three tests:
• The move is closely related to the start of the employee’s work.
• The location of the employee’s new home must meet the distance test.
• The individual’s employment must actually or potentially meet the time test.

Closely Related to the Start of Work
Moving expenses that are incurred within one year of when the employee starts working for your company may be qualified moving expenses. The move must have been necessitated by the new job because the employee is required to live near the place of employment or the employee will spend less time commuting than he would have if he had remained in his old home. If an individual relocated before having obtained a job with your business, his moving expenses may still qualify for tax-free reimbursement as long as he started working for your business within 1 year of his move.

Distance Test
The employee’s move may qualify for special tax treatment if it meets the distance test. The distance test is based on the location of the employee’s former home, the location of his old place of work, and the location of his new place of work. It has nothing to do with the location of his new home. The employee’s new place of work must be at least 50 miles further from his old residence than his old place of work was from his old residence. For instance, suppose that the employee used to travel 18 miles from his old home to his old place of work. His new place of work must be located at least 68 miles (18 + 50) from his old residence.

Time Test
To meet the time test an employee must work full-time at least 39 weeks during the first 12 months after arriving in the general location of his new job. Full-time does not necessarily mean 40 hours per week. In some areas and in some businesses, full-time may be defined as 30 hours per week as long as the employee is receiving all benefits to which full-time employees of your business are entitled.
The 39 weeks does not all have to be with your company and they do not all have to be in a row. For instance, an individual may move into his new home and start work with one employer for 6 months. He then leaves that job and 2 months later is hired by your company. Your company agrees to pay his original moving expenses if he agrees that he will remain with your company for at least 2 years. So he will have worked at least 44 weeks during the 12-month period after his move, so he could have qualified moving expenses.

Qualified Moving Expenses
The following expenses qualify as moving expenses as long as the employee meets the other tests:
• Moving the employee’s household goods and personal effects (including in-transit storage expenses), and
• Travel for the employee and his family (including lodging but not meals) from the employee’s old home to his new home. So meals are never deductible, and house-hunting trips do not qualify as deductible expenses.
Moving expenses, according to the Internal Revenue Code, must be reasonable, but the definition of reasonable is not defined. However, Publication 521 basically indicates that expenses are reasonable if the cost of traveling from the employee’s former home to his new one is by the shortest, most direct route available by conventional transportation. Where the regulations refer to members of an employee’s household, it refers to any individuals who were living with the employee in his old home and are relocating with the employee to his new home.
The following moving expenses are considered to be reasonable and deductible:
• The cost of packing, crating, and transporting household goods and personal effects and those of members of the household from the former home to the new one. A professional moving company can be used, or the employee may use his own vehicle for moving some items.
• The cost of storing and insuring household goods and personal effects within any period of 30 consecutive days after the employee’s things have been moved from his former home and before they are delivered to the employee’s new home.
• The cost of connecting or disconnecting utilities.
• The cost of shipping an employee’s car or pets to his new home.
• The cost of moving household goods and personal effects from a place other than the employee’s former home, but the deductible portion is limited to the amount it would have cost to move it from the employee’s old home.
• The cost of transportation and lodging for the employee and members of the employee’s household while traveling from the former home to the new home. Lodging expenses include the cost of lodging for one day after the employee could no longer live in his old home and expenses incurred on the day the employee arrives in the area of his new home.
• If an employee uses his own vehicle, or if additional personal vehicles are driven to relocate the employee’s family, the deductible mileage rate for 2007 is 20 cents per mile.
• All expenses are for one trip by the employee and the employee’s household, although the employee and the members of his household do not have to travel together or at the same time.

Employers can handle an employee’s moving expenses in two different ways. Employers may pay all or some of the employee’s moving expenses directly, such as paying a moving company to move the employee’s household goods and personal effects. Or the employer may choose to reimburse the employee for all or some of his moving expenses. Payments that are made directly to a third party do not have to be reported to the IRS, but all reimbursements to the employee do.

Wednesday, July 20, 2011

IRS Announces Discontinuance of High-Low Per Diem Method

The IRS has announced that it intends to discontinue authorizing the high-low
substantiation method
commonly used in calculating Per Diem rates.

Per diem is an allowance for lodging, meals and incidental expenses. Generally, the IRS allows an employee or self-employed worker to use a per diem rate to deduct travel expenses for business purposes without needing to substantiate that amount with receipts and records.

The General Services Administration (GSA) per diem rates which the IRS uses have traditionally included two tiers of approved expenses to allow for higher costs in certain locations and during certain high cost seasons in some areas. Consequently, per diem rates for Miami have been higher than for Spokane, Washington.

Now, the IRS will discontinue using the two-tier system.

In 2011, the Service plans to publish a revenue procedure providing the general rules and procedures for substantiating lodging, meal, and incidental expenses incurred in traveling away from home (omitting the high-low substantiation method). The Service will publish a revenue procedure in subsequent years only when modifying the substantiation rules and procedures and will publish the special transportation rate in an annual notice.

From IRS

Friday, July 15, 2011

IRS Gives Truckers Three-Month Extension; Highway Use Tax Return Due Nov. 30

The Internal Revenue Service today advised truckers and other owners of heavy highway vehicles that their next federal highway use tax return, usually due Aug. 31, will instead be due on Nov. 30, 2011.

Because the highway use tax is currently scheduled to expire on Sept. 30, 2011, this extension is designed to alleviate any confusion and possible multiple filings that could result if Congress reinstates or modifies the tax after that date. Under temporary and proposed regulations filed today in the Federal Register, the Nov. 30 filing deadline for Form 2290, Heavy Highway Vehicle Use Tax Return, for the tax period that begins on July 1, 2011, applies to vehicles used during July, as well as those first used during August or September. Returns should not be filed and payments should not be made prior to Nov. 1.

To aid truckers applying for state vehicle registration on or before Nov. 30, the new regulations require states to accept as proof of payment the stamped Schedule 1 of the Form 2290 issued by the IRS for the prior tax year, ending on June 30, 2011. Under federal law, state governments are required to receive proof of payment of the federal highway use tax as a condition of vehicle registration. Normally, after a taxpayer files the return and pays the tax, the Schedule 1 is stamped by the IRS and returned to filers for this purpose. A state normally may accept a prior year’s stamped Schedule 1 as a substitute proof of payment only through Sept. 30.

For those acquiring and registering a new or used vehicle during the July-to-November period, the new regulations require a state to register the vehicle, without proof that the highway use tax was paid, if the person registering the vehicle presents a copy of the bill of sale or similar document showing that the owner purchased the vehicle within the previous 150 days.

In general, the highway use tax applies to trucks, truck tractors and buses with a gross taxable weight of 55,000 pounds or more. Ordinarily, vans, pick-ups and panel trucks are not taxable because they fall below the 55,000-pound threshold.

For trucks and other taxable vehicles in use during July, the Form 2290 and payment are, under normal circumstances, due on Aug. 31. The tax of up to $550 per vehicle is based on weight, and a variety of special rules apply to vehicles with minimal road use, logging or agricultural vehicles, vehicles transferred during the year and those first used on the road after July.

Last year, the IRS received about 650,000 Forms 2290 and highway use tax payments totaling $886 million.

Sunday, July 10, 2011

Tax Tips from the IRS for Students Starting a Summer Job

School’s out and many students will be starting summer jobs. The Internal Revenue Service reminds students that not all the money you earn may make it to your pocket. That’s because your employer must withhold taxes. Here are six things the IRS wants students to be aware of when they start a summer job.

1. When you first start a new job you must fill out a Form W-4, Employee’s Withholding Allowance Certificate. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. If you have multiple summer jobs, make sure all your employers are withholding an adequate amount of taxes to cover your total income tax liability. To make sure your withholding is correct, use the Withholding Calculator on

2. Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tips you receive are taxable income and are therefore subject to federal income tax.

3. Many students do odd jobs over the summer to make extra cash. Earnings you receive from self-employment – including jobs like baby-sitting and lawn mowing – are subject to income tax.

4. If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed the same as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.

5. Food and lodging allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.

6. Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:
• You are in the business of delivering newspapers.
• All your pay for these services directly relates to sales rather than to the number of hours worked.
• You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.

From IRS

Wednesday, July 6, 2011

Summer Day Camp Expenses May Qualify for a Tax Credit

Along with the lazy, hazy days of summer come some extra expenses, including summer day camp. But, the IRS has some good news for parents: summer day camp expenses may help you qualify for a tax credit.

Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation. However, the expenses must be so the parents can work or attend school full-time. If one parent is not working, you will not qualify for the Child and Dependent Care Credit.

Here are facts the IRS wants you to know about the tax credit available for child care expenses. (The Child and Dependent Care Credit is available for expenses incurred throughout the year.)

1. The cost of day camp may count as an expense towards the child and dependent care credit.

2. Expenses for overnight camps do not qualify.

3. Whether your childcare provider is a sitter at your home or a daycare facility outside the home, you'll get some tax benefit if you qualify for the credit.

4. The credit can be up to 35 percent of your qualifying expenses, depending on your income.

5. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

For more information check out IRS Publication 503, Child and Dependent Care Expenses.

From IRS