Havent done your taxes yet? Youre not alone. The IRS estimates that over 20 percent of taxpayers file their returns during the final two weeks of tax season, and while it hasnt collected data on this, a shocking number probably file the weekend before. Nonetheless, you might want to get on it—you have until 11:59 p.m. on Tuesday, April 17, to file your 2006 tax return, and it might be hard to argue that you hadnt been duly warned.
Though it might seem that the Tax Man is out to get you, sometimes a little help from a friendly accountant is all you need to bring out Uncle Sams kindler, gentler qualities. For example, if you spent time and money this year trying to ditch your old job and ease yourself into a higher tax bracket, its probably deductible. So are your tax preparation fees, but, sadly, not your Tuesday night bar tab for an Income Tax Cocktail or four … Hey, it never hurts to ask!
Have a home office? If youre an employee of a company, but have a consulting business on the side, you may be able to claim a slew of home office deductions, especially if part of your home is used exclusively for your consulting business.
“If, for example, 10 percent of the square footage of the house is used for a home office that qualifies for the home office deduction, the worker will be able to depreciate 10 percent of the cost of the house over 39 years, plus take as deductions (tentatively) 10 percent of various other household deductions such as utilities and maintenance expenses that relate to the home as a whole, such as furnace or air conditioning repairs or maintenance,” said Michael Jenkins, a tax attorney based in San Francisco and author of the “Starting and Operating a Business” series of small business guidebooks.
Self-employed? IRS Form 5305A-SEP may be your new best friend. You can contribute up to 25 percent of your self-employment income (gross income minus expenses) to SEP (Simplified Employee Pension) and deduct the full amount. This IRA-like plan can be created and contributed to right up until the date you file your return.
Reading this on your home computer? You could be in luck. If you have a computer in your home that you use for business purposes, you might be able to deduct some or all of the cost of it, depending on whether it is used in a qualifying home office.
Even better, its okay if you use your computer for non-work purposes too, as long as you subtract that usage from the total. “If your computer is used, say, 40 percent of the time for playing computer games and for other personal, non-business purposes, only the 60 percent business portion of its cost is deductible or depreciable, even if it is not considered listed property,” Jenkins said.
It is, of course, a bit more complicated than this, but its worth it to know that even if your computer was used less than half of the time for business, and thus didnt qualify for a full deduction, you can still deduct its “straight-line depreciation” over five years: 10 percent of the depreciable cost in the first year, 20 percent in the second, and so on.
Did you hunt for a new job this year? Even if your job hunt failed, you can deduct the cost of seeking new employment, as long as it was in the same trade or business as your previous employment.
“These [costs] would include items like local transportation and travel expenses away from home and other costs, such as printing and postage for creating and mailing resumes, which also are deductible. On the other hand, an employee cannot deduct the cost of seeking employment in a different trade or business—even if the employee gets the job,” Jenkins said.
Money spent job-seeking falls under a category of deductions labeled “miscellaneous.” Other items that can be claimed as miscellaneous include your cell phone or home Internet connection, if they are used for business purposes, and items as specific as subscriptions for work-related publications or dues for professional associations. Even tax preparation fees count.
However, proceed with caution.
“The Catch-22 is that they are only deductible on a Form 1040, Schedule A, to the extent [that] the total of such deductions exceeds 2 percent of an individuals adjusted gross income… Thus, unless you have a fairly low adjusted gross income level, or a lot of other miscellaneous itemized deductions, you may not get any tax benefit from your job-hunting costs, even if they qualify as deductible,” Jenkins said.