National Association of Tax Professionals (NATP) Appleton, WI - Imagine the delight of a young teacher working to complete her master's degree who found out that by filing the 1040 long form tax return instead of the short form, she could receive a $3,000 refund. It's only one example of how itemizing deductions can pay off. When it comes to tax deductions, little things mean a lot. For those who assume they won't qualify, think again. If you keep careful records of your expenses, you may have a delightful surprise coming, just like this young client of NATP tax preparer, Louise Gritmon.
Gritmon, an Enrolled Agent in Medford, New York, filed an amended tax return and helped her client write off the $16,000 she spent on her master's tuition (because her employer required the degree), instead of the $2,000 tuition deduction she originally claimed. Because the client kept good records, she could also write off textbooks, supplies, travel to education, and classroom supplies she was required to purchase, as miscellaneous itemized deductions. Once totaled, these expenses along with other deductions such as state income taxes and charitable donations provided enough in total expenses to exceed the standard deduction she originally claimed. "Was she happy!" exclaimed Gritmon. "I guess her previous accountant didn't take any NATP education regarding employee business expenses or he would have known about all those wonderful deductions! The next day I received calls from three of her friends who were also young teachers and I amended all of them."
Many of us assume we have no chance of exceeding the two percent of adjusted gross income floor, but if you know what kinds of receipts to save and you keep thorough records, you might be surprised how quickly seemingly small charges add up. In addition, "Tax return preparation fees are also included in the two percent miscellaneous deduction category," reminds Dawn J. Renner, CPA, MBA, an NATP member in Minnetonka, Minnesota. "Therefore, the IRS may actually help you pay for expert tax advice, thereby making tax preparation less 'taxing'." Several types of expenses are considered miscellaneous expenses; employee business expenses are only one type. The great news is that the total of all miscellaneous expenses can be added together to meet the two percent.
Business expenses you incur and pay for as an employee are easy to forget, however you are allowed to take deductions for unreimbursed expenses if they are ordinary (common and accepted for the type of business), and necessary. Some commonly overlooked deductions include:
- Professional dues
- Employer-required safety equipment
- Business travel costs
- Uniforms or other specifically required work wear not suitable for wearing outside the workplace, and the cost of cleaning them
- Union dues
- Depreciation on a required computer or cell phone
- Job search expenses for a new job in your present occupation
- Licenses and regulatory fees
- Passport for a business trip
- Subscriptions to professional and trade journals related to your work
- Tools and supplies used in place of employment
- Damages paid to a former employer for breach of an employment contract
- Business liability insurance premiums
- Home office required by your employer and used regularly and exclusively for the job
- Dues to a chamber of commerce if membership helps the business
- Education that maintains or improves your job skills or is required by your employer
- Transportation costs for going between job locations (not from home to job or vice versa)
"Auto mechanics routinely buy thousands of dollars of tools for work," according to NATP member, Kevin C. Huston, an Enrolled Agent in Asheville, North Carolina. "They should get a printout from each of their tool suppliers at the end of the year. Often the mechanic is pleased to find out that they can deduct the entire amount charged for tools, even if they are not paid off that year." Having the documentation is key.
"If you don't keep a log of your mileage and tolls when using your car for going between job locations, the IRS will disallow your deduction, no questions asked. So keep that log!" says Nick Popolo, an Enrolled Agent and NATP member in Staten Island, New York. Begin a file for miscellaneous expenses; document each type of expense and its use, including mileage, dates, and times where applicable. When it's time to complete your tax returns, everything is in one place.
To find a professional tax preparer, look to a member of NATP, who subscribes to a stringent code of ethics and standards of professional conduct.
Members of the National Association of Tax Professionals (NATP) work at offices that assist over 11 million taxpayers with tax preparation and planning. The average NATP member has been in the tax business for over 20 years and holds a tax/financial designation and/or a college degree. NATP has nearly 18,000 members nationwide. Members include individual tax preparers, enrolled agents, certified public accountants, accountants, attorneys, and financial planners. Learn more at www.natptax.com. NATP is a nonprofit professional association founded in 1979 to serve professionals working in all areas of tax practice through professional education, tax research, and products. The national headquarters, located in Appleton, WI, employs a staff of 68.
Updated 25 November 2013
Originally posted in 2007