The Best Tax Deduction

Tax deductions make you happy. It is nice to get recognition for that business expense or charitable contribution and know that the money may be gone but it will save you on your taxes when you deduct it. What about a tax deduction that doesn't involve the money going away? The best tax deduction is the money you put away for retirement in a qualified plan like an IRA or a 401k. It reduces your taxable income, but it is still yours growing tax free in a retirement account. It is a tax free investment in yourself.

What Medicare Doesn't Cover

Medicare does not cover the following: hearing aids and exams, dental care, eye exams and eyeglasses, foot care, orthopedic shoes, yearly physical exams, and usually the most expensive of all- long term nursing home care.

Bond Premiums

If you purchase a bond at a higher amount than the maturity value, you have paid a premium which when amortized reduces the amount of interest income you have to report. There is a new line on the 2014 1099-INT (box 11)  where the bond premium is listed. Most brokers are amortizing the bond premium for you based on the constant yield method which will reduce your taxable interest income. If you hold the bond until maturity, then you will break even on the disposition.

Hobby Losses

Can you deduct the losses from a hobby? The  answer is no. Hobby is a bad word to the IRS, and if you are engaged in a hobby you are not intending to make a profit according to the IRS. If you can, you want to become a business where you can deduct the losses. To do so you have to show you intend to make a profit. This profit making intent is a facts and circumstances test that is determined by factors such as how professional are you in carrying out the activity. Do you keep good books and records? Did you get any required business licenses? Do you keep a separate checking account and credit card just for the business? How much time and effort goes into the business? The one that comes up a lot in litigation is whether the activity has elements of personal pleasure or fun.  The more fun it is the more the IRS will say it is a hobby. Hobby losses can be deducted to the extent of hobby income and disallowed hobby losses can't be carried forward.

How to Scare your Tax Preparer

If you want to put a scare into your tax preparer, bring him a shoe box full of receipts to sort and put on the tax return. We don't really need most receipts and would much prefer just the totaled amounts for items like medical expenses and business expenses. However the shoe box full of receipts is important to keep in case you ever get audited by the IRS. Then it comes in real handy. We do want copies of all documents that the IRS get a copy of like 1099s, W-2s, and K-1s so we can make sure the numbers we put on your tax return are the same.