Planning ahead for professional deductions can ease tax bite
by Tami Farmer, RDH, CDA
Whether you are self-employed, an independent contractor, or an employee, it is never too early to start planning for next year's tax return. Dental hygienists have several professional expenses that should be deducted. Although taxes can be confusing and overwhelming, asking yourself several key questions can help you in planning and filing your taxes to get the most from your professional deductions.
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What types of records do I need to keep and for how long?
Recordkeeping is very important in case the IRS examines your tax return and you need support to show the IRS. You must be organized and keep proof of any deduction claimed on your tax return for three years from the date of filing your return and claiming the deduction. Items to keep include documents (course descriptions, catalogs), canceled checks or receipts (meals, lodging, transportation, education expenses), and CE requirements for your state. You should have a book, diary, log, trip report sheets, or something similar. Documents should meet certain specifications. For example, lodging documentation should include hotel name, location, dates stayed, and separate amounts listed for charges such as meals and telephone calls. Restaurant documentation should include restaurant name, location, number of people served, date and amount. Any canceled checks should be accompanied by the bill from the payee.
Should I take the standard deduction or itemize?
When it comes time to file your taxes, look up what your standard deduction would be on Form 1040, and compare this to your allowable itemized deductions. Take the one that benefits you most.
What professional expenses can I deduct?
Unreimbursed employee expenses, tax preparation fees, and certain other expenses discussed below that are paid or incurred in the tax year and are ordinary and necessary for carrying on your trade are referred to as miscellaneous itemized deductions. These are deductible only to the extent that they exceed 2% of your adjusted gross income.
- Expenses related to finding a new job -- You can deduct expenses you incur when looking for a new job in your present profession (fees you pay to an employment agency, resume fees for preparing and mailing out copies, travel and transportation expenses). You cannot deduct these if you are job hunting for the first time.
- State licensing fees.
- Dues to professional societies (if membership helps you carry out the duties of your job).
- Subscriptions to professional journals and trade magazines.
- Dental instruments and supplies you purchase yourself.
- Malpractice insurance.
- Working as a temporary (fill-in) hygienist -- You can deduct the cost of going between your home and a temporary work location in your same profession. You can deduct the travel expenses between home and a temporary work location if the office you are traveling to is outside the area in which you normally live and work, or you have at least one regular work location in the same business. A temporary work location is a place where you are expected to work for one year or less.
- Continuing education -- You can deduct your expenses for conventions, seminars, and classes required by law, or education expenses to improve your job skills. You cannot deduct any education that would qualify you for a new profession. You also cannot deduct the dollar value of vacation time or annual leave you take to attend classes.
Travel expenses related to continuing education
Deductible travel expenses include the cost of transportation (including tolls, parking fees, taxi fares), meals, lodging, tips, dry cleaning, laundry, and business calls while on your trip. You cannot deduct extravagant expenses for personal purposes. You cannot deduct expenses for sightseeing, and you cannot deduct expenses of a spouse or dependant traveling with you.
There are certain factors regarding whether travel to a particular location is considered personal or educational. A main factor is a comparison of time spent on personal activities verses time spent on educational ones. To be mainly educational, you must be able to show a substantial nonpersonal reason for traveling to a specific location. Rules for travel outside the U.S. vary.
You may be wondering about continuing education cruises. Your deduction for cruises is limited. Cruise ship travel may be considered vacation even if the promoter advertises business events. There is a daily limit on the amount you can deduct for cruises based on the time of year the travel occurs. For example, travel between July 1 and August 31, 2012 had a daily limit on cruise ship travel of $620. You could deduct up to $2,000 per year of your expenses attending seminars hosted on cruise ships (all ships that sail are considered cruise ships).
Requirements that must be met for cruise ship travel include -- seminar must be directly related to your business, cruise ship vessel must be registered in U.S., ports of call must be in U.S. or a possession of U.S., you must sign a written statement about number of hours each day devoted to meetings, and you must attach a written statement from the group that organized the meeting stating the schedule of meetings each day and number of hours you attended
Meal expenses for travel can vary depending on your city of destination. The deduction for business meals is generally limited to 50% of the unreimbursed cost. You can keep records of your meal expenses or use a standard meal deduction. The standard meal allowance for the fiscal year 2013 for most small localities in the U.S. is $46 a day. Major cities qualify for a higher standard allowance. Enter the zip code of your destination city at www.gsa.gov/perdiem to see the allowance.
Are daily commuting costs to and from work deductible?
Commuting costs are not deductible. However, if you work in more than one office in a day, expenses of going from one workplace to another are deductible. The 2013 rate for business use of a vehicle is 56.5 cents per mile (raised from the 2012 rate of 55.5 cents per mile.)
What are some other things that are not deductible?
Non-deductible items include club dues, parking ticket expenses, life insurance premiums, lost or misplaced cash, lunches with coworkers (except when traveling away from home on business), personal disability insurance premiums, lost vacation time, and professional accreditation fees to receive initial licensing.
What if my employer reimbursed me for business expenses?
Reimbursed expenses are either referred to as accountable or nonaccoutable plans. Accountable plans must have a business connection, must be adequately accounted to your employer for your expenses, and you must return any amount in excess of your expenses to your employer. Your employer should not include any reimbursement in your income. In nonaccountable plans, the employer combines the amount of any reimbursement with your wages, salary, or other pay. In nonaccountable plans, you can deduct your expenses whether they are more than, less than, or equal to your reimbursement. Employees can only deduct the cost of continuing education if they did not receive any reimbursement from their employer, were reimbursed under a nonaccoutable plan, or received reimbursement under an accountable plan but the amount received was less than the expenses for which reimbursement was claimed (only deduct the qualifying costs that were more than your reimbursement).
Can I deduct my health insurance premiums?
Health insurance premiums may be deductible. You must include these with your other medical expenses. For 2013, the total must exceed 10% of your adjusted gross income (up from 7.5% in 2012) before they can provide you with any tax benefit. If your spouse or you were born before Jan. 2, 1949, the 7.5% remains in effect for 2013. However, if you are self-employed and not covered by an employer-paid plan, you can qualify to deduct 100% of your health insurance premiums for you, your spouse, and your dependants. The self-employed can also deduct their health insurance premiums in regards to their Social Security taxes.
Can I deduct contributions made to a retirement account?
These contributions are not currently taxed. This is like getting a deduction off your income. For 2013, you can also get as much as a 50% credit off the first $2,000 invested. If you qualify, you can deduct as much as $5,500 in IRA contributions (up from $5,000 in 2012). As your adjusted gross income increases, the tax credit disappears. Qualifying contributions include contributions to a 401k, 403b, Simplified Employee Pension plan, or traditional or Roth IRA.
Where can I get help with my taxes?
Free help is available nationwide from IRS-certified volunteers (visit IRS.gov or call 800-906-9887), on the Internet (IRS.gov), on the phone (IRS 800-829-1040), or at IRS offices. RDH
Other tax tips:
- Stay informed of tax laws. (There have been more than 3,500 changes since the year 2000.)
- You may want to get professional tax help (especially since tax preparation fees can generally be deducted).
- Decide how you're going to file (married filing joint, married filing separate, single, head-of-household). Figure your taxes more than one way. Joint returns usually have the lowest rates. Married filing separate may have a lower total tax if you have high medical or miscellaneous deductions. Single head-of-household rates are sometimes better than filing single.
- If you work for more than one dentist, you may have had excess Social Security tax withheld.
- Be sure to study the tax brackets, standard deductions, and exemptions for 2013 before filing your taxes.
Tami Farmer, CDA, RDH, is based in Rome, Ga. She can be contacted at [email protected].
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