Can You Write Off Pets on Your Taxes?

Pets are members of the family, but as much as you love them you can’t claim them on your annual tax return – unless they’re a certified service animal. You can’t claim them as a deduction, but you can claim the cost of their medical care, training and maintenance.

The IRS doesn’t recognize therapy animals as certified service animals. If you’re visually impaired, have audio deficits, or have a physical disability, then you can claim certain expenses for your service animal. Be very careful when trying to claim expenses for an animal on your taxes. It’s best to hire a tax professional or you could find yourself running afoul of the IRS.

Some of the expenses you can claim for your certified service dog includes veterinary bills, grooming, training and pet food. Be aware that you’ll need a doctor’s prescription indicating the need for the animal and a receipt for every expense.

The IRS recognizes service dogs for tax purposes. No other animals are allowed and are typically considered farm animals. However, if you have a business, you’re self-employed, and can prove the dog provides a service for the business, you can write off his/her expenses.

An example would be a Doberman or mastiff as a guard dog, but not a Yorkie or Pomeranian. You may also be able to claim a cat as rodent control, provided they live at the business. If the animal produces income through social media, breeding, animal shows, or films, TV or advertisements, there are expenses you can claim. Very precise records will need to be provided.

If you nurture dogs for charitable organizations, you can claim the associated costs as a charitable donation. A portion of travel costs related to volunteer work at a shelter or rescue can be deducted. You can only claim 7.5 percent of the costs of your adjusted gross income (AGI), and the amount will need to total more than your standard deduction.

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Tax Deductions
posted by Mark Battalini
April 17, 2022

Tax Write-Offs for Alarm Systems

Any business owner that’s been considering the installation of an alarm system should know they can deduct the cost on their federal tax return. The IRS recognizes a variety of qualifying equipment ranging from fire alarms to security systems if they were purchased or financed during the tax year.

Businesses can deduct the entire purchase price up to a specified limit and fire protection systems can now be written off. Allowable expenses include heat and smoke detection units, sensing devices, audible alarms, sprinkler systems, motion detectors, and door and window locks. Monitoring services may be deductible.

Individuals that work from home can deduct the cost of a security system as a business expense, within limits. The line between home office and business can be a little blurry. It’s best to hire a tax professional that is well-versed in the intricacies of the law. Those that work from home due to the COVID-19 pandemic don’t qualify, as they’re employees not business owners.

To claim a security system installed at a home as a business expense, individuals will need to prove that the home is their principal place of business where they meet with patients or clients. The home must also be the exclusive space where inventory is stored. Daycare facilities and properties for rental use are included.

Individuals will need to establish the allowable area where business is conducted. The IRS allows people to deduct a portion of the security system in relation to the area actually used for business purposes. There are two ways that percentage can be determined, so be sure to calculate both ways for the maximum benefit.

As with all IRS rules, there are exceptions. The business expense can’t equal or exceed the individual’s income. However, business owners operating a business from their home can claim depreciation of the system for the portion that protects the business space.

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Tax Deductions
posted by Mark Battalini
March 20, 2022

What Charities are Tax Deductible

Charitable organizations rely on the generosity of sources ranging from grants and bequests to personal donations. However, when it comes to tax time, individuals and businesses will want to be able to deduct those contributions. Child, animal and veteran’s organizations are three of the most popular choices for charitable donations. They range from small, local organizations to those based in the U.S. with global reach.

There are thousands of deserving and qualified organizations to which donations can be made, provided it qualifies under IRS rules as a tax-exempt organization as defined by section 501(c)(3). However, it’s important to know that an organization can have non-profit status, without meeting the 501(c)(3) specifications. That distinction is the difference in whether a contribution can be claimed on income taxes.

A major consideration is if the funds will be used generally or specifically. For instance, people can make a donation to a cemetery and it will be tax deductible if the money will be used for general upkeep and maintenance for the entire cemetery rather than a specific gravesite or mausoleum. If the individual received something in return for their donation, such as tickets, merchandise, or a dinner, it won’t be fully deductible.

Contributions to organizations such as the Red Cross and Salvation Army are tax deductible, but not when designated for a specific individual or family. Donations are tax deductible for museums, non-profit educational agencies, and for some religious organizations. Donations to volunteer fire departments and organizations that maintain public parks are also tax deductible, as are private foundations. Many animal shelters and organizations hold 501(c)(3) status.

Use Caution

Holidays and natural disasters are always prime opportunities for scammers to seek donations. There are numerous legitimate organizations that accept monetary contributions. It’s up to each individual or business to ascertain if the organization meets 501(c)(3) qualifications if they want to claim their contribution on their taxes.

It’s also a good idea to ask how much of the contribution will actually go toward the organization for the maximum good. Many people are surprised to learn that a scant 10 percent actually goes toward the organization. The IRS has an exempt organizations tool to help individuals and businesses identify qualifying organizations.

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Tax Deductions
posted by Mark Battalini
January 8, 2022

Can You Use Tax Credits and Tax Deductions?

You can definitely use tax credits and tax deductions to lower the amount of federal income tax you pay. Tax credits directly reduce your tax. Deductions reduce the amount of your taxable income, the taxes you pay and may increase the amount of your refund if you have one coming. However, taking some deductions and credits will depend on which tax bracket you fall within and your personal situation.

Tax Credits and Tax Deductions

Federal income taxes can be complex, even for low-income filers. The Advance Child Tax Credit payments that began in the summer of 2021 is an example. You may have been receiving them, but the amount is half of what the total would be. You can claim the other half when you file your federal income tax return. Corona Virus Impact payments and stimulus payments will also have to be considered.

Tax Credits

There are credits for Earned Income, dependent care, adoption, and the elderly or disabled. There’s a foreign tax credit, those for undistributed capital gains, excess Social Security and RRTA withholdings and retirement savings contributions. You may have a credit if you’re a homeowner or have costs from healthcare and education. Some have limits on the amount that can be claimed.

Deductions

Work deductions are one of the most common types of deductions, enabling you to deduct expenses such as union dues and uniforms, or the use of your car and a portion of your home space if you’re working from home. If you’re part of the gig economy or use an employment app for per-day jobs, you can still take those deductions.

If you use those apps or are part of the gig economy, you should be aware that you’ll be classified as self-employed by the federal government and that means you’ll be paying higher taxes. You’ll be liable for self-employment taxes, Social Security and Medicare taxes. The good news is that you can typically claim your earnings on your regular income tax form under “Other Income.”

Tax Preparation

There are a number of good online tax preparation software programs for those that have fairly straightforward tax forms. If your taxes are more complicated, you should definitely seek the services of a professional tax preparer or CPA.

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Tax Deductions
posted by Mark Battalini
November 29, 2021

Can I Deduct Elder Care on my Tax Return?

An increasing number of individuals are caring for elderly parents and the costs can add up. Many people overlook the deduction when filing their income taxes. There is definitely an elderly care tax credit, but it represents a highly complicated set of rules. Unlike most credits, the individual doesn’t have to qualify as a dependent, but they can be.

Eligible Costs

In 2021, you could claim up to $4,000 in elderly care costs for one individual and up to $8,000 when caring for two people or more. Costs can include medications, medical care, exams, therapy, and mental health support.

Expenses can also encompass meals and household services, along with qualifying long-term care services. Dental care, transportation, recreational activities may also qualify. There are very specific rules governing whether you can claim it.

Who Qualifies?

The person being claimed must have lived with you for at least six months during the year. They must be physically or mentally unable to care for themselves. Only one sibling may claim the deduction, and the parent must be a legal resident, U.S. resident alien, U.S. national, a resident of Canada or Mexico, the Republic of Panama, or the Canal Zone. They’ll also need valid ID and Social Security number.

In-Home Care

Your parent’s gross income must be less than $4,300. You may also claim an elderly care credit if you hire an in-home caregiver. If you plan on claiming the credit, it’s best to consult with a tax accountant to determine if you’re eligible and if specific conditions and costs qualify.

Seniors and Spouses

If you’re a senior residing in an assisted living or long-term care facility, you may be able to claim a variety of deductions. IRS rules are different for individuals claiming the expenses for themselves vs. a child claiming the deductions for a parent. There are also precise rules for spouses. The rules are complicated and will also depend on who is actually paying the costs.

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Tax Deductions
posted by Mark Battalini
October 7, 2021

Deducting Medical Expenses

Everyone wants to lower their tax burden by getting every possible deduction to which they’re entitled and medical expenses is one way to accomplish that. However, individuals must itemize to claim the deduction and much will depend on an individual’s income. Claiming medical expense deductions is beneficial if the amount of the deductions exceeds the standard deduction on income taxes.

What can be Deducted?

The IRS enables taxpayers to deduct unreimbursed medical, dental, vision, and mental health expenses for themselves, a spouse and dependents, up to 7.5 percent of their adjusted gross income. Those expenses can include diagnostics, mitigation, treatment and cures, along with preventative measures. Individuals can also deduct travel expenses.

The COVID-19 pandemic has left many individuals with astronomical medical bills. Some private insurance companies have pledged to cover all COVID-19 expenses, while others have not. Taxpayers that rely on Medicaid and Medicare for medical care may have co-pays and spend-downs that they can claim.

There are a great many expenses that taxpayers can deduct if they’re itemizing deductions, up to 7.5 percent of their adjusted gross income. They include fees to a wide range of medical and mental health professionals, including surgeons, dentists, chiropractors, psychiatrists and psychologists, and non-traditional medical practitioners.

Wide Range of Deductions

Other expenses include oral and injectable prescription medications, weight loss programs prescribed by a doctor, and in-patient costs for drug, alcohol and nicotine addiction. Nursing home costs, insurance premiums, and medical aids such as crutches, wheelchairs, dentures and even service dogs are all allowable expenses.

The range of medical-related expenses that can be deducted is extensive, but there are also restrictions on what can be claimed. For taxpayers with substantial costs, it can be beneficial to claim those deductions. The best solution for those intending to claim medical expense deductions is engaging the services of a tax professional or certified public accountant (CPA) that has the experience, knowledge and resources to help them get every deduction to which they’re qualified.

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Tax Deductions
posted by Mark Battalini
September 5, 2021

Stimulus Relief and Taxes

Various stimulus payments during the COVID-19 pandemic have been designed to provide relief for those struggling during job loss and lock downs. The coronavirus has affected every aspect of life, and that includes income taxes.

Payment Delays

The federal government has made three rounds of stimulus payments to individuals, even to those that typically don’t file or aren’t required to file. The distribution of those payments has encountered a number of problems. Individuals may have received one, but not the other payment, but that doesn’t mean that they won’t receive the second and third.

Others received less than the full amount and in many cases, the payments were confiscated for child support and similar court-ordered payments or the full amount wasn’t disbursed. For those individuals, they may be eligible to claim a Recovery Rebate Credit, but to do so they need to file a tax return.

Tax Liability

The good news is that stimulus checks aren’t taxable. Individuals must pay taxes on income, but stimulus checks aren’t really income for tax purposes. It’s classified as an advance payment on a tax credit and a tax credit isn’t taxable either. Pay careful attention to the new tax forms, as they can save taxpayers money if they:

Had a baby
Were married and one spouse doesn’t have a Social Security number
Income dropped in 2020
Are a recent college graduate
Didn’t receive a full round of stimulus checks
Didn’t file a 2018 or 2019 tax return

Delivery Difficulties

The stimulus payments were first made to people that filed tax returns by e-file. Paper checks were then dispersed to those that filed paper copies of their return. It led to delays, shorted amounts, and no check at all, since distribution was based on 2019 and 2020 tax returns. That means individuals will be able to claim the amount they missed as a tax credit on their taxes.

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Tax Deductions
posted by Mark Battalini
April 17, 2021

Common Tax Deductions you should Never Miss

Income tax time can be a dreadful season if you are not aware of all of the income tax breaks you can get through income tax deductions. It is important to understand what is tax-deductible so that you can get as large of a tax refund as possible.

Probably the most well-known income tax deduction is the Earned Income Credit. The earned income tax credit is available to those who make a minimum amount of money and can file tax as single, married, or head of household. The more money you made, the more your earned income tax credit is until you hit the peak. Once you hit that peak, the earned income tax credit goes down until you reach the maximum income allowed to receive the earned income tax credit.

The second well-known income tax deduction is the Child Tax Credit. The child tax credit is available to you if you have two or more children in the home for more than six months out of the year for which you are filing tax, and if you have a tax liability. The total amount is then applied to your tax liability, and any amount of child tax credit left over is made a part of your income tax refund.

Another income tax deduction is for child daycare, when the child daycare is needed in order for one or both parents to work outside the home. This daycare income tax credit is equal to a percentage, up to a maximum amount, of the actual daycare expenses paid for that tax year.

Other expenses can also be tax-deductible. Interest paid on a mortgage for the primary residence can be claimed as an income tax deduction. Medical expenses can also be claimed as an income tax deduction, although this is not very helpful unless you have an excessive amount of medical expenses to deduct on your income tax return. Tax paid to another state can be used as an income tax deduction in the state that you live in. Donations and contributions to charities, fundraisers, churches, etc. can also be tax-deductible.

If you are self-employed, you can also claim business expenses as income tax deductions. This includes any expenses directly related to running your business. You can take a mileage income tax deduction for any miles you put on your vehicle for business purposes. You can also take an income tax deduction for your office space in your home if it is used only for business purposes in the form of a portion of your rent, utilities, and phone bills. You can also take an income tax deduction for your personal computer, printer supplies, and other office supplies as long as you have the receipts for the tax-deductible expenses, and usage logs for the personal computer and other equipment to show that it is used primarily for business.

As you can see, there are many income tax deductions available to you. If you have any questions about what is tax-deductible, you should contact a qualified, certified, licensed tax accountant today.

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Salary, Tax Deductions
posted by Mark Battalini
February 14, 2021

Your Tip Earnings and Taxes

The internal revenue service takes a very simple approach to tips. It views all tips you make in your job as taxable income that must be reported and for which taxes must be paid. Put another way, the IRS has a simple but brutal view towards taxes.

Now tips come in different forms. Some are received directly from customers while others are automatically added to the customer’s bill. The IRS takes the position you must report and pay taxes on both amounts. This also includes taxes you earn through any group splitting where all tips are collected together and then split amongst the employees. On top of this, the IRS also takes the view that any non-cash tips such as tickets to something are also income that should be reported and taxes paid on. Put another way, the internal revenue services gets you coming and going.

To make things a little more brutal, the internal revenue service requires you to take some steps in reporting tips. If your tips total $20 or more in any calendar month from a single job, you are supposed to report the total to the employer by the 10th day of the next month. The employer is then supposed to withhold federal income tax, social security and Medicare taxes from your paycheck. Keep in mind that the failure to do so can lead to the placement of a 50 percent penalty on your taxes. Obviously, the IRS is fairly serious about getting its money.

Tips paid to waitresses, bartenders, barbacks and so on are a hot spot with the IRS and always have. Since tips tend to be given in cash form, the potential for forgetting to report them is particularly high. The IRS seems to think so and has shown a generally aggressive attitude on the subject. If you indicate you are a waitress or bartender on your tax return, but fail to report any tip income, it could be audit time.

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Tax Deductions
posted by Mark Battalini
February 14, 2021

Bad Debt Tax Deduction

Practically every small business has receivables that it cannot obtain from clients. If your small business doesn’t have any such receivables, consider yourself lucky. For those small businesses that suffer from uncollected receivables, solace can be taken from the fact you can claim a tax deduction.

A small business can write-off bad debt losses if it meets nominal requirements. To claim such a tax deduction, the following must be shown:

The existence of a legal relationship between the small business and the debtor
The receivables are worthless
The small business suffered an actual loss

Proving there is a legal relationship between the small business and debtor is fairly simple. You must simply show that the debtor has a legal obligation to make a payment. Most businesses issue invoices or sign contracts with debtors and these documents suffice to prove the legal relationship. If you are not putting your business relationships in writing, you should begin doing so immediately.

Proving receivables are worthless is slightly more complex. A small business is required to show that the debt has become both worthless and will remain so. You must also show that you took reasonable steps to collect the receivables, but you are not necessarily required to go to court to meet this requirement. A clear example of where you would meet this requirement is if the debtor filed bankruptcy.

While proving that you suffered a loss may sound like the easiest requirement to meet, the issue is a bit more complicated. The Tax Code defines the loss as an amount that is included in your books as income, but is never collected. A classic example of such a situation would be a manufacturer that provides products to retailers on credit. The manufacturer can show a real loss if the retailer files bankruptcy.

Unfortunately, there is almost no way to claim a loss if you provide hourly services and use a cash accounting method. The IRS does not consider the expenditure of time and effort to be a sustained economic loss.

Small businesses suffer all too often from uncollected receivables. If you failed to claim such losses as a tax deduction during your last three tax filing years, you should file amended tax returns to get a refund.

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