This was originally published on Monday, March 6, 2017, in the Pacific Daily News. Click here to subscribe to the PDN.
The holiday season has gone and now we are preparing for a new season – tax season. April is next month and by now we might be scrambling to get our paperwork together. We are all looking for ways to reduce our tax bill.
Deducting business expenses is not just for the self-employed. If you are classified as a salaried employee, you may be surprised to learn that you can claim work related expenses. Remember all expenses must be incurred during the tax year, business related, cannot be reimbursed by your employer, and is helpful and appropriate for your business.
If you qualify, here are some job-related tax tips:
- Auto expenses: Traveling for business is one of the most frequent work-related deductions. Some deductible auto costs, include visiting clients, going to meetings away from your regular work location, or traveling between two work places — whether it is the same employer (as long as it is not a home office). Gas is deductible if you use your vehicle for work-related trips, but not for regular transportation to work. For the tax year of 2016, the standard mileage rate is 54 cents per mile.
- Travel expenses: If your employer does not pay or reimburse you for your travel expenses, you can deduct some of your expenses. Costs for transportation, baggage fees, telephone expenses and meals can be deducted. Even the cost of your passport for a business trip may be a deduction.
- Computer and cell phone: If your employer requires that you have a cell phone and/or a computer as part of your job, you may be able to claim a depreciation deduction. You must keep a record of the personal and business use of the devices and determine the percentage of time that is used for business related work.
- Entertainment: If you provide entertainment to potential clients you may be able to deduct 50 percent of the amount. You must have records to prove the business purpose and the amount of the expense. Entertainment generally includes any activity considered to provide entertainment, amusement or recreation to potential business clients.
- Start-up costs: Did you start up a business in 2016? You may be able to deduct up to $5,000 for organizational and start-up costs. Some start-up costs include paying for a survey or analysis of you market, advertisements, or travel for securing prospective distributers, suppliers, or customers. If you cannot deduct all your costs in the first year,you can amortize the costs over 15 years.
- Moving expenses: If you had to move off island in 2016 because of a change in your job or business location or to start a new job or business of your job, you may be able to deduct the cost of moving. You can consider moving expenses incurred within one year from the date you first reported to work at the new location. Some of the expenses include household goods and travel costs. There are some deductions for those that move due to a permeant change of station for members of the Armed Forces.
- Tips: If you receive tips as part of your income, you must claim them. This includes tips you receive directly, charged tips by your employer and tips you receive from tip-splitting or tip-pooling. You must keep a daily tip record and report your tips to your employer.
- Miscellaneous expenses: Deductions that are unreimbursed employee expenses such as union dues, tax preparation fees, job-related books or magazines can be claimed. Some of the expenses that you claim may be limited to “the 2percent floor” — it requires that you may only deduct the part of the expense that exceeds 2 percent of your adjusted gross income.
- Home office costs if it is your principal place of business.
- Job search expenses.
- Legal fees to keep your job.
- Work clothes and uniforms costs that are not normal everyday wear that are a condition of your employment (work shoes, special gear, etc.)
There are many other deductions for business. If you are not sure that your business expenses are deductible go to the IRS website, http://www.irs.gov, or seek the help of a professional tax preparer.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at email@example.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.