More Work-related Tax Benefits
Employees may deduct unreimbursed travel expenses, including travel to and from one workplace to another. For example, if you primarily work at home but have to travel to an office or other work site, that may be deductible. Similarly, trips out of town, including the cost of travel, related meals, hotel costs, business phone calls and dry cleaning or laundry may be deductible or partially deductible. In addition, the cost of convention or trade shows that will benefit your business may be deductible. Employees must itemize, and the deduction is subject to the limit of 2 percent of your AGI [source: IRS Employee].
The self-employed can generally treat business travel like any other business-related expense and deduct most, if not all, of the costs. Keep excellent records, however. This is one of those categories of expenses that can make the IRS raise its collective eyebrows if the deductions seem out of line with your income.
The IRS has guidelines for deducting the cost and upkeep of work clothes, starting with these two requirements:
- You must wear them as a condition of your employment.
- The clothes are not suitable for everyday wear [source: IRS Publication 529].
According to the guidelines, the clothing must be more than distinctive. For example, painters who are required by their employers to wear all white may not deduct the cost, as white pants and shirts may be worn every day, and away from work. Some employees who may be able to take the work-related clothing deduction include professional athletes, postal workers, law enforcement officers, firefighters, musicians and theatrical workers. In addition, the cost of safety items such as shoes, boots, safety glasses and hard hats may be deductible.
Generally, all of these expenses may be deducted as part of the costs of doing business if you're self-employed.
One way people can get ahead in their jobs is by continuing their education. If you've taken classes related to your job this year, you'll be glad to know some of the expenses -- for both employees and freelancers/contractors -- may be deductible. The IRS has specific rules related to deductions for education: To be deductible, education expenses must "maintain or improve your job skills" or be "required by your employer or by law to keep your salary, status or job" [source: IRS Educational].
However, there are a couple of caveats. Education expenses are not deductible, even if they meet the two requirements, in the event that the education is "part of a program that will qualify you for a new trade or business or is needed to meet the minimal educational requirements of your trade or business." Expenses that may be deductible include tuition, books, supplies, lab fees and the like, as well as transportation and travel costs. For employees, these expenses are subject to the 2 percent of AGI limit.
1: Job Hunt
Expenses you incur while looking for a job may be deductible if you're seeking a new position in your same field. Examples of expenses you may deduct include the cost of using a placement agency, the cost of preparing and mailing your resume and the costs of traveling for job interviews.
These expenses are recorded as miscellaneous deductions. As such, for employees, they are subject to the 2 percent of your AGI rule. You may not deduct expenses if you're seeking a job in a different field, if there has been a substantial break since your last job or if you are looking for your first job.
Author's Note: 10 Work-related Tax Benefits
One final benefit the IRS offers low-income workers is free e-filing for your federal return. It's a benefit I had no idea existed until doing the research for this list, but it's a great one if your income is under $58,000. Check out FreeFile, as it's something the IRS seems to have gotten very right.
- Bell, Kay. "10 Year-End Tax Moves to Make." Bankrate. 2013. (Oct. 14, 2014) http://www.bankrate.com/finance/taxes/10-year-end-tax-moves-to-make-1.aspx
- Internal Revenue Service (IRS). "Affordable Care Act Tax Provisions for Individuals and Families." June 3, 2014. (Oct. 13, 2014) http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions-for-Individuals-and-Families
- Internal Revenue Service (IRS). "Business Taxes." Sept. 3, 2014. (Oct. 26, 2014) http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Business-Taxes#self
- Internal Revenue Service (IRS). "Topic 513: Educational Expenses." Aug. 19, 2014. (Oct. 26, 2014) http://www.irs.gov/taxtopics/tc513.html
- Internal Revenue Service (IRS). "Job Search Expenses Can Be Tax Deductible." July 18, 2012. (Oct. 26, 2014) http://www.irs.gov/uac/Job-Search-Expenses-Can-be-Tax-Deductible
- Internal Revenue Service (IRS). "Topic 514: Employee Business Expenses." Aug. 19, 2014. (Oct. 26, 2014) http://www.irs.gov/taxtopics/tc514.html
- Internal Revenue Service (IRS). "Publication 529 - Main Content." (Oct. 26, 2014) http://www.irs.gov/publications/p529/ar02.html
- Internal Revenue Service (IRS). "Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits." July 3, 2014. (Oct. 14, 2014) http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-401k-and-Profit-Sharing-Plan-Contribution-Limits
- Internal Revenue Service (IRS). "Roth IRAs." Feb. 20, 2014. (Oct. 26, 2014) http://www.irs.gov/Retirement-Plans/Roth-IRAs
- Internal Revenue Service (IRS). "Self-employment Tax." Sept. 5, 2014. (Oct. 31, 2014) http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employment-Tax-Social-Security-and-Medicare-Taxes
- Internal Revenue Service (IRS). "Simplified Option for Home Office Deduction." Aug. 19, 2014. (Oct. 14, 2014) http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Simplified-Option-for-Home-Office-Deduction
- Internal Revenue Service (IRS). "Topic 508 - Miscellaneous Expenses." Aug. 19, 2014. (Oct. 31, 2014) http://www.irs.gov/taxtopics/tc508.html
- Internal Revenue Service (IRS). "Topic 511 - Business Travel Expenses." Aug. 19, 2014. (Oct. 26, 2014) http://www.irs.gov/taxtopics/tc511.html
- Internal Revenue Service (IRS). "Traditional IRAs." (Oct. 26, 2014) http://www.irs.gov/publications/p590/ch01.html#d0e960
Many Americans don't think about their tax bills until the new year. But there are things you need to do before Dec. 31 if you want to pay less later.