If you contributed to charity in 2017, you can generally deduct the full amount on your tax return with one caveat: You must have the records to back up your claims in case the IRS comes calling. If you donated money, the documentation is fairly simple. But special rules apply if you donated property or you received benefits in return for your gift.
For monetary contributions, such as gifts by check or credit and debit card, you must have a bank record or written communication from a qualified charitable organization showing the:
- Amount of the contribution
- Date of the contribution
- Name of the organization
Also, you must obtain a written acknowledgment from a charity for any gift of $250 or more.
Gifts of property often require extra tax return work. If the property increased in value from the day you purchased it and you’ve owned it for longer than a year, you can deduct the fair market value of the property on the date of the donation. Otherwise, your deduction is generally limited to what you paid for the item.
Donations of property valued above $500 require a description of the donated property attached to your return. If the gift is valued at more than $5,000, you’ll need to provide an independent appraiser’s summary.
If you received benefits in return for your gift
Sometimes you may make a contribution and receive a benefit in return. With these “quid quo pro” contributions, you can deduct only the difference between the contribution amount and the value of the benefit. Suppose that you and your spouse attended a fundraising dinner that cost you $200 in total. The charity states that the meals were valued at $80, so your deduction is limited to $120 ($200 – $80 = $120).
Don’t miss out on claiming the charitable donations you’re entitled to deduct on your 2017 return — but be sure you have the proof you need. Contact Dye & Whitcomb if you have questions.
What do you call those deductible expenses that don’t fit squarely into any other category? The IRS refers to them as “miscellaneous” expenses. If you qualify, you can deduct the excess above 2 percent of your adjusted gross income (AGI) on your 2017 tax return. For instance, if your AGI for 2017 is $100,000 and you incurred $3,000 in miscellaneous expenses, your deduction is $1,000.
Under the Tax Cuts and Jobs Act (TCJA), the miscellaneous expenses deduction is suspended from 2018 through 2025. However, you can still deduct these expenses on your 2017 tax return.
The list of expenses is long and varied, but you can generally break them down into two groups: production-of-income expenses and unreimbursed employee business expenses.
1. Production-of-income expenses: This group includes fees relating to tax and financial planning and assistance. Some common items are as follows:
- Accounting, legal or tax fees to produce or preserve income
- Appraisal fees for charitable contributions and casualty losses
- Custodial fees for income-producing property and IRAs
- Fees paid to collect interest or dividends
- Hobby expenses (up to the amount of hobby income)
- Safe deposit rentals to store non-tax-exempt securities
- Tax assistance expenses for services, periodicals, manuals and other materials
Tax return tip: The cost of having your 2017 tax return prepared qualifies as a deductible miscellaneous expense.
2. Unreimbursed employee business expenses: The second group of miscellaneous expenses consists of unreimbursed employee business expenses. It includes the following items:
- Cellphones and home computers (when required for employment)
- Dues paid to professional societies
- Employment-related education
- Home office expenses as employee
- Malpractice insurance premiums
- Subscriptions to professional journals and magazines
- Travel and entertainment expenses (limited to 50% of cost of business meals and entertainment)
- Union dues
- Work clothes or uniforms
The cost of searching for employment may also qualify as a deductible miscellaneous expense, even if you don’t get the job.
This deduction is no longer available in 2018, so take advantage of it now on your 2017 tax return if you can. Questions? Contact Dye & Whitcomb, Fort Collins CPA’s and we can help you.
What records are required for 2017 returns?
.Although every situation is different, here’s a checklist of some common income items to gather:
- W-2 forms showing wages
- 1099 forms for investments, bank accounts and side jobs
- Business income of pass-through entities (e.g., K-1 forms) and sole proprietors
- Other investment income information (e.g., carryover capital losses)
- Other business income information (e.g., QuickBooks entries)
- Statements of state and local tax refunds
- Rental property income
- Social Security benefits received
- Other miscellaneous income items, including unemployment compensation, jury duty pay, prizes and awards and gambling income
Take a look at the list below. Records are usually required to claim deductions and credits for the following:
- Charitable contributions
- Mortgage interest
- State and local taxes
- Medical and dental expenses
- Miscellaneous expenses (e.g., unreimbursed employee business expenses)
- Casualties and theft losses
- Self-employed health insurance
- Self-employed business expenses (e.g., home office expenses)
- IRA contributions
- Job-related moving expenses
- Childcare costs
- Adoption costs
- Higher education costs
- Student loan interest
Before you hand over documents to Dye and Whitcomb’s accountants, verify their accuracy. For instance, make sure that contributions to IRAs and qualified retirement plans (like a Simplified Employee Pension (SEP) for a self-employed taxpayer) reflect the appropriate tax year. Double-check Social Security numbers — it’s easy to make a mistake.
Finally, if you’re requesting direct deposit of a refund, there are two more numbers you must provide: Your bank account number and the bank’s routing number. That is the fastest way to get a refund for your 2017 taxes.
Contact our office if you have questions about preparing your 2017 tax return, or if you’d like to set up an appointment.
The Tax Cuts and Jobs Act (TCJA) does much more for businesses than lower corporate tax rates. With careful planning, your small business may realize big tax benefits under the new law. Here are several tax-saving opportunities for 2018:
- Place assets in service. Under Section 179, a business can now deduct the cost of up to $1 million of qualified assets a year, doubled from $500,000. But the Section 179 deduction is still limited to the amount of income from the business activity. Also, the TCJA doubles the 50 percent bonus depreciation deduction to 100 percent for 2018, giving your small business greater flexibility.
- Consider buying a new business car. The TCJA also increases depreciation deductions allowed for cars used for business driving. Specifically, it hikes the annual limits for luxury cars for each year in service. For instance, the first-year write-off for a car jumps from $3,160 in 2017 to $10,000 in 2018, not even counting bonus depreciation. If you’re shopping for a new business car, now’s a good tax time to buy.
- Manage pass-through income. For taxpayers owning a business taxed as a pass-through entity — like a partnership, S corporation or sole proprietorship — the new law creates a brand-new deduction generally equal to 20 percent of the business income. This effectively lowers the tax rate for owners. There have been conditions put in place to avoid abuses, especially for professionals and other taxpayers providing services. By keeping income below the thresholds of $157,500 for single filers and $315,000 for joint filers, you may benefit from the maximum 20 percent deduction.
- Cash in on other business tax breaks. Finally, you can still take advantage of various deductions and credits (albeit with certain tweaks), including tax breaks for research activities, interest deductions, net operating losses (NOLs) and a new temporary credit for family and medical leave wages.
Contact Dye & Whitcomb, Fort Collins CPA’s today and we can help you develop the best tax strategies for your situation.