Jan
16

Your Tax Questions Answered: Loan Interest, Charity, Tax Deductions

By
 Man with umbrellas, questions raining down_The BudgetProfessional.com

Do you have a tax question? Send me an email and ask!
I’ll try to include your question and my answer in an upcoming Q&A article

What Is Your Question?

I Have a Small Business. What Can I Deduct on my taxes?

Q: I have a small, weekend photography business. Engagement and prom pictures are my specialty, and I’m spending a lot of money. What expenses can I deduct on my taxes?

A: A business expense must be both “ordinary and necessary” in order to be deductible. The IRS defines an “ordinary expense” as one that is common and accepted in your trade or business. A “necessary expense” is one that is helpful and appropriate for your trade or business.

You’re a photographer. Film, photo paper, darkroom chemicals, and memory cards are examples of ordinary expenses.

If you use anything in your business that you also use personally, (cell phone, car) keep good records and track what percentage of that expense is actual business use.

Is Loan Interest Tax Deductible?

Q: I took out a small loan last year and bought equipment for my lawn care business. Is the interest I pay on that loan tax deductible?

A: Yes, it is. The equipment you bought became an asset to the business, and the loan became a liability to be repaid. Usually, interest paid on a loan like this is a deduction.

Soup is a Charitable Contribution?

Q: I do a lot of charity work. Someone told me I could take a deduction for the ingredients I buy and use when I volunteer in the soup kitchen. I also recently bought a roll of 100 stamps and used those to mail fund-raising literature for my kid’s school. Is any of that really deductible?

A: Yes, it is, but keep your receipts. Ingredients bought for soup your prepare for a non-profit organization is a charitable contribution, as is the roll of stamps you bought and used for fund-raising. It’s very important that you keep the receipts to back up your claims.

Also, the law says that if a donation is more than $250, you need documentation from the charity receiving the donation. If your grocery receipts for soup, for example, total more than $250 for the year, the charitable organization will have to give you a written receipt showing dates and dollar amounts given.

You can also deduct a mileage expense if you drive your car for charity. The 2014 mileage rate is 14 cents a mile.

Keep written mileage records to back up your deduction. In an audit, mileage is one of the first things they try to take away, and they get that done because people don’t keep good mileage records.

Can I Deduct Living Expenses Working Away From Home?

Q: I’m a computer programmer, and last year I worked a temporary, 8 month job assignment in another state. I came home a couple of weekends a month. Can I deduct the living expenses for my temporary job?

A: It’s all about time. If you take a temporary job, away from what is considered your normal tax home, you may be able to deduct those living expenses IF the job lasts LESS than 12 months. If the job lasts for more than 12 months – surprise! – you have a new tax home. The IRS considers the temporary area to be your new tax home once you’re there more than a year.

 

You can file an amended tax return up to 3 years after the original filing in order to capture missing deductions or credits. Use Form 1040X to file an amended tax return.

Do you have a tax question? Send me an email and ask!
I’ll try to include your question and my answer in an upcoming Q&A article

What Is Your Question?

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