Waukesha and Milwaukee Accountant | Most unknown Tax Deductions

Tax deductions and credits are key to ensuring you maximize your tax refund. People have gotten away with some crazy deductions, all IRS-approved. For example, a gas station owner deducted his beer expense because he gave it away as a part of a promotion and was able to write off the cost as a business expense. There’s the ‘body oil’ deduction used by body builders who can write off their oil expenditure as a business expense. A parent was once able to write off their child’s clarinet lessons as a medical expense, claiming that playing the instrument was correcting the child's overbite.
While these are extreme and very unique examples of tax write-offs, there are some lesser-known deductions and credits that often go unclaimed. Most Americans are aware of tax deductions and credits for new additions to the family, buying a house, home-mortgage interest, and medical and dental expenses, but as you get ready to file by the April 17 deadline, make sure to get the tax refund you deserve by keeping the following lesser-known deductions and credits in mind:
• Casualty Loss: If you were a victim of damage caused by a sudden and unexpected natural disaster, like a roof collapsing due to heavy snow, you could qualify for a casualty loss deduction. However, if damage is caused from something happening gradually, such as water seepage in a basement, you would not qualify.
• Volunteer expenses: Not only are charitable donations of money and goods to a qualified charitable organization tax-deductible, if you spend money out-of-pocket in the course of performing volunteer duties, you are entitled to some modest tax deductions.
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Milwaukee Tax Accounting | Itemizing or Standard Deductions

When it comes to reducing your tax burden, itemizing deductions may be the way to go. The standard deduction is certainly easier, and might be a better option if you have a simple tax situation or don’t own a home, but if you determine that itemizing is right for you, it could lead to substantial savings.

Itemizing vs. Standard Deduction

The standard deduction is exactly what it sounds like—a flat amount that you can deduct from your taxable income. The amount you can deduct is based on your filing status, number of dependents, and what year you’re filing the taxes for. For additional information on the standard deduction, see IRS Publication 501.
When you itemize deductions, you have the ability to deduct the actual dollar amount of individual deductions. Some of these deductions come in the form of mortgage interest, property taxes, medical expenses, and more. If you think that if you totaled up all of your allowed deductions and it would be greater than the standard deduction, it would probably be wise to itemize.

What Expenses Can be Itemized?

The most common expenses include:

• Mortgage interest.
• Charitable contributions.
• Property taxes.
• State and local income taxes.
• Medical expenses that exceed 7.5% of your adjusted gross income.
• Various miscellaneous expenses that exceed 2% of your income such as: union dues, tools and supplies needed for work, tax preparation fees, some legal fees, and many more.

Should You Itemize?

There is no right or wrong answer, and it ultimately depends on your situation. To determine if itemizing would be worthwhile, you should take a look at Schedule A of Form 1040. On this sheet, you can list your itemized expenses, and then total them up to compare the amount to the standard deduction. If the itemized amount is greater, then you would want to itemize. If the total itemized amount is less than the standard deduction, you would not want to itemize.
The largest deductions for most people come in the form of mortgage interest and property taxes, and in these situations, even a modest mortgage could put you over the standard deduction limit. Since this can total into the thousands of dollars over the standard deduction, the tax savings can be significant. While this can be a big deduction, keep in mind that just because you own a home it doesn't mean the mortgage tax deduction is better than the standard deduction.

Accounting Waukesha | What Tax Forms do I file?

Which Form – 1040, 1040A or 1040EZ?
The three forms used for filing individual federal income tax returns are Form 1040EZ (PDF), Form 1040A (PDF), and Form 1040 (PDF).
Form 1040EZ is the simplest form to fill out. You may use Form 1040EZ if you meet all the following conditions:

1. Your filing status is single or married filing jointly
2. You claim no dependents
3. You, and your spouse if filing a joint return, were under age 65 on January 1, 2013, and not blind at the end of 2012
4. You have only wages, salaries, tips, taxable scholarship and fellowship grants, unemployment compensation, or Alaska Permanent Fund dividends, and your taxable interest was not over $1,500
5. Your taxable income is less than $100,000
6. Your earned tips, if any, are included in boxes 5 and 7 of your Form W-2
7. You do not owe any household employment taxes on wages you paid to a household employee
8. You are not a debtor in a Chapter 11 bankruptcy case filed after October 16, 2005
9. You do not claim any adjustments to income, such as a deduction for IRA contributions, a student loan interest deduction, an educator expenses deduction, or a tuition and fees deduction
10. You do not claim any credits other than the earned income credit

If you file Form 1040EZ, you cannot itemize deductions or claim any adjustments to income or tax credits (other than the earned income credit).
Form 1040EZ LinksReferences:
Form 1040EZ Instructions
Filing Options
If you cannot use Form 1040EZ, you may be able to use Form 1040A if:

1. Your income is only from wages, salaries, tips, taxable scholarships and fellowship grants, interest, or ordinary dividends, capital gain distributions, pensions, annuities, IRAs, unemployment compensation, taxable social security or railroad retirement benefits, and Alaska Permanent Fund dividends
2. Your taxable income is less than $100,000
3. You do not itemize deductions
4. You did not have an alternative minimum tax adjustment on stock you acquired from the exercise of an incentive stock option
5. Your taxes are only from the Tax Table, the alternative minimum tax, recapture of an education credit, Form 8615 or the Qualified Dividends and Capital Gain Tax Worksheet
6. Your only adjustments to income are the IRA deduction, the student loan interest deduction, the educator expenses deduction, the tuition and fees deduction, and
7. The only credits you are claiming are the credit for child and dependent care expenses, the earned income credit, the credit for the elderly or the disabled, education credits, the child tax credit, the additional child tax credit, and the retirement savings contribution credit

You can also use Form 1040A if you received dependent care benefits.
Form 1040A LinksReferences:
Form 1040A Instructions
Filing Options
Often used Schedules:
Form 1040A or 1040, Schedule B (PDF) - Interest and Ordinary Dividends
Form 1040A or 1040, Schedule R (PDF) - Credit for the Elderly or the Disabled
Form 1040A or 1040, Schedule EIC (PDF) - Earned Income Credit
Form 1040A or 1040, Schedule 8812 (PDF) - Child Tax Credit
Often used Forms:
Form 8917 (PDF) - Tuition and Fees Deduction
Form 2441 (PDF) - Child and Dependent Care Expenses
Form 8863 (PDF) - Education Credits (American Opportunity and Lifetime Learning Credits)
Form 8888 (PDF) - Allocation of Refund (Including Savings Bond Purchases)
Finally, you must use Form 1040 under certain circumstances, such as:

1. Your taxable income is $100,000 or more
2. You have certain types of income such as unreported tips; certain nontaxable distributions; self-employment earnings; or income received as a partner, a shareholder in an "S" Corporation, or a beneficiary of an estate or trust
3. You itemize deductions or claim certain tax credits or adjustments to income, or
4. You owe household employment taxes

A complete list of conditions outlining when Form 1040 must be used is in the Form 1040A Instructions.
Form 1040 LinksReferences:
Form 1040 Instructions
1040 Central
Filing Options
Often used Schedules:
Form 1040, Schedule A (PDF) - Itemized Deductions
Form 1040A or 1040, Schedule B (PDF) - Interest and Ordinary Dividends
Form 1040, Schedule C-EZ (PDF) - Net Profit From Business
Form 1040, Schedule D (PDF) - Capital Gains and Losses
Form 1040, Schedule E (PDF) - Supplemental Income and Loss
Form 1040A or 1040, Schedule EIC (PDF) - Earned Income Credit
Form 1040A or 1040, Schedule 8812 (PDF) - Child Tax Credit
Form 1040A or 1040, Schedule R (PDF) - Credit for the Elderly or the Disabled
Often used Forms:
Form 8917 (PDF) - Tuition and Fees Deduction
Form 2441 (PDF) - Child and Dependent Care Expenses
Form 8863 (PDF) - Education Credits (American Opportunity and Lifetime Learning Credits)
Form 8888 (PDF) - Allocation of Refund (Including Savings Bond Purchases)
If you were a nonresident alien during the tax year and you were married to a U.S. citizen or resident alien, you may use any one of these three forms, based on your circumstances, only if you elect to file a joint return with your spouse. Other nonresident aliens may have to file Form 1040NR (PDF) or Form 1040NR-EZ (PDF). For more information on resident and nonresident aliens, refer to Topic 851 and Publication 519, U. S. Tax Guide for Aliens, Chapter 7.