Watch out for incorrect tax advice on these topics.
1. Anyone who tells you that you can deduct “educational” expenses generally, without a narrowly tailored definition of those expenses or the justification for those expenses, is presumably wrong. There are a number of credits, deductions and exemptions that apply to different aspects of educational expenses such as student loan interest for low – to moderate-income taxpayers, lifetime learning and HOPE educational tax assistance and in LIMITED circumstances tuition and books for a course of study or degree that advances a specific career or career path in which one is already qualified to practice. In some limited circumstances, an educational course may be considered a necessary and ordinary business expense, but the rules are quite narrow.
2. Your work clothes as a business or other deduction. In general, attire is not deductible if it is useful for any purpose other than the job. A fire suit, medical scrubs, protective/safety gear, work uniforms, costumes and related gear are usually deductible in theory. Bozo the Clown’s red rubber nose is pretty safe. But ordinary business attire, ordinary (not costume) hairstyling, etc., are not deductible in the United States. The IRS loves to audit this deduction. Rule of thumb: if you bought it at a department store, rather than at a professional supply store or uniform store, the presumption is that it fails.
3. Mileage. No substitute exists for a mileage log even if you are deducting total expenses of a vehicle, rather than taking the mileage rate. You need to have the beginning and ending mileage for a given tax year and a mileage log showing every trip for which you are seeking ANY deduction, the odometer at the beginning and end of the trip and the purpose of the trip and the date. The IRS is somewhat forgiving on the business substance of your trip; if the main purpose of the trip is to drive 100 miles to Greyville to do business you won’t lose the deduction for stopping for gas and a soda at a rest stop and don’t need to list really incidental stops like that. IRS regulations require CONTEMPORANEOUS records for mileage and related incidental expenses; constructing it back the following year may well fail. Deducting a commute – from your home to your regular place of business, or your trip home from anywhere – is prohibited, though mileage from your home to a TEMPORARY job site may be deductible for some taxpayers who have a regular place of business elsewhere.
4. Home Office. The Service LOVES to audit this deduction; taking it is an invitation to an audit. In general, you may deduct the portion of your rent or mortgage interest as a business expense, along with related proportions of property taxes, utilities, etc., that is proportional to the amount of space that is used EXCLUSIVELY (important – capitalized for a reason) for a business. If this means you need to go buy cubicle walls, or need to move the clothes out of the closet, do it. If you deduct part or your mortgage interest or taxes as a business expense on Schedule C, you CANNOT also deduct that fraction on Schedule A as home mortgage interest or state/local taxes. In general, it’s more advantageous to take a valid deduction on Schedule C if it is lawful to do so, but you may not double deduct any home office or other tax items.
5. “You Don’t REALLY Have to Pay Taxes.” Before there were 419 scams and “please send me money honorable Sir to release my Estate” email phishing, there were people ready to tell you that American taxes were voluntary. The term “voluntary” refers to the procedural method of calculation and filing taxes by a form completed by the taxpayer, NOT to the substantive duty to pay taxes. All income earned in the U.S. and by U.S. citizens anywhere is taxable under the Internal Revenue Code unless exempted by statute or treaty, period. If you want not to pay U.S. income taxes – a legitimate goal – you need to pay the following civic retail price: a) give up U.S. citizenship, b) leave the United States and c) divest of all U.S. income sources. Anything else will get you assessed by the U.S. government on part or all of your income.
