Deductible Mileage Isn't Just For Businesses & Employees
Moving mileage: Update: Beginning in 2018 and through 2025, this deduction will be only available to military personnel who qualify. Are you required to move because of your job or a new location for self-employment? If so, is the distance from your old home to your new employment more than 50 miles compared to the distance from your old home to your old employment? If yes, then you can deduct the mileage for transporting your household goods (using your own vehicles) to your new home at a rate of $0.18 per mile in 2018 ($0.17 per mile in 2017.)
Medical mileage: If you have a significant amount of medical costs, you may find it beneficial to take an itemized deduction for you and your dependent's medical expenditures. In this case, you may also deduct $0.18 per mile in 2018 ($0.17 per mile in 2017) regarding medically-necessary travel. Don't forget that this includes visits to the doctor, dentist, optometrist, clinics, pharmacy, etc. (less any mileage that comprises a personal errand at the same time.)
Charitable mileage: In addition to documented charitable donations of money and goods, you can take a deduction for mileage at $0.14 per mile. This might include a trip to Goodwill, volunteering for a fund raiser, being a chaperone for a youth group, or various other opportunities involving charitable organizations. Do be sure that the organization itself is, in fact, a charitable organization listed in IRS' Publication 78.
Do You Have Someone Working At Your Home?
Have you hired a babysitter age 18 or over, a caregiver, a cleaning person or housekeeper, a landscaper or gardener, a construction worker, or other worker at your home who is not in their own business to provide the service? If so, you may be required to treat them as a household employee!
If you pay an individual $2,100 or more in 2018 (prior years' thresholds may be less), you must withhold and pay Social Security and Medicare taxes. You are also required to pay federal and/or state unemployment taxes if you paid $1,000 or more in any quarter to household employees.
These rules do not apply if the payments are to your child under age 21 or to your spouse. These rules could apply if the payments are to another child who is under age 18 or to your parent; there are exceptions. Note that a parent is not subject to unemployment tax. Household employees are an area for your tax preparer to address . . . be sure that your tax professional knows the rules!
The worker is only in his own business if he meets certain criteria established by the IRS; do not assume that one is in their own business without consulting a tax professional regarding these criteria. If you already know that one is not in a business, do not risk ignoring these rules for the sake of the worker; you are both subject to audit by the IRS.
Charitable Contributions After Age 70-1/2
There is a special tax savings opportunity for persons over the age of 70-1/2.
Rather than donating directly to their favorite charity, a person over the age of 70-1/2 can make a direct transfer of retirement income from an IRA to the charitable organization, tax-free. Many seniors are unable to itemize, so this provision effectively allows for the charitable contribution to reduce one's taxable income without having to itemize. It also can cause less of one's social security income to be taxed.
Even if the taxpayer can still itemize deductions, reducing the taxable portion of an IRA lowers the person's AGI (adjustable gross income.) Thus, the AGI limitation on medical expenses (7.5% for ages 65 and over in 2017 & 2018; then 10% in 2019 - 2025) is also lower, allowing for a larger deduction of medical costs.
These "pre-tax" charitable donations often reduce the taxpayer's itemized deductions below the standard deduction. In this case, more of this "free" deduction provided by the IRS can be taken, and less effort is required to prepare the return since itemizing is no longer necessary.
Use Tax on Purchases
Use tax on purchases is not a new concept in Illinois, and a similar tax exists in most of the other states as well. When you purchase items from outside of your resident state without paying sales tax, you are required to remit the respective use tax to your state.
For purposes of this writing, let's say that you reside in Illinois. lllinois' use tax rate is generally 6.25%, but nonprescription drugs, medical appliances, and qualifying food is generally 1% (candy is generally 6.25%.) Any out-of-state purchase without sales tax (e.g., online, mail order, phone order, etc.) or taxed at less than 6.25% (e.g., purchased in another state and shipped home while traveling) must be considered for the use tax calculation.
In Illinois, this tax is paid once a year on April 15 and is now reported directly on your Illinois personal income tax return. (The use tax was previously reported on a separate return, Form ST-44; this form should still be used if your annual use tax due is over $600.)
In order to calculate the tax, you will need to keep the respective receipts and add them up at year end. If you prefer not to keep receipts and do not incur major non-taxed purchases in any one year, you may choose to utilize Illinois' use tax table based on your AGI. This calculation is intended to estimate your liability without the burden of record keeping. (Note that I do not necessarily endorse the tax table method in lieu of record keeping, especially if you do not make a lot of these sort of purchases.)
Charitable contributions are a popular deduction, but do you have the required support? All cash contributions now require either a receipt or your cancelled check; your own written record is no longer sufficient. And if the cash donation is over $250, you absolutely must have a receipt, even with a cancelled check. Be sure not to overlook donations of property and don't short yourself on the value given. List what you are giving and take pictures. Use thrift store values; don't under value by using garage sale amounts!
Note that every donation of $250 or more must include language to this effect: "...no goods or services were received in exchange for your contribution..." This applies to both cash and property donations, without exception!
Urban Legends in Taxation
Urban legends abound . . . even in the tax world. Two of them have often been brought to my attention. One is regarding health insurance premiums on the W-2; the other has to do with a 1% tax on bank transactions. The health insurance premium which must be reported on your W-2 (started in 2012) is for informational purposes only. Your health insurance premiums continue to be non-taxable.
As for the 1% tax on bank transactions, this is NOT a law buried in one of the recently passed tax acts nor is it expected to become law. The person who introduced this bill to the House has been proposing this bill since 2004 to no avail. Further, this proposal has no co-sponsors and is receiving no endorsements. Note that even if it were to pass (which is highly unlikely), it would have no tax effect for most taxpayers. Anyone with income less than $250,000 would receive an equivalent tax credit causing a zero tax effect on their tax return.