Tax Planning: Is It Too Early?

If there’s one thing that we’ve learned from tax season, it’s that every year, we see first-time filers struggling with software, tax codes, and sifting through paperwork they aren’t sure they need.  With the new “gig centered” economy – Uber, AirBNB, UpWork and many others, “regular” employees often are having to document income from new sources. Whether you are a long-time filer that has just recently had to start relearning this or a millennial filing for the first time, here are a few things to remember for filing in 2017…

Tax deductions are plentiful — but you can’t deduct everything. Generally, personal expenses are not tax deductible.  The reason is simple – because the Internal Revenue Code says so:  “Except as otherwise expressly provided in the United States Tax Code, no deduction shall be allowed for personal, living, or family expenses.”

What’s important is that “except as otherwise” clause.  If a deduction is identified in the tax code, it is available to the taxpayer if they meet all qualifications.  So some personal expenses can be deductible depending on the circumstance.  Here are some examples:

  1. Cell phone deductions: Nearly everyone owns cell phones.  But is a cell phone a non-deductible personal expense, or is it deductible if used for work or in a business?  Self-employed taxpayers who use their phones exclusively for business can deduct the phone.  Employees who use a personal cell phone for their jobs may be able to deduct the job-related portion if their employer rejects their claim for reimbursement.
  2. Start-up costs: Small business owners can deduct up to $50,000 in expenses and those expenses can be amortized for up to 15 years.
  3. Continuing education or professional expenses: The cost of continuing professional education if not reimbursed by their employer can be deducted.  However, certain expenses such as the cost of admission to an industry (CPA exam or review course, bar examination fees) are not deductible.
  4. Side-job expenses: In our high tech society, opportunities to earn “side gig” income are boundless.  Consultants, contract drivers, etc. may earn extra income – but that usually means increasing one’s tax bill.   Any expense that is ordinary and necessary to conduct that business may be deducted, so such taxpayers are wise to keep an accounting of all expenses incurred to support that income.
  5. Paying medical expenses for an aging parent: As millennial’s parents age, they could end up caring for them, and even paying for some of their unreimbursed medical expenses.  In fact, a millennial may qualify for the same deductions or credits if incurred for a parent as would be for a child, if that parent can be considered a dependent (and a parent need not live with the taxpayer to still be considered the taxpayer’s dependent).  Thus, a millennial who may not have reached the 10% of AGI threshold with his or her own family’s medical expenses may be able to reach that level of deduction if a parent can be claimed as a dependent.
  6. Clothing deductions: Clothing may be deductible if required as a condition of employment and not adaptable for general usage as ordinary clothing, like uniforms.

The secret is to pay attention to details and do your due diligence to see if you satisfy the requirements to claim a tax deduction or credit.  Every tax benefit – whether an adjustment to gross income, an itemized deduction, or a credit – has its own set of requirements, which often are very complex.



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