Last week, we talked about how charitable contributions may help you reduce your tax obligations. In the article “Your Support Of A Qualified Charity May Provide You With A Money-Saving Tax Deduction”, we said that there were certain contributions that are subject to special rules when you file your deduction.This week we will discuss the special rules for deducting charitable contributions of clothing and household items, and a car, boat or airplane.
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While the rest of us are dreaming of tax deductions, you, as a member of the Armed Forces, are likely trying to figure out which of your military pay is excludable from taxable income. You are probably aware that combat pay is not taxable while serving in a combat zone. Knowing where your other exclusions are is as important as your tax deductions in getting the income tax refund you want. Of course, certain type of pay is fair game on your income tax return, such as hazardous duty pay, drills, hardship duty, and submarine pay. The exception to this is if you perform these duties in a combat zone. There are many categories that are excludable items from your pay. These types of pay are either a reimbursement or allowance. There are generally 8 categories of excludable items and they include: Combat Zone Pay, Other Pay, Death Allowances, Family Allowances, Living Allowances, Moving Allowances, Travel Allowances, and In Kind Military benefits. For a detailed list of these items please visit IRS Publication 3: Armed Forces Tax Guide. Not only may you receive excludable pay on your Federal Income Tax Return but some states have military taxable exclusions as well. For example in 2010, the state of Virginia allowed service members to subtract the amount of combat pay for service in support of Operation Joint Endeavor that was included on their Federal Income Tax Return. Be sure to check your states deductions to ensure you are getting the maximum state income tax refund!
Before you efile your federal taxes this year, you may want to take a moment to get to know the standard deduction a little better. A standard deduction is a dollar amount, based on filing status, which reduces income on which you are taxed, with additions for age or blindness. This differs from itemized tax deductions, which are expenses that taxpayers are allowed to claim to decrease their taxable income. The standard deduction amounts for 2010 are as follows- Single or Married Filing Separate $5,700 Married Filing Joint or Qualifying Widow(er) with dependent child $11,400 Head of Household $8,400 In some cases, you can claim additions to your standard deduction for 2010. The additions are claimed on Schedule L and add to the basic standard deduction and any increased standard deduction for being 65 or older, or blind or both. Additions to your standard deduction include: • A loss from a federally declared disaster in tax years beginning after 2007 and that occurred before 2010 or, • Paid state or local sales or excise taxes (or certain other taxes or fees in a state without a sales tax) in 2010 for the purchase of any new motor vehicle(s) after February 16, 2009, and before 2010. Some taxpayers are not eligible to use the standard deduction. If you are married filing separately and your spouse itemizes, then you must do the same. An individual who is a nonresident alien or dual-status alien during any part of the year cannot claim a standard deduction. You also will not be eligible to use the standard deduction if a change in your annual accounting period causes you to file for a period of less than 12 months.
Even if you are not the owner of a small business, you may be able to take tax deductions on the business use of your home as an employee. The rules are very similar to those for a small business owner. 1. As you complete your tax return, keep in mind the area of your home must be used as a principal place of business, such as a place for doing paperwork, meeting with clients or working on projects. 2. For you to take the tax deduction, the area must be used for regular and exclusive use, not just once every so often. In other words, you must use it for business purposes often, and it has to be a dedicated space, not a domestic area that you happen to do some work in. 3. You must use your home for the convenience of your employer. 4. You can’t get rent from your employer for the use of a portion of your home to conduct his or her business. When you deduct home office business expenses, you are actually determining the percentage of your home that you use for business and allocate that portion of the home as a business expense. Other business use of home expenses includes utilities, mortgage interest, depreciation, repairs and insurance. You may take these tax deductions regardless of whether you own your home or rent. Keep these things in mind to increase your tax deductions if you are eligible to the business use of a home deduction.