Category Archives: IRS Deductions

Educational Savings Bonds Tax Exclusion – Paul Gaulkin CPA

education definition

A tax exclusion is provided for interest earned on U.S. savings bonds used to finance the higher education of the taxpayer, the taxpayer’s spouse, or dependents according to Code section 135. Timing of Purchase The bonds must have been purchased after December 31, 1989, and the exclusion is available only to the individual who purchased the bonds. The purchaser of the bonds must have reached the age of 24 and be the sole owner of the bonds. The bonds must … Read more

Gambling Loss Deduction Guidelines – Paul Gaulkin CPA

internet-gaming

Losses sustained during the year on gambling transactions are allowed as an itemized deduction but only to the extent of the gains during the year from gambling. In the case of a husband and wife filing a joint return, the combined gambling losses of the spouses are allowed to the extent of the combined gambling gains. Professional Gambler The Supreme Court has ruled that a professional gambler is entitled to deduct gambling losses as a trade or business expense. The … Read more

Vacation Home Tax Deduction Explained – Paul Gaulkin CPA

water front vacation home

Special rules limit the amount of rental expense deductions that may be taken by an investor taxpayer on a residence that is rented out for part of a year and used for personal purposes during other parts of the year according to Code Section 280A. Number of Days in Use If a personal residence is rented out for less than 15 days during the year, any rental income received is excluded from gross income and no rental expense deductions are … Read more

Deduction of Hospital Care Expenses – Paul Gaulkin CPA

hospital sign

The cost of inpatient hospital care which requires an overnight stay, including the cost of meals and lodging, is deductible as an itemized deduction. The extent to which expenses for care in an institution other than a hospital(nursing home, home for the aged, ect.) qualify as a deduction for medical care depends on the situation, condition of the individual and the nature of the services received. Specific Situations If the availability of medical care in an institution is the principal … Read more

Hobby Deduction Code Section 183 – Paul Gaulkin CPA

someone doing a hobby

Deductions for hobby activities are claimed as itemized deductions on Schedule A, Form 1040. These deductions must be taken in the following order and only to the extent stated in each of the following three level categories. Level 1 Deductions Deductions that a taxpayer may claim for personal expenses, such as home mortgage interest, taxes, casualty and theft losses, bad debts, worthless securities, tax related expenses, qualified residence interest, medical expenses, charitable contributions, etc. may be taken in full. However, … Read more

Qualified Employee Discount Exclusion – Paul Gaulkin CPA

50 percent discount picture

Certain employee discounts provided to employees on the selling price of qualified property or services of the employer are excludable from gross income. The main rule in this provision is that in order for the discount to be excludable, it must be available to employees on a non-discriminating basis. Discount Ceiling The employee discount may not exceed the gross profit percentage normally offered by the employer to customers. In the case of qualified services, the excludable amount cannot exceed 20 … Read more

Tax Free State & Municipal Bonds – Paul Gaulkin CPA

chart of bond rates up and down

Interest received on state and local government bonds is generally excludable from gross income. A state or local bond is basically an obligation of a state or political subdivision, and the term state includes the District of Columbia and any possession of the United States. Tax exempt bonds are an attractive investment for many investors because the after tax return on such bonds is considerably higher than taxable bonds. Interest received on state or local bonds is excludable from gross … Read more

De Minimis Fringe Benefit Exclusion – Paul Gaulkin CPA

blocks spelling benefits

De minimis fringe benefits occur when the value of the property or service provided to an employee is so minimal that the accounting to record it would be unreasonable. Examples of de minimis fridge benefits include: 1. Having a secretary type a personal letter for an employee 2. Occasional personal use of the company copy machine 3. Occasional parties or picnics for employees 4. Traditional holiday gifts that have a small fair market value 5. Tickets given out for entertainment … Read more

Charitable Donations Value Guide – Paul Gaulkin CPA

rocks together spelling charity

When making charitable donations, it is important to understand the rules the IRS will use to value the donation. If a charitable contribution is made in property, the amount of the contribution is normally the fair market value of the property at the time of the contribution. The fair market value is generally regarded as the price at which the property would exchange between a willing buyer and a willing seller, with both having reasonable knowledge of the relevant facts. … Read more

Deducting Student Loan Interest Code Section 221 – Paul Gaulkin CPA

paper saying student loans in red

Interest payments made on student loans are deductible for adjusted gross income or “above the line”. This means that a taxpayer can deduct the interest whether or not he or she has chosen to itemize deductions for the tax year. For 2012, eligible taxpayers may deduct up to $2,500 of interest expense on a qualified education loan under Code Section 221. Deduction Phase Out The deduction begins to phase out for single taxpayer with adjusted gross income between $60,000 and … Read more