People scrambling for last-minute write-offs of charitable contributions, medical bills, and other deductibles prefer to believe that just writing “Dec. 31” on checks automatically entitles them to claim deductions for 2015. Wrong.
What they need to do is put payments in mailboxes in sufficient time for letters to be postmarked by midnight on Dec. 31. As long as they do that, the IRS couldn’t care less that the checks reach recipients in 2016. The IRS warns that they garner no 2015 deductions for checks mailed by Dec. 31, but postdated to prevent cashing until 2016.
The rules are similar when you use credit cards issued by third parties, like American Express and Visa. You qualify for deductions as soon as you authorize charges, even if AMEX doesn’t bill you until 2016. But write-offs might be shifted from 2015 to 2016 when you pay with cards issued by stores who bill you directly. You get no deductions until you pay the bills.
Lose less to the IRS by timing payments of state and city income taxes. One widely recommended strategy to build up itemized deductions for tax year 2015 is to pay property taxes and the fourth-quarter installment of 2015 estimated state and local income taxes by Dec. 31, instead of waiting until they become due in 2016. This tactic trims taxes for someone who expects to be in a lower federal bracket next year; the deductions are worth more this year.
Miscellaneous expenses. Form 1040’s Schedule A is where itemizers claim deductions for, among other outlays, miscellaneous expenses, a category that includes unreimbursed employee business expenses.
The key restriction on write-offs is that most miscellaneous expenses are allowable only to the extent that they, in the aggregate, exceed 2 percent of adjusted gross income (AGI).
The law authorizes an exception for business expenses of employees who qualify as “statutory employees.” These individuals are treated as though they were self-employed. Therefore, they do not have to list their business expenses on Schedule A and deduct just the part above 2 percent of their AGI. Instead, they are able to deduct their expenses in full on Schedule C, Profit or Loss From Business.
Four groups of employees qualify for this break:
- Full-time life insurance agents.
- Full-time sales representatives seeking orders from retailers, wholesalers, contractors, or operators of hotels, restaurants, or other businesses dealing with food or lodging, for goods they resell or use in their own businesses.
- Agent or commission drivers who deliver laundry, dry cleaning, food, or beverage items, other than milk.
- Individuals paid to do work at home under guidelines set by the person for whom the work is done, with materials that person furnishes and to whom the products are returned.
Don't Delay! There is still time to implement year-end tax strategies. Contact us today!