Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.
In my office, I consider tax preparation as the completion of a tax return that not only follows all current tax laws, but also allows the taxpayer to pay the least possible tax. All returns are subject to applicable due diligence. You will also be advised as to legal strategies to reduce your tax liabilities and plan for changes to your tax situations. I adhere to the New York City Consumer Bill of Rights, and the Code of Ethics of the various tax and accounting organizations to which I belong.
Important: If you are claiming the Earned Income Credit, expect to be asked for more proof that you are eligible. Review the items in IRS form 8867, Part V. The IRS is assessing tax preparers a $500 penalty if we can’t prove your eligibility.
Charity: How do I determine the fair market value of the used clothing I’m donating to charity?
First, the items must be in good or better used condition. No deduction can be taken for clothes in poor condition. You make the determination.
Second, there are no fixed formulas or methods for determining value. I suggest you use the value that would be set by a consignment or thrift shop. There are guidelines that can help with valuation: Goodwill has an online guide at www.goodwillnne.org/donate/donation-guide, as does the Salvation Army at www.satruck.org/donation-value-guide. And PS — Take a picture of the items.
Medical Expense: Is the cost of a chairlift on the stairs deductible as a medical expense?
Yes, if you itemize deductions. The cost of a medically-needed home improvement, such as a chairlift, is deductible. You will need to obtain a doctor’s note that the chairlift is required because of a medical condition, and not simply to make access to the second floor easier or more convenient. Usually, the medical deduction is limited to the extent the improvement does not add value to the home. However, if the expense is to accommodate a disability, the home improvement is treated as not increasing the value of the home. Remember, all unreimbursed medical expenses are deductible only to the extent they exceed 10 percent (7.5 if a senior citizen) of adjusted gross income in 2013.
Uniform For Job: My new job requires me to wear brown pants and a white shirt. I would only wear these clothes for work. Does that qualify as a uniform?
No. Uniforms are deductible. Uniforms have the company’s logo on them. Street clothes of a specific color are not uniforms. The IRS says: (1) You must wear them as a condition of your employment and (2) The clothes are not suitable for everyday wear. If the clothing meets the definition, like school bus driver outfits, you can deduct the cost and upkeep of work clothes.
If you’re audited, and you show up for an audit in your uniform, to prove it is a uniform, the IRS has been known to disallow the uniform deduction. Why? Because, since you wore it into the IRS office, clearly, it’s suitable for street wear.
Deduction For Child: My kids stay with their mother from noon Sunday until noon Thursday; then with me from noon Thursday until noon Sunday. I pay $140 monthly in child support. Can I claim them on my taxes?
Maybe. It depends on the arrangement with your ex-wife or the divorce documents. As the children are with her for more than half the year, she is the custodial parent. Support also comes into play. You would need to pay more than half of their support, and $140 a month seems low to cover half the support.
However, if your ex signs Form 8332 relinquishing her right to one or both children, then you can claim one or more of your children. Without that, you’ll have a battle on your hands — and will most likely lose.
Pension Plan Fees For Former Employees: What is a former employer allowed to charge a former employee to hold investments in their retirement plan?
The fee will be the same as if the employee was still working for that employer.
401(k) Investment Management Fee: Can I deduct an investment management fee charged on a 401(k) account?
Yes. If you pay the fee with outside, after-tax dollars, and assuming you meet the two percent floor for claiming miscellaneous expenses.
Missed RMD Distribution: I forgot to take my required minimum distribution December 31, 2013, but did take out the money January 4, 2014. In what year is the distribution taxable?
The distribution is taxable on the 2014 tax return.
Executor Fee: I was appointed the executor of my father’s estate. I received a fee of $10,000. I am not in the business of providing this service to the general public. Can I report the fee on Schedule C and contribute a portion to an SEP plan?
No. As you are not in the business of providing this service to others, the fee you received is not income for services provided in a trade or business. Therefore, you would report the income on line 21, Other Income, on Form 1040. No contribution to a SEP plan is allowed.
QUIP: When it comes to income tax, most of us would be willing to pay as we go if we could only catch up on where we’ve been.
Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.