The Potts Report

Don’t Overlook Income Tax Deductions

You can deduct ordinary and necessary business expenses incurred in a trade or business even if you don’t own a business. How? If you have a job you have a trade or business; the trade or business of being an employee. You may also deduct expenses “for the production and collection of income”, e.g. investment expenses.

These deductions as a group must exceed 2% of your adjusted gross income before you receive any tax benefit and you must be able to itemize your deductions.

Here is a quick partial laundry list of deductible expenses I lifted from IRS Publication 17- Your Federal Income Tax. This list is not all inclusive.

Unreimbursed employee business expenses (they have to have a business purpose):

• car expenses
• travel
• transportation
• gifts (limited to $25)
• meals and incidental expenses
• work related education
• licenses and regulatory fees (e.g. nursing license)
• legal fees related to your job
• medical examinations required by an employer
• subscriptions to professional journals and trade magazines related to your work
• business liability insurance
• damages for breach of employment contract
• depreciation on computers and cell phones
• dues to chambers of commerce and professional societies
• educator expenses over limit
• home office expenses
• job search expense
• tools used in work’
• union dues and expenses
• work clothes and uniforms

 

Expenses for the production of income include:

• appraisal fees
• clerical help and office rent
• fees to collect interest and dividends
• investment fees and expenses
• indirect deductions of pass-through entities
• certain legal expenses
• repayments of income
• repayments of social security benefits
• safe deposit box rent
• services charges on dividend reinvestment plans
• trustee’s administrative fees for IRS

If you have incurred any of these types of expenses in 2008 you should ask your tax preparer (which should be me) whether or not they are deductible. Remember the IRS is taking your money. Keep as much as you can.

Small but Significant

 This morning I saw an advertisement on TV sponsored by the U.S. Department of Energy. I've seen this commercial on and off for the last few weeks. I'm sure you've seen it too. [To view the video go to http://loseyourexcuse.gov , select "Act", then "Videos", then "April"]. It starts out with a boy in his early teens asking a young girl, "So April, you know that your cell phone charger is still using energy even when its plugged into the wall, right?" April  replies, "Uh, right" [the camera pans to view a telephone charger - without a telephone attached - plugged into an electrical outlet on the wall and then back to April] "but that isn't my charger. I don't even have a cell phone." Immediately, music begins to play. The audience "knows" that its coming from a cell phone. April stands still, slightly fidgeting and looks guilty. On the sly she takes an object from her jeans pocket and quickly tosses the object away from her.  It busts into pieces when it hits the floor and the music stops. The next scene shows a motion graphic showing a phone charger being unplugged and text saying unplug your phones. Simultaneously the announcer says "Millions of kids are using their energy wisely. What's your excuse."
 
My initial thought was "How stupid. The amount of electricity, if any, that would be used by a phone charger without a phone attached would be infinitesimal. They probably wasted more electricity in producing and broadcasting that commercial than the whole country would save by unplugging their phone chargers." But then I remembered hearing another interesting bit of information a few days ago listening to a videocast of Tom Friedman discussing his book Hot, Flat and Crowded on Fora.tv.

Friedman was talking about an email he received from his friend Dave Douglas, Chief Sustainability Officer at Sun Microsystems. Friedman says the world's population will increase by 1 billion people in the next twelve years. Douglas stated in his email to Friedman the following facts of what would happen if you gave each of these billion people one 60 watt incandescent light bulb.  Each of the light bulbs with packaging weigh 0.7 ounces. But a billion of these light bulbs would weigh 20 metric tons or the same weight as 15,000 Toyota Priuses. 1 billion 60 watt light bulbs would require 60,000 megawatts to light them for one day. If you assume that each person would only use their light bulb 4 hours a day, that would reduce the energy requirement to 10,000 megawatts a day. This would require the building of 20 new 500 megawatt coal burning power plants so that the next 1 billion people could turn on one 60 watt light bulb four hours a day.
 
I'm not verifying the accuracy of the numbers discussed above but they illustrate a point - small amounts add up. 2009 will be a year of uncertainty for the economy. Yesterday on Bloomberg television I heard one man say it will be five years before the economy fully recovers. Business owners and managers would be prudent to not only read their financial statements but to question what makes up the numbers. Does that club membership really make your business money? Can you get a better deal on your insurance? How is your equipment maintenance plan? Sometimes the small cost savings add up to a significant impact on the bottom line.