Tax Advice for Your Job

1. Unreimbursed job expenses can be deducted on Schedule A as miscellaneous itemized deductions if the expenses exceed 2% of your adjusted gross income (AGI).
   
   The following are some of the most common unreimbursed job expenses:
   
   
   • Automobile Expense - You can't deduct commuting expenses (other than commuting to a temporary job location), but any other job-related automobile expenses are deductible. There are two ways you can deduct automobile expenses. The easiest way is to keep track of mileage and multiply your total job-related miles by the standard mileage rate. In 2008, the standard mileage rate is 50.5 cents per mile for mileage before July 1st, and is 58.5 cents per mile for mileage after June 30th. If you own an expensive car, the actual automobile expense method is probably better for you. The actual automobile method is more complicated since you have to keep track of all your automobile costs and calculate depreciation.
   • Overnight Travel Expense - All of your unreimbursed travel expenses are deductible if the travel relates to your job. However, only 50% of your meals and entertainment is deductible. Many people use the per diem rates published by the government to establish their meals and incidentals (tips, laundry, dry cleaning etc.) expenses. It doesn't matter if your actual meals and incidentals expenses are lower than the per diem rate. You just need to prove that you were travelling on business for the amount of days you take the per diem for. The per diem rate varies from city to city. You can obtain per diem information from government websites, your employer, or from your accountant. Other travel expenses such as airfare, phone calls, taxi-cab fares, entertainment or lodging need to be documented with actual receipts.
   • Meals and Entertainment - You can deduct 50% of unreimbursed business related meals and entertainment. An easy way to document your expense is to write on the back of your receipt who was with you, your business relationship, and the business purpose and discussion.
   • Home Office Deduction - Most employees do not qualify for the home office deduction since they already have an office (or cubicle) at their company's office building. Employees can take a home office deduction if they exclusively and regularly (1) use a home office to conduct administrative or management activities, (2) have no other location available to them to conduct administrative or management activities, and (3) the home office is for the employer's convenience. To meet the "exclusively and regularly" test the home office should not be used for any personal business or activities.
   • Other Expenses - Other examples of employee expenses are union dues, professional dues, tools and computer related equipment (depreciation may apply), safety shoes, safety glasses and other protective clothing, uniforms, business cards, licenses, trade magazines and subscriptions, briefcase, office decorations, office supplies, out-of-town job assignments, certain education expenses, certain job search expenses, and malpractice insurance.
2. If you receive incentive stock options (ISOs) consider holding the shares at least one year after the exercise date in order to take advantage of the favorable capital gains rates. If the ISOs are sold before one year, you will be taxed at your normal rate. CAUTION: The Alternative Minimum Tax needs to be considered when ISOs are exercised.
   
   
3. Maximize your 401(k) deductions. The deductions lower your taxable income and all earnings are tax-deferred until distributions are received after your retirement. If your employer offers a matching contribution, you have an immediate tax-deferred return on investment as well as a reduction of your wages on your W-2. You could also qualify for the retirement savings credit if your income is less than $25,000 ($50,000 if married). Another benefit to consider is that any money in your 401(k) account is protected by law against creditors. So if you ever have to file bankruptcy, your 401(k) money is safe. CAUTION: IRAs do not have the same protection against creditors that 401(k) plans have.
   
   
4. Take advantage of your company's cafeteria plan and other tax-free benefits. For example, your company's dependent care program is a great deal if you are in the 28% tax bracket or higher. The dependent care credit only gives you a tax credit of 20% of your child-care expenses, but through your company's cafeteria plan you will be getting a tax benefit equal to the tax bracket you are in plus a reduction in Social Security and Medicare tax and your state income tax. So if you are in the 30% tax bracket, you will be getting a tax benefit of 30% plus 7.65% in Social Security and Medicare taxes as well as a reduction of your state income tax.
   
   
5. Another example is medical expenses. Medical expenses can rarely be taken on Schedule A due to the 7.5% of AGI limitation, but through your company's cafeteria plan, you can fully deduct your medical expenses from your W-2 wages. The only catch is that if your unreimbursed medical expenses for the year are less than what you set aside from your wages, the difference is forfeited. The definition of what constitutes qualified medical expenses is very broad so make sure to visit your dentist, optometrist, acupuncturist, chiropractor, etc. in December if you haven't used up all of your current year medical expense contributions.
   
   
6. An employee fills out a Form W-4 when they are first hired on a job. The W-4 determines how much federal and state taxes are withheld from your paycheck. You may want to give your employer a new Form W-4 if the taxes being withheld are too much or too little. If you are getting a big refund every year, you could do a new Form W-4 and claim more allowances in order for your employer to not withhold as much taxes from your paycheck. If you owe taxes each year, you want to claim fewer allowances on your W-4 so your employer withholds more taxes from your paycheck. When you have a life change such as getting married, divorced, buying a home, having a child born, or a child leaving home, you should probably file a new W-4 with your employer to reflect your current situation.
   
   
7. If you are short on cash and you are expecting to get an Earned Income Credit when you file your tax return next year, you can fill out Form W-5 and give it to your employer to receive an advance EIC. You are only eligible if you have a qualifying child for the Earned Income Credit. If you don't have kids but your income is low enough to receive the EIC, you aren't eligible for the advance EIC. The way it works is that your employer gives you a portion of your EIC throughout the year in your pay checks. Your employer will report your total advance EIC payments made to you in Box 9 of your W-2. Then when you file your tax return, you calculate your Earned Income Credit like normal, but you enter the amount of your advance EIC payments on page 2 of the Form 1040 and that reduces your tax refund by the amount of advance EIC you received. Form W-5 can be downloaded from the IRS web site, www.irs.gov.
   
   
8. Job hunting expenses are deductible as a miscellaneous itemized deduction on Schedule A if you are looking for a job in your present type of work. You can't take a deduction if you are looking for your first job, changing to a job in a new line of work, or if you have been unemployed for a long period of time. Deductible expenses include resume costs, employment agency fees, automobile expense, travel expenses, long-distance phone calls, 50% of related meals and entertainment, and any other job hunting expenses.
   
   
9. If you receive a Form W-2, corrected Form W-2, Form 1099-R, Form 1099-INT, or other types of income records after you have already e-filed or mailed in your tax return, you will need to do an amended return, Form 1040X, to change your tax return. Form 1040X can be downloaded from the IRS web site, www.irs.gov The 1040X can't be e-filed; it has to be mailed in. If you are receiving a refund, you probably want to wait until the IRS sends you your refund before filing the amended return. The IRS often catches the mistake and adjusts your tax return for the unreported income. If the IRS correctly adjusts your return while processing your refund, then you do not need to do an amended return.
   
   
10. If you worked for more than two employers in 2008 and made more than $102,000 in wages, you may be able to claim a credit for the excess social security tax withheld from your salary. If you paid more than $6,324 in social security taxes shown in box 4 of your W-2s, then the excess social security is a credit on your tax return. Don't include your spouse's social security tax withheld in the calculation. Each person's social security tax withheld is looked at separately in calculating the excess social security credit.
    
    
11. If you earn wages and draw social security benefits at the same time, it's not a problem if you have reached full retirement age. If you are younger than full retirement age and earn more wages than the annual limit, your social security benefits will be reduced based on your earnings above the annual limit. So if you are older than age 65 and 10 months, you don't need to worry about wages reducing your social security benefits.