Can I deduct my home office?

If you use part of your home for business, you may be able to deduct expenses for business use of home from your business income. To qualify to deduct expenses, you must use part of your home:

• Exclusively and regularly as your principal place of business
• Place where you meet clients or customers
• In connection with your business, a separate structure which is not attached to your home

Performing essential aspects of your business at home such as bookkeeping and administrative services does not make your home the principal place of business. However if you use your home regularly for administrative purposes and you have no other fixed location where you conduct your business your home will qualify.

To itemize or not to itemize? Here's the answer:

Taxpayers have a choice of taking the standard deduction or itemizing their deductions. If itemizing certain expenses results in a greater refund, then file Schedule A and claim the greater deduction on line 40 of Form 1040.

First you have to determine your standard deduction based on your filing status. For 2010, they are:

• Single $5,700
• Married Filing Jointly $11,400
• Head of Household $8,400
• Married Filing Separately $5,700
• Qualifying Widow(er) $11,400

Taxpayers have to wait to receive their income tax refund

Taxpayers who claim certain deductions for will have to wait until middle to late February to file their 2010 returns. The Internal Revenue Service will need extra time to put processing systems in place as a result of the changes in the tax law from the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 which was made official on December 17, 2010.

The biggest on the list is the Schedule A which is used for taxpayers who wish to itemize their deductions which covers an estimated one-third of all filers. Typically, these taxpayers do not file their returns early in the season.

Taxpayers who wish use the following tax benefits are affected:

• home-mortgage interest, property taxes, excess medical expenses, gifts to charity and including state and local taxes – Schedule A
• college tuition and fees – Form 8917
• Educator Expense Deduction claimed on Form 1040, Line 23, and Form 1040A, Line 16

In addition to the above deductions, the tax bill also extended into 2010 an Alternative minimum tax (AMT) patch and the IRA direct charitable donation rollover (extended through December 31, 2011).

The delay will affect both paper filers and electronic filers so the IRS urges taxpayers to use e-file to minimize confusion over the recent tax changes and ensure accurate tax returns. All tax returns claiming these credits or deductions should not be filed until the IRS is ready to start processing these returns in mid - to late February.

Increase your Itemize Deductions

Pay bills now and increase your tax refund.

Itemized Deductions include the following:

• Uninsured medical and dental expenses during the year,
• Interest and taxes paid on your home,
• Unreimbursed employee business expenses or other miscellaneous deductions,
• Uninsured casualty or theft losses, and
  
• Contributions to qualified charities.

If you know already you will be completing a Schedule A Itemized Deductions for 2009, here are some tax tips to increase next year's refund:

State and local income taxes
Mail your January estimated payment in December and you can claim a deduction for the payment this year, not in 2010. This applies to taxpayers who make estimated State and/or local tax payments directly. Note: you'll realize no benefit if you're subject to AMT.

Real Estate Taxes
Soon you will receive your 2010 Cuyahoga County property tax bill in December 2009 (you usually receive it around Christmas). Paying this bill in December will allow you to claim an additional deduction in 2009.

Mortgage Interest
Make your January 2010 home-mortgage payment before the end of this year and you will have an additional interest that will appear on your Form 1098. In the 25% bracket for 2010 on a $1,000 interest payment, that saves you an immediate $250 on April 15, 2011. By doing that each year, you have created an interest-free loan of that $250 every year until the loan is paid off.

Go to Church regularly?
Consider putting your typical January 2010 contribution in the collection plate in December so you can claim the deduction this year. You are going to church on Christmas Day aren't you?

Medical Expenses
If you're close to exceeding the threshold of 7.5% of adjusted gross income for medical expenses, you may want to get caught up and paid in full before the end of 2009.

As with most tax breaks, you have to spend money in order to earned the benefit. The above may seem like a lot of money to spend before the end of the year. Think about this: these are examples of bills and expenses that you will have to pay anyway. Why not receive the tax benefit now instead of waiting to file your tax return in 2011.