Deducting Union Dues on Tax Return

Is it possible to deduct union dues on a tax return?

Members of unions commonly ask if it is possible to deduct union dues on their tax returns. The IRS allows members of a labor union to deduct union dues on their tax returns. However, the first thing to keep in mind is that in order to deduct union dues, you must elect to itemize deductions on Schedule A instead of claiming the standard deduction for your filing status.


Deducting Union Dues on Tax Return

Most union members pay their dues through a system traditionally called check-off, in which the employer deducts the dues from members’ wages and gives them to the union. When dues check-off is not a provision of the union contract, members pay their dues and other fees directly to the union. Regardless of how union dues are paid, and regardless of whether the work site is in a right-to-work state or not, the dues, as well as initiation fees, are deductible from the union member’s annual income taxes.


Deducting Union Dues as Unreimbursed Employee Expenses

Again, you can deduct dues and initiation fees you pay for union membership. These are entered as unreimbursed employee expenses on Line 21 of Schedule A (Form 1040) Itemized Deductions. Find your annual union dues payment amount either from the W-2 form your employer sends you, the last pay stub of the year, which will show the year-to-date amount or your own checkbook. Enter this on line 3 of Form 2106, Employee Business Expenses. Use this form to list other unreimbursed business expenses and complete it, transferring the amount on line 10 to line 21 of Schedule A.


Deduct assessments or benefit payments to unemployed union members.

You can also deduct assessments or benefit payments to unemployed union members. However, you cannot deduct the part of the assessments or contributions that provides funds for the payment of sick, accident, or death benefits. Also, you cannot deduct contributions to a pension fund, even if the union requires you to make the contributions.

Deducting Lobbying Expenses

You may not be able to deduct amounts you pay to the union that are related to certain lobbying and political activities. See Lobbying Expenses under Nondeductible Expenses, later. Lastly, it is advisable to first determine if a taxpayer is better of deducting union dues by electing to itemize their deduction or by just claiming the standard deduction.

Deducting Casualty Loss or Theft

Generally, taxpayers may deduct casualty and theft losses relating to your home, household items and vehicles on their federal income tax return. The IRS would like taxpayers who experience certain types of major personal casualties recover some of their losses through tax savings. If a fire, theft, vandalism, earthquake, storm, floods, terrorism, or similar event damages your property, you may have undergone a casualty loss, which can be deductible as an itemized deduction on your return.


What is a casualty loss?

A casualty loss can result from the damage, destruction or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake or even volcanic eruption. A casualty does not include normal wear and tear or progressive deterioration. The deduction is only available for physical damage or loss to your property. Medical losses are not casualty losses and cannot be deducted under this rule. Casualty losses are treated differently depending on whether the loss occurred to property used in your trade or business, to generate investment income, or for personal or family purposes.


Deducting Casualty Loss or Theft

A casualty loss is not allowed when the loss is gradual, such as insect damage to trees or water damage from a leaky roof. Therefore, damage or destruction resulting from progressive deterioration of property, such as beachfront erosion, would not qualify as a casualty loss. Loss of property through theft is deductible, but merely misplacing property is not.


How to Calculate and Claim Casualty Loss?

A casualty loss is measured as the lesser of (a) the drop in value and (b) your basis in the property.  Remember, for income tax purposes, only losses to property are deductible as a casualty loss. You can’t deduct the loss of future earnings if your business is damaged in a fire, nor can you deduct the loss of time you spent cleaning up after the fire.

It may be difficult to establish these elements and original receipts showing actual costs are necessary. If the casualty loss is big, an appraisal might be required.


Limitations Casualty Loss Deduction.

There are three main limitations on deducting a loss on your tax return as an itemized deduction.

  1. If you are insured, you must reduce your loss by your reimbursement.
  2. For each casualty, you must reduce your loss amount by $100. Note that this reduction is per “event,” not per item damaged.
  3. After combining all your losses under the above guidelines, you must reduce them by 10% of adjusted gross income (AGI). Only the loss amount above this “floor” can be deducted. The 10%-of-AGI limit on casualty losses is waived for federally declared disasters in 2008 and 2009.


When to take Casualty Loss Deduction

The deduction must be taken in the year the loss is incurred (or, for a theft, the year it’s discovered by the taxpayers). Individual taxpayers who do not itemize deductions cannot deduct their casualty losses. Following these rules should provide a guideline to determine if the loss of property is deductible on a tax return. If your loss deduction is more than your income, you may have a net operating loss. You do not have to be in business to have a net operating loss from a casualty.


How much can you deduct on a casualty loss?

The amount of the loss is further reduced by any amounts covered by your insurance company, regardless of whether or not you file a claim.  After the loss is determined and the insurance reimbursement is subtracted, the loss deduction is generally reduced by $100 for each casualty, any casualty gains, and 10 percent of your adjusted gross income.


IRS Forms and Publications on Casualty Losses

Report casualty and theft losses on Form 4684Casualties and Thefts. Use Section A for personal-use property and Section B for business or income-producing property. If personal-use property was damaged, destroyed or stolen, you may wish to refer to Publication 584Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property). For losses involving business-use property, refer toPublication 584-B Business Casualty, Disaster, and Theft Loss Workbook.

Information about miscellaneous itemized deductions

Learning About Miscellaneous Itemized Deductions

There are several different types of deductions available to taxpayers on their tax returns. Along with these different types of deductions are different rules and eligibility requirements will have to be considered before taking a tax deduction. One particular type of expense is classified as a “miscellaneous itemized deduction.” Taxpayers can elect to take either a standard deduction or itemize their deductions. Depending on your adjusted gross income (AGI) and the total of all your miscellaneous items, taking this route may lead to a tax savings by itemizing.


Standard Deduction or Itemized Deduction

For most taxpayers, the standard deduction will provide the greatest tax savings, but for other taxpayers with higher incomes and deductions, understanding miscellaneous itemized deductions will be very important. Tax software such as TurboTax and H and R Block will be able to provide calculations of miscellaneous itemized deductions.


Information about miscellaneous itemized deductions

A comparison of all expenses versus the standard deduction is needed. It is necessary to compute the total of all expenses that fall into the miscellaneous deduction categories. This amount is deductible as an itemized deduction but only if (and to the extent) it is greater than 2% of your AGI. Note that since it is an itemized deduction, it can only be claimed if you itemize your deductions and don’t claim the standard deduction.


What are miscellaneous itemized deductions? The following are itemized deductions subject, in total, to the 2% rule described above:

  • Tax return preparation costs are considered miscellaneous itemized deductions. This category includes the fee to have your tax return prepared.  It also includes other costs related to determining your taxes, such as appraisal costs or legal fees that are paid to lawyers. Again, this deduction is only useful if you have large expenses in this area because of the limitations on itemized deductions.
  • Unreimbursed Employment-related expenses of an employee miscellaneous itemized deductionsIf you incur deductible expenses in connection with your employment, they are miscellaneous deduction items. These include out-of-pocket expenses for which you are not reimbursed by your employer. You will have to include the reimbursements or allowances in income and then separately deduct the expense as a miscellaneous itemized deduction. If the arrangement meets certain IRS requirements, the reimbursement or allowance isn’t included in income and the expense isn’t deducted.
  • Investment expenses, and expenses of producing or collecting taxable income are miscellaneous itemized deductions. This category includes investment advisor’s fees, investment publications, and the cost of a safe deposit box. Certain taxpayers may qualify as active traders which will also allow them to take more deductions for expenses related to their trading business.
  • Hobby expenses are miscellaneous itemized deductions. Expenses related to an activity that is a mere “hobby” (i.e., not a trade or business) are only deductible up to the extent of your income from the activity. You are taxed on the income and then only separately deduct the related expenses as miscellaneous itemized deductions.

Remember, if you are subject to AMT rules, the deduction for miscellaneous itemized deductions isn’t allowed for purposes of the alternative minimum tax.

Deductible Legal Fees in Divorce

How to deduct legal fees in divorce?

Legal fees in connection with a divorce or separation are treated specially for tax purposes. The overall rule regarding the deductibility of legal fees in divorce are that general legal fees relating to a divorce or separation are nondeductible personal expenses. However, with careful planning and careful documentation on the attorney’s part, a portion of the fees may be deductible under one or more of the following approaches to planning for legal fee deductions.


Deductible Legal Fees in Divorce

You cannot deduct the costs of counseling, litigations, or personal advice. However, in some circumstances, taxpayers are permitted to deduct fees that are associated with the collection of alimony payments.


Divorce Legal Fee Deductions

  • Capitalization of legal fees. To the extent legal work is involved in acquiring marital assets in a divorce or separation, the allocable part of the fee can be added to the basis of the assets acquired. While this is not as favorable as a deduction, it should save taxes when the assets are eventually disposed of.
  • Tax advice. The payment of legal fees for tax advice is deductible as an itemized deduction. In many divorces and separations, the tax aspects of divorce play a key role in the arrangements made. Tax consequences must frequently be analyzed and explained to the parties. A lawyer that has itemized bills for this means that a client may be able to deduct it on their tax returns.
  • Collection of taxable alimony. Legal fees incurred for the collection of taxable income are deductible. Taxpayers can deduct that portion of legal fees in divorce relating to getting alimony. This covers the legal work involved in setting up the alimony payments. This could mean deducting the fees related to drafting the divorce or separation agreements. It also covers the legal fees incurred to enforce collection, if payments are missed or there are other issues.Remember though, that legal fees incurred by the paying party to resist alimony claims are nondeductible personal expenses.

One of the most difficult elements in obtaining tax benefits from legal fees in connection with divorce is showing which part is deductible. The taxpayer must be able to show the portion of the legal fees deductible. If one bill is provided with no details, the legal services will not be taxable.


The following advice and services may be allocated to tax planning

1. Costs of structuring a property division to produce desired tax effects, i.e., advice re: rollover residence, the one-time tax exclusion of capital gain for taxpayers 55 and over, etc.
2. Costs of determining the adjusted basis of assets in the property settlement.
3. Costs of planning an alimony trust or annuity agreement to avoid some of the restrictions on deductible spousal support.
4. Costs of estate planning that assure proper estate and gift tax consequences for the payment or receipt of support or property division.
5. Costs of preparing a settlement agreement to assure deductible support payments during the separation period.
6. Costs of maximizing the deductible portion of spousal support or of minimizing the taxable portion of spousal support.
7. Costs of allocating dependency exemptions.
8. Costs of obtaining advice regarding the tax consequences of divorce or separation instrument or of gathering information for and preparation of tax returns.
9. Costs of drafting a QDRO and submitting it to the plan administrator for approval and enforcing the QDRO. (These may also be deductible as fees incurred to produce taxable income.)

The best approach is to make an attorney separate out, document, and itemize the time spent on each of the above three categories and to itemize the bill.

Difference Between 1040EZ and 1040A Tax Form

To file your individual tax return, you’ll have to decide which form to use…unless you e-file. If you file electronically, the software automatically selects the simplest and best form for you. Whether you use e-file or prepare on paper, using the simplest form will help avoid costly errors or processing delays. And remember, if you file electronically, it speeds up the processing of your tax return and the delivery of your refund. Two of the forms used for filing individual federal income tax returns are IRS Form 1040A and IRS Form 1040EZ (the third is IRS Form 1040, the most complex of the three). Anyone can file Form 1040; however, you have to meet certain requirements to use 1040EZ or 1040A.


Difference Between 1040A and 1040EZ

The IRS Form 1040A is one of three forms you can use to file your federal income tax return. Form 1040A is a shorter version of the more detailed Form 1040, but is more complex than the simple 1040EZ form. All taxpayers can use Form 1040; however, to use Form 1040A you must satisfy a number of requirements, such as having taxable income of $100,000 or less and claiming the standard deduction rather than itemizing.

Here are things to consider when deciding which IRS form to file. The differences between a 1040EZ and 1040A are discussed below.


Use the 1040EZ Tax Form if:

  • Your taxable income is below $100,000
  • Your filing status is Single or Married Filing Jointly
  • You and your spouse – if married — are under age 65 and not blind
  • You are not claiming any dependents
  • Your interest income is $1,500 or less
  • You are not claiming the additional standard deduction for real estate taxes, taxes on the purchase of a new motor vehicle, or disaster losses

Form 1040EZ is the briefest version of the 1040. You can’t itemize deductions or claim any adjustments to income or tax credits (except for the Earned Income Credit), and you can’t have any income from self-employment, alimony, dividends or capital gains.


Use the 1040A Tax Form if:

  • Your taxable income is below $100,000
  • You have capital gain distributions
  • You claim certain tax credits
  • You claim deductions for IRA contributions, student loan interest, educator expenses or higher education tuition and fees

Form 1040A is not as complex as Form 1040, but is longer than 1040EZ. Form 1040A allows you to claim a number of deductions that you are not able to on 1040EZ. If you can’t use Form 1040EZ, you may be able to use 1040A


If you cannot use the 1040EZ or the 1040A, you’ll probably need to file using the 1040. You must use the 1040 if:

  • Your taxable income is $100,000 or more
  • You claim itemized deductions
  • You are reporting self-employment income
  • You are reporting income from sale of property

The filing status and exemptions section of Form 1040A is similar to the corresponding section on Form 1040. Due to the limited types of income you can receive and the limited adjustments to income you can make on Form 1040A, the income and adjusted gross income sections of Form 1040A are much shorter. One of the most significant differences between the two forms is that you can itemize deductions on Form 1040 but not on Form 1040A.


While everyone is able to file the 1040, the 1040 opens you up to the most potential tax credits.

This is why, if you are not sure, it is still desirable to take the extra time and fill this document out. Also, if you run your own small business or you have been experimenting with it this year, even if you haven’t incorporated yet, the 1040 is the document for you to use.


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