Common misunderstandings concerning tax deductions

Paul Pahoresky for the NewsHerald writes: One of the common misunderstandings is that the cost of purchasing a raffle ticket for a fundraiser from a charitable organization is a tax deduction as a charitable contribution.

For instance, many of us enjoy visiting the Lake County YMCA Dream House and purchasing a ticket for this event. This ticket purchase and other similar fundraising ticket purchases are not tax deductible as a charitable contribution. The amount paid for the ticket could be used as a gambling loss deduction. However, this deduction is limited to the extent of the gambling winnings.

So, as much as you might want to deduct the raffle tickets you purchased at the church festival as a charitable contribution, it is not a qualified charitable contribution.
Another common area that I find taxpayers thinking that they can take a tax deduction is deducting personal interest expense. Personal credit card interest and personal car loan interest are not deductible on an individual return.

The misunderstanding in this area stems from the fact that many years ago this type of interest was an allowable personal deduction.

Mortgage interest and investment interest to the extent of investment income are generally the only types of allowable interest deductions on an individual income tax return.
Political contributions, including tickets to political dinners, are not deductible for federal income tax purposes. There is a credit on the State of Ohio tax form of up to $100 for married filing joint returns of contributions to select campaign committees for selected State of Ohio positions. However, there are no federal tax deductions or tax benefits available for political contributions.

Burial and funeral expenses are not deductible. Some taxpayers mistakenly believe that these types of expenses are deductible as part of the medical expense deductions.
All of the expenses incurred once an individual has passed away including transporting the body and the cemetery lot are not tax deductible expenses.
Home repairs on a personal residence are another area where I sometimes have clients bring in a collection of receipts thinking that they can take a tax deduction.
There are several tax credits available for the installation of certain energy efficient property including windows, furnace or insulation. However, in general there is no tax deduction for home improvements and home repairs on a primary residence. 

One of the non-deductible items that I personally cannot understand the logic behind is the fact that health club and athletic club dues and expenses are not an eligible tax deduction. Logically, one would think that these should be deductible as a health care deduction.
However, this is not the IRS position on this matter. Even if you are required to stay in shape for your job, these club memberships are not allowable tax deductible items. 

The costs associated with commuting to and from work are also not tax deductible. There is a mistaken belief that since these costs are incurred to generate income they are automatically tax deductions. Unfortunately this is not the case, and the IRS considers commuting to and from work a personal, non-deductible expense.

As summer winds down and we enter into fall, it is a good time to think about tax planning. Make sure you are clear on what items are truly tax deductible items. You don’t want to be thinking that you have a tax deduction in a certain area when in fact you do not. 

Paul Pahoresky is a partner in the accounting firm of JLP CPAs. He can be reached at 440-974-1040x14 or at paul@jlpcpas.com. Consult your tax advisor for your specific situation for additional information and guidance on these topics. 

Family finances: You don’t always need to be rich to hire a financial planner

Nellie S. Huang for Kiplinger’s Personal Finance writes:  Financial planners not only manage your investments, but they’ll also give you advice on saving for retirement and for your kids’ college education. They can do estate planning and point you toward accountants who will prepare your taxes. They can discuss the wisdom of trading up to a bigger, more expensive house.

In Monterey, Calif., fee-only planner Gifford Lehman and his three associates manage $165 million for 75 clients. Lehman doesn’t require an asset minimum to become a client, but his fee structure works best for investors with at least $1 million. He charges between 0.5 percent and 1 percent of assets annually, depending on account size. That fee is on top of any underlying fees for the investments he chooses. In addition to the usual investing advice, Lehman offers estate and tax planning.

Just because a firm is big doesn’t mean it requires a big minimum. Edelman Financial Services, based in Fairfax, Va., has more than 17,000 clients, $8.5 billion in assets under management and offices in 14 states. Some planners at Edelman will accept accounts of as little as $75,000, but the fees will be 2 percent of assets per year, compared with 0.75 percent annually for an account of $1 million to $3 million.

Other big firms offer advice in small increments. Garrett Planning Network, a nationwide group of independent planners, can put you in touch with one of its more than 300 fee-only advisers, who charge hourly rates of $150 to $240 and can help on an as-needed or ongoing basis. Their target audience is beginners, middle-income earners and do-it-yourselfers. It typically takes eight to 12 hours to devise a comprehensive financial and investment plan.

Then there are brokers-turned-planners. Take John Burke: For 22 years, he was an adviser at big brokerage firms. Now, he’s a financial planner and has his own firm, Burke Financial Strategies, in Iselin, N.J. Instead of making money on commissions, as he once did, he earns a fee based on the assets he manages. And his clients get more than just investment advice — they get comprehensive financial planning, too. The firm is tied to the Raymond James brokerage, but Burke says he doesn’t earn commissions on products he sells. His fee is 1 percent of assets under management annually. He works with clients who have more than $1 million, but two associates in his office -- one is a certified financial planner and the other is a certified public accountant -- take on clients with $200,000 to $1 million in assets. “If you exclude people with less than $1 million, you exclude most of America,” says Burke.

Read more here: http://www.thenewstribune.com/2013/09/22/2798530/family-finances-you-dont-always.html#storylink=cpy