Deducting expenses as a contractor

Tax Talk

March 06, 2007

Editors note: Every Tuesday through the end of tax season, The Sun will run an edited transcript of Baltimoresun.com's weekly tax-advice column featuring three experts from the Hunt Valley accounting firm SC&H Group.

I'm a sports official and work as an independent contractor. When I leave my house to work a game, can I deduct the mileage from my house? Are there any other things I may be able to deduct, such as a uniform, shoes, etc.?

- Bob, Baltimore

Independent contractors are considered to be engaged in a trade or business, and are entitled to deduct all ordinary and necessary expenses paid or incurred in carrying on their trade or business. Uniforms are generally deductible if they are of the type that does not lend itself to personal use. Commuting from your home to a work location is generally not deductible. Automobile expenses would be deductible, if you were working at temporary worksites, traveling from your main job to a second job or if you have a home office and are traveling from it to a work site. Consult IRS Publication 463 for more information.

My spouse attends college and my employer, a university, provides me with tuition remission for half of the cost. That amount is considered taxable income to me and taxes are deducted from my paycheck. In this case, can I consider the remission amounts to have been paid by me and then take the tuition deduction for them?

- Jim, Catonsville

If your employer is treating the tuition remission as taxable income to you, you can include these expenses in your calculation of deductible qualified higher education expenses. The deduction is subject to limitations based on your modified adjusted gross income, and is not allowed if you are also claiming the Hope or lifetime learning credit.

I forgot to claim a capital loss on my taxes last year. I know that the capital loss may have reduced my taxes for the last year but am I legally required to amend my return if I don't want to? I understand that I must amend my return if I had forgotten to claim a capital gain since I would owe more taxes.

- Brad, Columbia

You should always file a complete and accurate tax return. In this case, an amended return is appropriate and may provide a refund. Reporting the capital loss transaction may prevent an IRS inquiry as the related sale may have already been reported to the IRS by a broker via a Form 1099. The IRS would not know if you had a loss, and might assess tax on the entire amount of the proceeds.

Where do I report on Form 1040 and other forms a direct transfer from IRA to a qualified charity? I plan to enclose an explanatory letter and a copy of the broker's report that says money was sent to charity.

- Lee, Parkville

The IRA distribution should be reported on line 15a of your Form 1040. If all of the distribution was donated to charity you should enter '0' on line 15b. If part of the distribution was not donated to charity, the taxable amount of the distribution should be shown on line 15b. Enter "QCD" next to line 15b. The contribution should not be shown as an itemized deduction on schedule A.

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