How to Deduct Free Services on Your Taxes

The IRS provides hundreds of deductions that taxpayers can claim but many taxpayers are not aware of them. No one has the time or wants to read through all of the tax forms and instructions to find out what they are. A good resource to find hidden tax deductions is the book, Lower Your Taxes by Sandy Botkin.

There are tons of hidden tax deductions that can be claimed. One hidden tax deduction that tax payers can claim is free services. Here are 9 ways to deduct free services and other expenses on your taxes.

1. Pro Bono. Pro bono is when you donate your time and services for free or at cost. If you donate time and services for an event but ask for payment to cover traveling expenses - the time and services are considered donated and can be deducted. However, the services must benefit the general public.
2. Free Services. If you provide free services to a charity you may have to claim the income for the value of the job as if you got paid even though you didn’t. For example if you are a speaker and provide a seminar to a charity and would normally get paid $1,000, you may have to report $1,000 on your taxes. Talk to an accountant to or contact the IRS tax help line to get specific tax information about the services provided. The services must benefit the general public.
3. Volunteer Work. If you volunteer your time and services to help a charity you can deduct: costs for hosting a party or fundraiser for an organization, supplies purchases which are required to perform volunteer work, cost of a uniform or clothing required to perform volunteer work, telephone expenses, and travel expenses such as parking, tools, gas, miles traveled, etc. Keep receipts of all expenses.
4. Food. You can deduct food and tips as long as you have the receipts as proof of payment.
5. Entertainment. You can deduct entertainment expenses except for alcoholic beverages.
6. Expenses. You can deduct “ordinary” and “necessary” expenses associated with or necessary for your job especially for a trade. Ordinary expenses are common expenses for your trade or profession. Necessary expenses are those that are helpful for you to perform your job and apply to full-time or self-employed employees.
7. Travel Expenses. Some travel expenses can be deducted if they were incurred to benefit a charity. Travel expenses that can be deducted include: hotel costs, rental car and airline tickets.
8. Business Meetings. If you attend conferences or business meetings for your job you can deduct travel expenses includig the cost to drive to the event if you are not reimbursed by your job.
9. Car Mileage. If you use your car for your job or business and use it for that reason only, you can deduct the entire operation costs. If your car is used for your job and business you can only deduct the cost for business use. You can deduct mileage usage using one of two methods: the standard mileage rate or the actual expense method.

The deductions are only allowed if you itemize your deductions. Visit the irs.gov website to get more information.

End of Year Tax Deductions

On December 23, 2011, President Obama signed the Social Security Payroll Tax Holiday extension through February 29, 2012. The payroll tax temporarily extends the 2% payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2% to 4.2% of wages paid through February 29, 2012 for those who make $110,100 or less. This also prevents many Americans from losing their unemployment benefits.

Medicare will continue paying doctors at the current rate through February 29, 2012. The reduced Social Security withholding will have no effect on employees’ future Social Security benefits. Congress reconvenes in January 2012 to determine if the payroll tax holiday will be extended. If not, employees will pay the 6.2% social security tax for the remainder of 2012.

Some people dread the end of the year because it is a reminder that you have to file your taxes. However, if you file taxes you are one of the lucky ones who has a job whether you like it or not or whether it pays enough, you have one. That is a blessing. Over 9 million people are still unemployed.

Before you prepare to file your taxes gather all of your receipts and write down all of your expenses for the year. This will be difficult if you can’t find your receipts or don’t have all of them. If that is the case then estimate your expenses. If you hire a tax preparer having receipts and documentation will be very helpful and will reduce your chances or getting audited because you have proof of your spending.

If you know you will owe taxes for 2011 request an extension no later than April 16, 2012 or setup a payment plan. There are tons of tax credits and deductions you can claim for 2011. Here are 33 ways to reduce your taxable income and increase your chances of getting a refund.

1. Uniforms, job supplies.
2. Tax preparation fees.
3. Job related training.
4. Job search expenses.
5. Home office business expenses.
6. Mortgage refinance fees.
7. Charitable donations (cash and non-cash).
8. State Sales Tax.
9. Property and estate tax deductions.
10. Foreclosure tax relief.
11. Casualty Loss (Disaster Area).
12. Reinvested Dividends (DRIP).
13. Mileage Deduction.
14. Earned Income Tax Credit (EITC).
15. Energy Credit.
16. Car Credit.
17. Home Buyer Credit for Military Personnel.
18. Capital Gains.
19. Child Tax Credit.
20. American Opportunity Tax Credit.
21. Personal Exemption Phase Out.
22. Increases in Standard Deductions.
23. Marriage Penalty Relief.
24. Dependent Care Credit.
25. Adoption Tax Credit and Adoption Assistance Programs.
26. Coverdell Account.
27. Student Loan Interest Deduction.
28. Above the Line Deductions for School Teachers.
29. Business Incentives and Credits.