Discussion:Question about deducting tools for work...

In year 2006 my gross income was 22,000 dollars even and I have a total of about 10,000 dollars in reciepts (retail and eBay) for tools (tools make up the bulk of the reciepts), service manuals, steel toe boots, gloves etc. that I have purchased during the year. As far as I can tell, I will be audit bate if I claim it all...which I would like to do.

Any suggestions as to how I should go about my preparing my taxes, avoid audit etc. etc. would be appreciated.

Thanks

I am filing a 1040, Schedule A and a 2106 (at least I think those are the right forms for my situation).

This is strictly a personal income tax return. These are tools, manuals etc. that I bought to do my job (mechanic, rebuilder) and to take care of and maintain equipment at work (forklift, parts washer, air compressor etc).

Does the IRS only look at reciepts to show that you bought what you say you bought or do they also pick you apart and question the purchases and / or show up at work to see the tools??

In schedule " C " you will report your income of $ 20,000 and all the expenses related to that income. You mentioned schedule " A" . Are you own a house? Do you have Mortg. Interest? if so how much? Taxes ?

http://www.taxalmanac.org/index.php/Discussion:How_Many_Audits_Did_You_Have_in_2006%3F

I do not own a house.

No Mortg. interest.

I use these tools while working for someone else.

I get the impression that I am being paranoid over nothing...

I guess what I am worried about is an auditor looking at the reciepts and accusing me of deducting tools that I am using for my own personal use and not for work and then hitting me with a big fine...

Good Luck

They get no use on my personal vehicle either. I have other tools at home for that.

However, the IRS has to have a way of weeding out those who abuse the program and I am worried about getting tagged.

And does the "less than 1/2%" rule apply to those who deduct 45% of their gross income?

...worried about getting tagged AND getting accused of deducting tools that I am using for my own personal use and not for work and then hitting me with a big fine

Also you are entitled to the personal excption which when up to $ 3,300 for 2006. There is a phase out exemption but doens't apply to your case here.

Whats that and why is that better?

Is there an IRS form that explains it?

If you're married, then disregard all of the above. If you file as head of household, then disregard all of the above.

So, don't worry. If you're claiming your income from all sources, and if your only source of income is from being a mechanic for an employer, you can deduct your tools and other necessary work expenses on Sch A, under Miscellaneous Deductions.

I understand the personal exemption...he made an error while spelling and that threw me off and peaked my interest.

So, the IRS does not audit when there is less than 1000 dollars to be gained unless there are conflicting dollar figures regarding the income of the tax payer or there are other reasons to believe that the tax payer earned more than he/she claims?

Would it be to my advantage to include a "statement" explaining my deductions seeing as how I have never deducted before and my deductions are not "proportionate" to my income??

The $1,000 was just a figure I mentioned as having heard in the past. You can't rely on this amount or any amount.

No, you don't need to include a statement to your tax return. Mauro is correct in his last statement. Just include the required forms when you file your return.

) I'm just keeping. Seek out a tax pro this year. Your deductions can work if they are legit.

- Rick

    LOL San Diego and Will, what were we talking about again??? (going to be a long season)...We're thinking too hard.....

For the record, no I am not self employed.

I guess I wont be trying to deduct MY steel toe boots...they ARE suitable for non-work use (thanks for the link).

No I do not work on musical instruments. I work on transmissions...I rebuild them. I also work on other pieces of equipment that we have in the shop (parts washer, forklift etc).

My one big question that would answer all of my questions is this:

How does the IRS decide what is a legitamite "unreimbursed employee expense" and what is not when it comes to tools?

They don't just take your word for it do they? Because if thats the case it would be EASY to take advantage of the system. The ONLY thing that I am "worried" about is an auditor looking at my deductions without knowing what I do on a day-to-day basis (how COULD he/she know?) and thinking that I am trying to deduct personal items...which is not what I am doing. If all they do is add up reciepts, then I am fine. I have all of them.

Most of the tools are hand tools that everyone in a shop uses, but some of them are the kinds of thing that are only common for an electrician, something that I am not and thus THOSE tools do not fit my job description. I use them to fix and maintain the equipment in the shop that I described. Maybe I am worrying too much. But with a $20,000 gross income and $10,000 in misc. deductions I have a hard time believeing that I WONT throw a red flag.

But keep in mind you might not be entitled to deduct all $10,000+ of your tools in one year anyway. Presumably some of the tools will have a "useful life" of more than one year--in which case you will have to depreciate the tools over that period rather than deduct all $10,000 in 2006.

I would rather DEDUCT than DEPRECIATE because it is not likely that I will ever spend more than the standard deduction in one year because almost all of the tools have a lifetime warranty. As far as I can tell, if I spread out the deduction via depreciation I will lose deductability value unless I continue to spend large amounts. I only have one tool that cost over $1000 and thats a $1199 Fluke Scopemeter (common electician tool that I use at work that does not seem to fit my job title well). I read in another topic on here that is it rare if not unheard of to depreciate items valued at less than $1000.

And I am not really that worried about GETTING AUDITED. I am more so curious about what exactly the auditor will do and look for in my return.

Taken from Bengoshi's post,

"Provided you keep adequate records, you should be entitled to deduct your employment-related tools that are ordinary & helpful in your trade."

I would really like to know how that is determined...

Also taken from Bengoshi's post,

"This means you should keep your receipts and perhaps document in writing the business purpose of your major tools"

Is there a formal way to do this or do I just write something down on a blank sheet of paper??

One thing that I have been trying to get at and have yet to get a GOOD response on - although I have gotten many other good responses regarding other matters, but not from you - is this:

How does the IRS decide what is a legitamite "unreimbursed employee expense" and what is not when it comes to tools?

Sorry if many responses to a single thread offends you or anyone else. It was not my intention to offend. Good day.

However, even if this applies to your situation, as Deback pointed out you can ELECT to deduct the costs of the tools all in one year rather than over several years (this is often referred to as the "Sec 179 election"). That's probably what you'll want to do. You must make the Sec 179 election on Form 4562, Part I. Also note the property has to be used more than 50% for business use which I assume you meet.

What I meant by "ordinary & helpful" is that you can deduct via Sec. 179 election the cost of tools that are commonly acquired by other in your profession/trade, and which are helpful in your trade. Not sure about the electrical tool since you imply its not a common acquisition for others in your position, but it doesn't strike me as something to be too concerned about. There's no formal way of documenting these tool purchases, but I'm sure you can think of something creative to document your business purpose and which doesn't look like it was manufactured for an examination.

1. I have been through a number of audits. None are pleasant, but most result in no change to taxes 2. Do NOT worry about an audit if you have receipts for expenses AND they are legitimate work expenses!! 3. If you do not have receipts, but have other means or metrods to establish expenes, do NOT worry. 4. Only if you have LIED, cheated or hidden income, then WORRY!

btw, isn't 12string a type of guitar? or bass?

1) The 179 requires that the tool be placed into service the year that it is being deducted and the unreimbursed employee expense can be used once the tool is incurred or purchased.

2) There is a 2% of AGI "penalty" for the unreimbursed employee expense. There seems to be no such "penalty" for the 179 election.

3) The unreimbursed employee expense is an "all or none" deal where as the 179 election can be done on a percentage basis based on how much they are used for personal use.

Did I miss anything?

Taken from Death&Taxes' post:

"btw, isn't 12string a type of guitar? or bass?"

Some guitars have 12 strings and some have 6. There are more with 6 than 12 out there. I have never seen a bass with 12 srtings but that does not mean that one can't be found. I have 3 guitars and one of them, perhaps my favorite one, has 12 strings and that is where I got the idea for my screen name.

"Besides saving the receipts, probably the most important document you would need is a letter from your employer stating that you have to supply your own tools."

What do I do once I obtain this letter?? Send it in with my return?? Present it to an auditor??

It is your job to file for every deduction you are entitled too.Unfortunately, the government has made the tax code so confusing that many just opt for standard deductions or paying someone to figure it out for them. Being afraid of being audited only benefits the government in this regard. Don't let that fear keep you from getting everything that you are owed.

You did state that you don't use your own vehicle for work. If you did that would also be deducted.

Sec 179 is for self employed or businesses. So that does not apply to you.

As for sched a, your W-2 may have state or local income tax on it that is deductible. If not, then you can deduct sales tax.

Your income may be low enough to qualify for eic.

My only question is why is this taxpayer paying for items (to maintain and repair shop equipment) that should be the owner's responsibility. taxea