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10 Ways a Leprechaun Can Minimize His Tax Liability
To celebrate Red Door’s 10th anniversary this year (double digits!), we would like to share our personality, core values, and overall excitement through a series of “top 10” blog posts on the 10th each month.
March - When you think LEPRECHAUN, what comes to mind? A little man with horseshoes, clovers and blue moons? A pot o’ gold at the end of the rainbow? Or maybe you are familiar with the traditional Irish version of a Leprechaun as a cobbler. Well that’s all fine & dandy, but did you ever think about how a Leprechaun might go about filing taxes? No, probably not (we wouldn’t blame you…taxes are boring, right?). That’s why, in the spirit of both St. Patty’s Day and tax season, the Accounting Department at Red Door put together a list of adjustments and deductions that we think would be most common on a Leprechaun's tax return. Who knows, you may find some that apply to your own tax situation and help you claim your own pot o’ gold.
* For purposes of this blog post, we assume Mr. Leprechaun is actively involved in the business of cobbling, as well as protecting his pot o’ gold (via any means necessary) and promoting his image as a Leprechaun.
1. Health Savings Account – Form 1040, line 25, Attach Form 8889
With the stress of protecting his pot o’ gold starting to take a toll on him, that Mr. Leprechaun opened a Health Savings Account (HSA) in 2011. He can claim a deduction for the amount he contributed to his plan in 2011, less any funding distributions, limited to $3,050. Quick tip: you can elect to treat any contributions made from January 1, 2012, through April 17, 2012 as if contributed in 2011, so it’s not too late to claim an additional deduction for your 2011 tax return!
2. Moving Expenses – Form 1040, line 26, Attach Form 3903
With his growing interest in cobbling authentic cowboy boots, Mr. Leprechaun relocated his cobbling business from Ireland to the great United States of America. The cost of shipping his household items and the three nights he spent at O’Sullivan’s Tavern & Inn qualify as deductible moving expenses, since his new business location is more than 50 miles (actually, it’s about 5000 miles from California to Ireland!) from his old home AND he worked full time for at least 39 weeks the first 12 months of his relocation. Sorry, but the 2 pints of beer every night at the tavern are NOT deductible.
3. Alimony Payments to the Fairy Ex-Wife - Form 1040, line 31a
It happened faster than two Kardashian Marriages, but Mr. Leprechaun now makes monthly payments to his ex. The good news: he can claim an adjustment for AGI for 100% of those payments. The other good news: his ex must claim those payments as income.
4. The Greener the Better – Form 1040, line 52, Attach Form 5695
To keep utility expenses down in his tree house, Mr. Leprechaun invested in Energy Star certified windows and doors. He can claim a credit for 10% of these residential energy purchases (including any labor costs allocable to the installation). The only downside is that there is currently a $500 lifetime limitation for this credit. See Form 5695 for additional qualifying purchases and additional limitations of the credit.
5. Poteen Rehab Program – Form 1040 (Schedule A), line 1
Mr. Leprechaun has been swigging plenty o’ Poteen with his cousin, the clurichaun. This past year, he enrolled himself in a program to rid himself of “the guid ould stuff.”
6. Someone Stole Me Lucky Charms! – Form 1040 (Schedule A), line 20, Attach Form 4684
Mr. Leprechaun returned home from a long day of cobbling to find his stash o’ lucky charms had been stolen! He can deduct the smaller of his cost basis or decline in market value of the lucky charms, net any reimbursement he received.
7. Tax Prep Fees – Form 1040 (Schedule A), line 22
Yes, Mr. Leprechaun knows that the best solution for maximizing his tax refund (or minimizing his tax liability) is to consult an accountant. And the luckiest part of doing that? All these expenses are deductible: the cost of tax prep software programs (i.e. TurboTax), fees paid for electronic filing of your return and even the convenience fee charged by credit card processors if you paid your tax with a credit card.
8. Legal Fees – Form 1040 (Schedule A), line 23
On April 1, Mr. Leprechaun was caught by a human who demanded a pot o’ gold in exchange for his release. Two days later, the human discovered the gold was, in fact, CHOCOLATE gold coins, and not the real, cold hard stuff. Needless to say, the human filed a lawsuit against Mr. Leprechaun. Mr. Leprechaun is able to deduct fees that he incurred in defending himself against criminal charges arising from his business, which in this case, is his business of trickery.
9. A Fiddling Fun Hobby – Form 1040 (Schedule A), line 23
In his free time, Mr. Leprechaun enjoys playing his fiddle at local Irish Pubs. He can deduct any expense directly related to this hobby, such as the cost of fiddle strings and bows, but only up to the amount of income he earns and reports while performing. *Be sure you read up on the differences between a “hobby” and a “business” before you try to claim this deduction – there’s a very fine line.
10. Gambling Losses – Form 1040 (Schedule A), line 28
One of his favorite pass-times is betting on Lucky Clover down at the Del Mar Horse Races. He is able to deduct his losses to the extent of his gambling winnings reported on Form 1040, line **Gambling winnings may also include non-winning bingo, lottery, and raffle tickets. Be careful on this one – you must be able to prove your losses, so be sure to keep all tickets and stubs for reference.
You’re in luck! The Federal government has extended the 2011 tax return filing deadline by two additional days this year! Since April 15 falls on a Sunday and government offices in Washington D.C. are closed in observance of Emancipation Day on Monday, April 16, you’ve got two extra days to figure out how Mr. Leprechaun’s deductions and adjustments can work for you.
For some more St. Patrick’s Day fun, visit Accounting Assistant Lauren Arcangelo’s Pinterest page: St. Patty's Day Pinterest
Subject to 2% adjusted gross income (AGI) limitation: Most miscellaneous itemized deductions on Form 1040 (Schedule A) must be reduced by 2% of your AGI, which can be found on Form 1040, line 38.
Subject to 7.5% adjusted gross income (AGI) limitation: You can deduct on Form 1040 (Schedule A) only the part of your medical and dental expenses that is more than 7.5% of your AGI, which can be found on Form 1040, line 38. See Publication 502 for more info on qualifying medical and dental expenses: http://www.irs.gov/pub/irs-pdf/p502.pdf
Generally, you must reduce each personal casualty or theft loss by $100 when figuring your deduction. This deduction is also subject to a 10% adjusted gross income (AGI) limitation: You must reduce your loss by 10% of your AGI, which can be found on Form 1040, line 38. See Publication 547 for more info on claiming casualty and theft loss deductions: http://www.irs.gov/pub/irs-pdf/p547.pdf