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Stephanie B.
Stephanie B., Enrolled Agent
Category: Tax
Satisfied Customers: 555
Experience:  MTax, EA, QuickBooks Proadvisor. Over 10 years accounting and tax experience specializing in individual and small business.
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I am a young mechanic looking at buying a used toolbox in excellent

Resolved Question:

I am a young mechanic looking at buying a used toolbox in excellent condition. It is somewhat expensive, but I know tools and tool storage can be used as a tax write off. Last year the local guy I took my taxes to told me that I need to spend at least 5700 a year to get anything back. How much of that 5700 am I looking to get back in my refund when all my wages are taxed to the full extent all year long, (I claim 0 dependents)?
Submitted: 3 years ago.
Category: Tax
Expert:  Stephanie B. replied 3 years ago.

Stephanie B. :

What your tax preparer was telling you last year was that your out of pocket non-reimbursed business expenses must be more than your standard deduction in order for them to benefit you. This is because unreimbursed business expenses are an itemized deduction on Schedule A. I assume you are paid on a W-2 through this job. Unreimbursed business expenses are limited to 2% of your adjusted gross income (AGI). So, if your AGI is $25,000, the 2% limitation is $500. You would have to spend at least $500 in unreimbursed business expense to meet that limitiation to even think about deducting anything. That is one limitation. Then in order to be able to itemize, you would have to have over $5700 of itemized deductions. That is the second limitation.

Customer:

Ok, so I am on pace to make about 45,000 gross income this year would the 5700 dollars go up because i made more money this year than last year?

Stephanie B. :

If you make $45,000 gross income, your AGI would be approximately $900 so now you would have to spend more in order to meet the limitiation. The standard deduction itself normally only changes with inflation. So 2011 standard deduction will be $5800 for a single person. There are other items that go on the Schedule A for itemized deductions too though. Your state/local income taxes that you pay, any mortgage interest if you own your own home, donations to church or charity, and some other items as well.

Customer:

I am not worried about not hitting the 5800, I just want to know with how much of the amount I am spending what I will get back. If i decide to get it, it will be financed over 4 years but I don't want to wait that long to pay it off. I would like to purchase it now make payments for about a year then when my return comes in next year pay it off completely. Would I have to file with a schedule a instead of a regular 1040e in order for the deductions to make a difference?

Customer:

basically its a will be a 5500 dollar tool box and by next year i will have paid about 2000 of it off. Am I likely to get enough from my return to finish paying it off?

Stephanie B. :

Yes. You would have to file a Schedule A with a 1040 in order to claim itemized deductions.

Stephanie B. :

If the toolbox costs $5500 and you are able to take the full cost as a deduction by taking the Section 179 expense since this toolbox does have a useful life of more than one year, the 2% limitation will be $900 with what you told me before about your wages. This leaves $4600 as deductible unreimbursed business expense. Now, you take the $4600 plus your state/local income taxes paid (this is normally your state/local withholding on your W-2). If this is over $5800, you are able to itemize. If it is less than $5800, you are not able to itemize and the purchase of the toolbox will be of no benefit to you taxwise.

Stephanie B. :

When you are able to itemize, it lowers your taxable income more. Then this taxable income is what your tax liability is figured on.

Stephanie B. :

Basically if you are able to itemize, anything above the $5800 in your situation will save you 15 cents on the dollar. You are easily in the 15% bracket, possibly having some income in the 25% bracket. And this doesn't include consideration of the state.

Customer:

well the box itself is about 4500 but I am going to finance my current tool bill along with it. All together it will be most likely exceed 6000 dollars by years end, but all of my tools have a useful life of more than a year. So I can itemize my state taxes paid and add it to the near 5000 dollar deductible and i will get 15 cents for every dollar that I itemize?

Stephanie B. :

You will save approximately 15 cents on the dollar of every dollar over the $5800.

Stephanie B. :

So if your itemized deduction when you are done are $6000, you saved $30 in tax.

Customer:

oh ok so that 5800 dollars that i spend is basically out of pocket money then and I will see no return on that?

Stephanie B. :

Yeah. Because you are already given the $5800 standard deduction anyway. It is what is over and above that actually benefits you taxwise.

Customer:

Ok so as far as the tax return goes if I spend 6000 dollars worth of deductibles it will only give me 30 dollars more on my return than what i would normally see

Customer:

if i hadnt itemized at all*

Stephanie B. :

That is pretty much it. If you don't itemize, you get standard deduction of $5800. If you do itemize, the benefit is anything over that standard deduction times your tax rate, which is approximately 15%.

Customer:

Ok then it would not really be worth it for me to make sure I spend more than the standard deduction because the benefit isnt that great

Stephanie B. :

That is true. If you don't have to spend the money, then it may be wiser not to.

Customer:

ok thank you, XXXXX XXXXX extremely helpful

Stephanie B. :

You are very welcome. Good luck to you!

Stephanie B., Enrolled Agent
Category: Tax
Satisfied Customers: 555
Experience: MTax, EA, QuickBooks Proadvisor. Over 10 years accounting and tax experience specializing in individual and small business.
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Stephanie B.
Stephanie B.
Accountant
555 Satisfied Customers
MTax, EA, QuickBooks Proadvisor. Over 10 years accounting and tax experience specializing in individual and small business.