5 Tax Deductions Many People Miss
Filing your taxes is a pain in your bank account. Unless you make very little, you owe money to the government, and if you make a lot, then you owe a great deal. Luckily, the IRS offers tax deductions for everyone from individuals and investors to small business owners to help you keep as much of your hard-earned money as is possible. However, no deductions are automatic, and you or your Certified Public Accountant (CPA) must be aware of them in order to claim them. Because many people file their own personal and business taxes, they often miss money saving deductions that could reduce their taxes by hundreds or even thousands of dollars.
While you should always have a professional CPA handle your taxes so that you know you are benefiting from every deductible you qualify for, you should also understand your taxes and what you do and do not owe.
The following include 5 tax deductions that many people overlook:
Research & Experimentation Tax Credit
Did you know that many types of businesses can qualify for a research and experimentation tax credit to claim wages, supplies, contract, and other research based fees. While some research items are excluded, and your credit will vary depending on how long your business has been in operation, it is a vastly underutilized deduction, that was only claimed by a small percentage of qualifying companies thanks to the fact that many business owners think it only applies for large businesses. However, this isn't true, and in 2010 nearly 25% of all applicants earned under $1 million.
State Sales Tax
In the state of New Jersey, you can choose to deduct state or local income taxes from your return. You can only choose to deduct one, so it is important that you have a CPA review your options to choose the most profitable option. State sales tax deductions only apply if you file a Form 1040, and you can itemize the deduction under Schedule A.
Purchasing items for your business means deducting those costs from your taxes, but the rules can be complex. For 2016 and 2017, businesses can use bonus depreciation to deduct 50% of the total depreciation to deduct half of the cost in the first year equipment is put into use. This rate will drop down to 40% in 2018 and 30% in 2019, but does allow you to deduct a large percentage of depreciation for equipment purchases in the same year of purchase for now. You can also expense up to $500,000 worth of assets and write them off for a big deductible.
Business owners, entrepreneurs, and even investors frequently use vehicles for business purposes, but many fail to deduct these costs. However, you can easily track your vehicle costs and deduct them from your taxes. Software applications like QuickBooks even make it easy to regularly maintain your records to track actual costs and mileage over time so those tax-time deductions are even easier. However, vehicle costs aren't just for small businesses, and property investors but for anyone using a vehicle for business purposes. This includes charity drives and travel. What else qualifies? While work commute does not, any type of travel to off-site meetings, temporary workplaces, using your vehicle as part of your business, etc. all qualify. You can also include depreciation and cost of repair for a vehicle that is only or primarily used for your business. Consider discussing this or similar topics with your CPA.
More and more small business owners and investors are working from home, and if so, you can deduct expenses for your home office from your taxes. Unfortunately, it's a highly underutilized deduction, despite the fact that it can be a considerable one.
IRS Publication 587 lists only two requirements for a home office deduction:
- You use the space as your principal space of business or for some other acceptable business purpose.
- You use the space regularly and exclusively for business.
This deduction is calculated based on the size of the room dedicated to your home office, your costs, and the hours you use the room. Please refer to the IRS link above for detailed information.
Deductions allow you to save on your taxes so that you keep more of your money. If you want to ensure that you're saving as much as possible, contact Demian and Company, CPA to handle your tax return, and we will ensure that you are applying for every tax deduction and credit you qualify for.
We are considered by many to be the East Brunswick CPA Firm, and the Cranford CPA Firm of choice. Please view the testimonials we have recieved by our clients over the years. If you're not near either location, or simply don't have the time, we can handle your tax returns remotely. You don't have to come into our office. Give us a call today and we will walk you through the process.