It’s tax season and time for business owners to start pulling together receipts for their tax write-offs.
If you are a good records keeper or use an accounting software program it won’t take long. But will you know which expenses make good tax deductions?
Taking advantage of allowable deductions for business expenses can take the sting out of filing your taxes. Deductions are a way to lower your tax liability which is why good record keeping is so important.
Not understanding which expenses are deductible means some tax deductions get left off of the average return. This can result in a higher tax bill or a smaller tax refund.
To avoid this common mistake we’ve pulled together a list of the most overlooked tax deductions. Keep reading to see if you are overlooking these eight little known tax deductions on the table.
1. Little known Tax Deductions for Wages Paid to Your Children
Did you know that wages paid to your children can be deducted on your tax return?
You also do not have to pay the Medicare tax, Social Security Tax on workers under the age of 17. For those under 21, you are also exempt from paying unemployment tax.
Before filing this deduction make sure you are a sole proprietorship and not a corporation. This can make a big difference in terms of you being considered the owner of the business or an employer.
If your business is a partnership, it is okay as long as your partner is a spouse.
2. Childcare Expenses so you can Work
Some business owners working from home may not think about claiming childcare expenses. If you pay someone for all or part of the day to watch your children so you can work, it is deductible. This includes before and after school care.
Say your kids are in school but you send them to a day camp during the summer. You can deduct those expenses.
You may also be eligible to claim transportation expenses if the person caring for your dependent charges for transporting your child. Certain restrictions apply so consulting a tax professional if you are unsure if your circumstances fit the criteria is a good idea.
3. Your Home Office
The new Tax Cuts and Jobs Act (TCJA) does away with the home office deduction for employees that work remotely. Individuals that run a business from their home are still eligible for this deduction.
It doesn’t matter if you have an actual office or use a corner of your living room. The space used to house your office can be calculated to determine your tax write-off.
Expenses considered in calculating your home office include your mortgage or rent, insurance, and electricity.
4. Smartphone and Tablet Expenses
Due to technological advances, operating a remote business is easier than ever. The purchase of a Smartphone, tablet, or laptop computer is often overlooked tax deductions. Even if you already own the items you may be eligible for a prorated deduction.
To qualify the item has to be for business use. It is best if these items are for business use only, otherwise, some record-keeping and calculations will be required.
As a rule, you should always try to keep personal and business expenses separate.
5. Monthly Internet Bills
In this digitally driven world, it is almost impossible to function without using the internet. Most businesses wouldn’t get off the ground if it were not for the internet. So it should come as no surprise that internet costs are deductible.
For a home office, this is one expense that you will have trouble separating from personal expenses. If you have a brick and mortar business or purchase internet services for your mobile devices, make sure it is in your business name.
6. Meal and Travel Expenses
Two of the most overlooked tax deductions are entertainment and travel expenses. Most people consider airfare and hotel room costs as travel expenses. Yet, they overlook the cost of baggage fees, meals, Uber and taxi fees, telephone expenses, and temporary internet charges.
Also included in the list of items for travel is the money you pay in tips.
The 2017 TCJA eliminated entertainment expenses from eligible deductions. You can still take clients out for a meal to discuss business and use the expense as tax write-offs.
For this review of acceptable charges, you want to do your research to ensure all of your expenses are included on your tax return.
7. Continuing Education
We’re never too old to learn something new. If you are continuing your education to progress in your current position or taking classes better operate your business you may be eligible for a $2,000 tax credit.
For individuals enrolled in a college or university, you can claim up to $4,000 for tuition expenses. Expenses could have been incurred by you, your spouse or anyone claimed as a dependent on your tax return. These overlooked tax deductions may come with income guidelines.
Speaking of education, there is a tax deduction for teachers that purchase classroom items out of their own pocket.
8. 20% Pass-Through Deduction
This tax deduction goes into effect with the 2018 tax rules. It states that taxpayers with “qualified business income” earned through a business or trade are entitled to a 20% deduction for that income.
There are different variables and qualifiers to using this new deduction. You want to make sure you are well versed on the guidelines and understand what entities it applies to. To be honest, if you are eligible it would be wise to seek assistance from a reputable accountant.
This new tax deduction could prove to be quite beneficial to those who take the time to learn about it.
Are Any of These a Big Surprise?
We hope you caught this article before you filed your taxes. These little known tax deductions could come in handy if you are facing a big tax bill.
If you aren’t comfortable preparing your taxes, have a professional take a look. There is no reason to not take advantage of every deduction you’re qualified to receive.
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