By keeping receipts and keeping an expense log, it may be possible to claim a tax break at tax time. Keep in mind this strategy makes more sense in states without an income tax.
Deductions may reduce or increase your tax refund amount depending on the circumstances surrounding your case, so before making claims for deductions and credits it’s wise to first review eligibility guidelines that apply specifically to you and then claim them.
1. Home Office Deduction
Millions of workers from home during the coronavirus pandemic qualified for tax breaks; however, not everyone qualified.
Eligible workers must maintain a dedicated workspace within their own homes for business use only and must utilize it regularly and consistently.
Direct expenses typically include rent, mortgage interest payments, utilities and insurance premiums. The safe harbor method uses a flat rate of $5 per square foot that caps at 300 square feet.
2. Vehicle Expenses
If you use your vehicle for work purposes, its expenses can be deducted as an expense deduction. There are multiple methods of calculating this deduction so it’s advisable to speak to a tax expert about which one will best meet your needs.
Claim mileage, parking and toll costs, maintenance expenses, depreciation charges and fuel expenses as deductions on your return.
3. Startup and Organization Expenses
Under IRS guidelines, startup and organizational expenses are tax-deductible; this includes costs related to investigating whether or not a business idea can succeed.
These costs differ from those associated with investigating and purchasing an existing non-specific business; these expenses can be capitalized and recovered when selling or disposing of the business.
4. Insurance Premiums
Individuals and businesses alike can claim deductions tailored to their circumstances, from mortgage interest to charitable donations and even health coverage costs.
However, it is essential to understand which premiums can be claimed as deductions. If you work for an employer who deducts their premiums pre-tax out of your paychecks before income taxes are calculated and are already income tax free – then this deduction should be claimed on Schedule C or A of Form 1040.
5. Sales Tax Deduction
If you itemize, state and local general sales tax can be claimed as an itemized deduction. However, you will need receipts or an IRS calculator to estimate how much tax was paid on those sales.
Riker states this deduction can be particularly advantageous to residents living in states with income taxes, although other residents could still reap its rewards.
6. Mortgage Points
Mortgage points (sometimes referred to as discount points) are prepayment interest that can be claimed as tax deductions on Schedule A of their federal income tax return, providing homeowners an invaluable benefit when itemizing deductions on Schedule A of their return.
However, several criteria must be fulfilled in order to claim this deduction, including having secured your primary home with a loan; and not paying more in points than is usually charged in your area.
7. Medical and Dental Expenses
Unreimbursed medical and dental expenses that exceed 7.5% of an individual’s adjusted gross income can be claimed as tax deductions, including payments made for acupuncturist services, weight-loss programs and smoking cessation services.
Other qualifying expenses may include health insurance premiums, hospital stays, diagnostic tests and prescription drugs – for a comprehensive list please refer to IRS Publication 502.
8. Business Travel Expenses
Travel expenses can be a substantial deduction for businesses, but there are rules to follow when deducting them. According to the Internal Revenue Service (IRS), ordinary and necessary travel expenses incurred away from your tax home qualify as travel deductions.
Assuming you take a business trip to Portland and meet with clients there, flight and lodging expenses can be deducted; however sightseeing costs cannot.
9. Education Expenses
Education expenses may qualify as tax deductible if they fulfill certain requirements. Qualified education expenses include tuition and enrollment fees required to attend school as well as course-related books and supplies; however, the IRS does not permit non-credit courses such as sports, games or hobbies as tax deductions.
Utilizing these tax breaks can help keep more of your hard-earned money in your own pockets rather than handing it over to the IRS. Just make sure you check income limits.
10. QBI Deduction
If you own a qualified pass-through business, the QBI deduction can help reduce your income tax bill and cover some of your small business expenses.
Tax rates will gradually phase-in over a range, gradually being eliminated when your taxable income surpasses threshold amounts. Deductions may also be reduced for certain service trades or businesses (SSTB).
Tax filing can be complicated and may have some restrictions or requirements. To gain more insight, get in touch with a local tax pro for more advice and information.
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