Tax Deductions You Don't Want to Miss
Most people who are W2 wage earners, meaning they work for some company, get paid a salary, and at the end of the year get a W2 used for tax purposes, will generally take a standard deduction, so they do not have to itemize all their deductions. Some people, such as freelance workers who generally get a stack of 1099s at the end of the year or business owners whose businesses are set up as a pass-through entity, meaning their business expenses are passed through to their personal taxes, will most likely need to itemize their deductions to make sure they are getting the most out of their tax returns and not paying more than they are required to. While some deductions are apparent, there are some that you may be surprised to know are tax deductible.
State sales and income taxes can be deducted from your federal taxes. Making a substantial taxable purchase, such as an engagement ring or a car, can lead to a substantial federal tax deduction. As with many deductions, you can only take sales tax off your federal income tax if you specifically itemize your deductions.
Health Insurance Premiums
At a time when we read so many stories of how health insurance premiums can be as expensive as a mortgage payment, it is good to know that, in many cases, these costs are tax deductible. If you are self-employed and responsible for your health insurance, then the premiums you incur are 100% tax deductible. Otherwise, medical expenses must meet or exceed 7.5% of your adjusted gross income for the expenses to be tax deductible.
This is commonly known as a tax deduction. However, for those unaware, money or goods given to a charitable organization are tax deductible. A part of this that most people are not aware of is that out-of-pocket expenses for charitable work are also tax deductible. If you are baking cookies or cupcakes for a fundraiser for a qualifying charitable organization, the cost of the ingredients you use is also tax deductible.
You can receive a tax credit for some forms of daycare or babysitting. However, to take these deductions, you must supply the name and tax ID of the qualified person or business. If you hire your friend's teenager to watch your children for a few hours, you cannot deduct that babysitting cost unless the teenager has set up their own business. The best part of this deduction is that you can take this deduction even if you take the standard deduction.
Miscellaneous Business Expenses
Sometimes, a business may have expenses that are not common to their industry or any industry. However, if you have a legitimate business expense, even if it is unusual, it is generally tax deductible. A common example of a miscellaneous expense is cat food. Many businesses and certain buildings tend to have a problem with mice or rats. Junkyards, warehouses, or even theaters, tend to have rodent problems. Rodents tend to attract stray cats. To help entice the cats to your space, you may put out cat food. Since it is a cost that directly helps the business, it is a deductible expense.
When it comes to deductions, there are so many that we cannot possibly list all of them. Your best bet is to schedule time to discuss your different expenses before you do your taxes. We will let you know which deductions are available for you to take.