We’re approaching tax season. And for most of us, the very mention of taxes sends us to sleep or into a panic, especially anyone of us that has to file taxes for both ourselves and our business. You have to file your taxes legally, without mistakes, and on time to avoid repercussions, but you want to save as much as you can in the process. For some of us, that means filing your taxes yourself, having an expert quadruple check your expenses or, everyone’s favorite, filing our taxes with lots of deductibles.
But do you know everything you can write-off? There are more tax deductibles available to individuals than you’d probably expect or than you write off, meaning you might have over-filed in previous tax seasons. To help you survive tax season, here’s a list of nine unexpected tax write-offs that will probably save you money and frustration this tax season:
What Is A Tax Deduction?
Tax deductions, often referred to as tax write-offs, are any expenses that can be subtracted from your taxable income to lower your tax liability. Unlike a tax credit, deductions decrease how much of the money you’ve made can be taxed.
Figuring out which of your expenses are deductible and how to file your taxes is often complicated and overwhelming. The best practice, and the one we always recommend, is to find a Certified Public Accountant (CPA) who you trust to help you navigate your taxes. CPAs are experts in accounting and are well versed in tax law. And the best CPAs are on top of the newest tax laws. Having a CPA help you with your taxes will ensure that you file them correctly and on time, while also guaranteeing you claim all your tax write-offs.
9 Unexpected Tax-Deductible
1. Dividends You Reinvest
Dividends are sums of money paid to you on a regular, usually quarterly basis, as a shareholder from a company, such as a mutual fund. When you receive dividends, most companies will ask if you want to reinvest them, immediately putting the money back into the fund. When you opt to reinvest, you increase what is called your “tax-basis,” which allows you to write-off the dividend from that year’s filing. Be sure to consult with the company and a tax professional, because most, but not all, reinvested shares can be written off.
2. Social Security From Self-Employment
If you work for yourself, you almost certainly don’t want to pay the self-employment taxes. If you worked for a company, your employer would bear the financial burden of social security. But being self-employed, you are the employer and the employee. Being both, you can decrease the percentage of your income that goes to the social security administration. With the deduction, you only give 7.65 percent of your gross earnings to social security, compared to 15.3 percent without the deduction.
3. Small Business Expenses
If you’re a small business owner, you have the most tax deductibles available to you because of the jobs and economic growth you create. Small business deductions can also be the most complex and overlooked, including any business, vehicle, and home office expenses. For a general rule, if the reason you spend money on it is to help your business grow and succeed, then it’s deductible.
4. Your Higher Education
If you are currently a student making less than $67,000 a year, your higher education is eligible for a deduction using a tax credit. The available tax credits, including the American Opportunity Credit and the Lifetime Learning Credit, you are eligible for up to $2,500 off your taxes for up to four post-secondary education years.
5. Medical Costs
Medical bills that exceed ten percent of your annual income are deductible as long as you are under 65 years of age. Although this deduction might seem like a stretch, if you or a dependent has been sick through most of the year, when you add up all your expenses, you may be spending well over a tenth of your earnings. That means that you need to consider driving to and from medical appointments, post-tax insurance premiums, and rehabilitation costs, on top of the bills your doctors send you.
6. Sales Or State Taxes
Your sales or state taxes are a relatively new deductible and highly beneficial, especially for those living in states that don’t have income taxes. The sales tax levy allows you to write-off either your sales or state taxes, but not both, for up to $10,000. You can total all your receipts (beneficial if you made several large purchases) or claim your predetermined write-off, found in your Schedule A instructions. If you choose to claim the amount found in the IRS’s Optional State Sales Tax Tables, you cannot also itemize your deductibles, and vice-versa. Furthermore, This deductible has been updated several times since becoming available in 2015, so be sure to seek the newest version of this deductible or reach out to your CPA.
7. Losses From Gambling
Your net-loss from gambling is deductible as long as you conducted the gambling legally. For example, if you lost $10,000 one day, but won $2,000 the next day, then you can only write off the net loss of $8,000. This deduction is extremely complex and unforgiving, and anyone looking to file for this deduction should seek the help of a tax professional.
8. Dependent Care and Child Credit
A dependent refers to any person, other than yourself or your spouse, who entitles you to a dependency exemption, including your children and ill family members. For each dependent you claim, you are eligible for thousands in tax deductions, which often spells the difference between owing on your taxes and receiving a refund.
9. Charitable Donations Of All Sizes
Even if they are small, your charitable donations of any kind may be eligible for a write-off. This benefit extends beyond donating money to a nonprofit, such as the Make-A-Wish Foundation, to include giving your used furniture to organizations, such as Goodwill, as tax-deductible. When dropping off your next contribution, be sure to ask a store or nonprofit representative for a receipt and additional information.
If you have any questions about what you can and can’t deduct come tax season, feel free to ask our team of experts here at Robert Fischer.