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Am I Missing Tax Deductions
Q: I am pulling together all of the paper work for my tax return to take to my tax guy, what are some things that I may be missing? I don’t want to pay any more tax than I absolutely have to, and sometimes I wonder if I am missing deductions that other people are taking.
A: The most important part of a complete list of your specific deductions is to make sure you have captured all activity during the year. The best approach to help is to have a separate bank account for your business and to truly commit to that bank account. Make sure ALL business expenses are paid with funds from that account and that ALL income related to your business goes into that account. The simple reconciliation of that bank account will then give you confidence that you have captured all of the relevant activity. From there the hardest part is determining on which line to include which expenses. This may seem too obvious, but again, the most important thing you can do to ensure that you pay as little as possible in federal and state income tax is to make sure that you have actually captured all of the expenses that you incurred during the year.
Now that you have captured all of those items that actually cost money, now you can concentrate on those deductions that don’t show up in the form of a cash payment. Two commonly overlooked deductions are the business use of your vehicle and the deduction available for the use of a Home Office. These items don’t show up in your business bank account and therefore are easy to forget. Check out IRS Publications, 463, Travel, Entertainment, Gift, and Car Expenses and IRS Publication 587, Business Use of Your Home for more detail. Keep good records and take your time reviewing the detail but each of these items can significantly reduce your taxes.
The last thing to do before you tell your tax guy to hit ‘send’ on the electronic filing is to consider options for retirement contributions. No one will remind you or send you an invoice to invest in your own future, so if you don’t do it, no one else will. There are lots of options including a traditional IRA and an SEP or Simplified Employee Pension that are as easy to open as opening a new bank account. In most cases you will have until you file the return to make a deductible contribution that can reduce the tax on LAST YEAR’S tax return. Maybe the most important thing that you can invest in is your own future and the IRS will even help you do it by giving you a deduction for your own money. Don’t miss out on this one!
As always, don’t forget that you are not alone. Bookmark our website at NASE.org as well as the IRS website at IRS.gov and you will always be able to find the help you need.