5 Commonly Overlooked Tax Deductions That You Need To Know About Today
- July 15, 2020
- Written by : REIL Capital
Most of us simply go about our tax duties like we would without ever giving a second thought to deductions. Tax deductions are like free money being distributed but no one really knows about it, and thus, nobody claims it.Â
Many tax deductions might just make the difference that you need for things to work out in your favor. For example, you could be deducting taxes on mortgages, wages, or even your home office. Here are some of the tax deductions that you need to know about:
Bad Debt Losses
Money that your business cannot retrieve is understood to be a bad debt loss. This is only possible when there is no way of getting your money back and it has become worthless to the business. Types of such debts include debts to an insolvent partner, loans to clients, advance payments, and such.Â
To claim this, you must have included the amount earlier in a documented format in your gross income to the IRS.Â
If your business was not profitable last year, you are eligible to carry over your losses. However, to claim this deduction, you must have used the actual expense method and not the simplified IRS method.Â
When the business expenses are higher than the income generated, you can choose to either carry back your losses for two years which will get you a refund or you can carry them forward for up to twenty years. This will offset the taxable income you have in the future and there wonâ€™t be a limit on the amount that you can deduct. If you were in a lower bracket in the carryback years but going forward, expect to be in the higher bracket, then you should carry over.
For more information to make an informed decision, you should consult a professional or an accountant.Â
If you use your home as an office, you are eligible for this deduction. Although, you should be using your home solely for your business. Having a secondary function will disqualify you.Â
You have two options when claiming this deduction.
You can take into account your direct expenses that go into the home office area. Other indirect expenses like the utilities are calculated based on the percentage area.
You can also choose the IRS simplified method where you can claim 5 dollars for every square foot of your home office which can go up to a maximum of 300 sq. feet. Thus, the IRS lets you claim a maximum of 1500$ in total.
New Business Expenses
When you have a startup, it is possible to deduct some of the initial costs that go into travel, advertising, etc. The cap on these is 5,000$ each for organizational costs and qualifying startup costs. These deductions will phase out if your total expenses hit 50,000$. In that case, the deduction is reduced in amount when the 50,000$ mark is crossed.Â
Further, if you cross the 55,000$ mark, you are not entitled to a first-year deduction and will have to amortize your costs in the next 180 months of operation.Â
Necessary Taxes and Other Expenses
Simply put, the necessary taxes and costs are the ones that you spend to keep your business running. This means that the fees to set up and acquire the business are not eligible here. Fees paid to your lawyer or accountant can qualify here.Â
Other such deductions can be the preparation tax fees paid previously or the fees paid to acquire the license from the state or the government. You can also include expenses that go into the training and education of your employees.Â Â
With a little vigilance, it is possible for you to save on some crucial costs which can help you run your business better than ever. So be sure to apply the tax deductions that serve you the best in the long run.