Life is busy. Everyone has full schedules, errands, and plenty of things to do. This is especially true if you own a business and are responsible for daily operations. As we hustle through life, we sometimes forget to keep track of things that might save us some money. The fact that we checked the item off our list is good enough, right? Well, maybe, if you prefer leaving real money behind on your tax bill. Otherwise, using your credit card bill or a home finance software program to track your money could be well worth your time.
When we talk about tax returns, there are two main ways to decrease your tax liability.
- Tax Deductions – Reduce your income, therefore reduce your taxes due
- Tax Credits – Reduce the taxes you owe and sometimes increase your tax refund
Having information about these could influence your decisions on larger purchases. You may also have a deeper understanding of the money you leave behind from smaller purchases. There are tax deductions and credits for everyone (well, almost.) Homeowners, students, business owners, senior citizens, and everyone in between should be aware of these.
Business Startup Expenses
During the pandemic, people had an opportunity to “re-evaluate” what they wanted to do with their careers. Some decided to pursue a passion and startup a new company. New businesses may be able to deduct a maximum of $5,000 from their initial costs. Typically, this money must be amortized over 60 months. There is a specific tax break that new businesses can take advantage of. Advertising, salaries, and fees are a few examples of what may be included.
Energy Efficient Upgrades
It is no secret that renewable and efficient energy is a hot topic. Homeowners are beginning to make changes to their homes to reflect this. The IRS has given even more incentives for people to start transitioning. A Residential Renewable Energy Tax Credit gives you 26% credit in 2022 and 22% in 2023. This credit can be used for installing solar, wind, and geothermal in a principal residence or second home.
Gifts to clients and employees
Owning a business is stressful, but there are also many perks. One is that you can show appreciation to your clients and employees by giving them a yearly gift. This is a terrific way to make your customers feel special. The only downside is that you are limited to $25 per person (this number has been the same since 1962!). Your employees may also have to pick up any gifts as income on their taxes.
Home Office and Office Supplies
The pandemic changed the way people work. More people than ever began working from home and continue to do so today. You may have spent your own money outfitting your home to create a productive workspace. If you are self-employed or an independent contractor, you may be eligible to deduct these expenses for your home office. However, if you are employed by someone else, you cannot take this deduction due to the Tax Cuts and Job Acts that took effect in 2018.
Education
Education is often a huge purchase. There are several methods to decrease your taxes while continuing your education (or that of your children.)
- The Lifetime Learning Credit gives eligible students who meet income restrictions up to $2,000 per filing year as a credit.
- Teachers can take advantage of up to a $300 credit for out-of-pocket expenses for their classroom.
- Student Loan Interest is a deduction that could reduce your income by up to $2,500.
- Employees and self-employed individuals have an opportunity to deduct work-related education.
Business travel and meals
The terms used for self-employed workers are vast. Freelancers, contractors, consultants, and owners are just a few. If you are one of those, you could deduct your business travel expenses and meals with clients (as long as you discuss business.) This allows you to attend the conference you think would benefit your business and take advantage of the tax deduction. Do you have a client that is not near your main office or home? Scheduling an in-person visit will allow you to deepen your business relationship. If you travel by car, you can take the mileage deduction (62.5 cents per mile.) For a further trip, you may fly or take the train. These are the types of expenses you could deduct when tax time is here. You could invite them to dinner to discuss contract concerns or future work. This is a win/win situation for business owners. Building business relationships is crucial to success, and the IRS recognizes that with these deductions.
Hiring a Professional
Tax returns are incredibly complicated, and it is easy to miss a deduction that could give you back hundreds of dollars in your return. Working with an experienced CPA firm, like Hayes & Associates, will ensure you are getting the most out of your deductions.
