Expert Advice: Most Overlooked Tax Deductions…
For Entrepreneurs and Individuals
Ah…nothing takes the chill out of a damp, cold, early-March day like the blood boil brought on by tax season. Everyone understands the need for taxes but no one wants to overpay. Entrepreneurs, owners of businesses both large and small, benefit from reducing their tax liabilities. Many, fearing repercussions from IRS, do not take all the deductions to which they are entitled. Far more entrepreneurs, however, leave money on the table for IRS because they don’t know about the availability of deductions. Individual employees have deductions they frequently miss because they assume that only business owners are entitled to reduce their tax liability.
Sometimes, you just don’t know what you don’t know. Finding experts to guide you through the tax hurdles will save you and your business money more often than not. We asked top female tax strategists from around the country for the most overlooked tax deductions that entrepreneurs fail to claim each year.
Marquita Miller, owner, Five Star Tax & Business Solutions in Kansas City, Missouri offered her top five tax tips. Ms. Miller holds a BS in Accounting from Park University and an MBA from Keller Graduate School of Management.
Miller recommends beginning with a business checking account if your business does not already have one. Believe it, or not, some businesses, especially smaller ones operating on a cash basis, often mix business with pleasure financially. A business bank account simplifies accounting by keeping all transactions in one location, thus making it easier to track expenses and potential deductions. It also simplifies tax preparation for you and your accountant come tax time. Make this the year you take advantage of these deductions:
- Business Mileage rates changes annually. The 2013 business mileage rate is $.565 per mile. “You can deduct miles driven to meet clients, networking events,”etc.
- Networking Event Fees and Vendor Fees “are deductible since you are promoting your business…also, marketing materials, flyers, business cards are all deductible expenses.”
- Business books, magazines or subscriptions.
- Business cell phone: “If you use your personal cell phone for business you can still get a deduction. You will need to determine the percentage of business use vs. personal use.”
- Deduct Interest on Business Credit Cards.
Business owners aren’t the only people who can benefit from tax tips offered by the pros. Two senior managers of ParenteBeard, Ann Marie Casinelli and Shea Pease, offered the following lesser-known tax deductions for employee taxpayers that could save on your bottom line.
Summer Day Camp Expenses
Do you realize that summer camp counts as daycare? “Taxpayers can claim a credit for a percentage of their child care expenses to enable them to work. This is not only for daycare, but also for any facility that the child attends so the parent can work. Many people overlook the fact that summer day camp generally qualifies. The credit can be up to $600 for one child or $1,200 for two or more children. People with higher incomes may not qualify for this credit. For example, if you paid $3,000 for your son’s day camp so he has somewhere to go while you’re at work, you can receive a credit of $600 (3,000 X 20 percent). If your three children attend summer camp, and you spend $9,000 in camp expenses, the maximum
credit you can receive is $1,200 ($6,000 X 20 percent). To qualify, children must be under 13 years of age. This credit also relates to any after care expenses one would incur for their child so they are able to work.”
Employer Provided Tax Benefits
“Many benefits you can receive from your employer can actually lower your taxable income and therefore lower your tax liability. These are the examples of employer-sponsored benefits that can reduce your taxable income:
1. Retirement plans
2. Flexible spending accounts (medical and dependent care expenses)
3. Pre-tax insurance (Section 125 plans)
4. Transportation Spending Account (TSA)
The contributions made directly by you through your employer directly reduce your taxable income. For example, if you earn $75,000 and contribute $5,000 to any of the above, you will lower your taxable income to $70,000. In addition, this reduction in taxable income will lower you from a 25 % tax bracket into the 15 % tax bracket for the 2013 tax year. Actual tax savings depend on many factors, including exemptions and deductions that you can take.”
Overlooked Charitable Contributions
Casinelli and Pease stated, “You can deduct cash and non-cash items given to a recognized charity or nonprofit organization, up to 50 % of your total adjusted gross income (a reduced limit of 30 % and 20 % applies to certain contributions). Many people are aware of this and deduct donations to their religious affiliations or goodwill. However, many people may volunteer their time or out of pocket expenses for a qualified organization and not realize that they are deductible.” A scout leader, for example, can deduct the cost of uniforms (and cleaning) that are worn in performing donated services. “If you participate in a bake sale for your church, all the ingredients purchased can be deducted.” Don’t overlook the mileage incurred to serve these charities! “An individual can get a deduction of $0.14/mile for every mile driven related to their service to the charitable organization.”
Business Related Expenses
“Many of the expenses related to your work are deductible. If you incur expenses for your job that your employer does not reimburse you for, such as mobile phone use, education, tools and union dues, you may be able to deduct these on your tax return as a miscellaneous itemized deduction subject to 2% of your adjusted gross income.” Taxpayers also forget to claim job search expenses. “Out-of-pocket expenses incurred in changing jobs, including the cost of printing resumes or traveling to an
interview, are also deductible,” Casinelli and Pease advised.
Casinelli and Pease stated, “You may be able to receive a tax credit for improvements made to your home that increase the energy efficiency of the property. You may claim a credit of 10 percent of the cost of certain energy saving property that you added to your home. This includes the cost of qualified insulation, windows, doors and roofs (depending on the roof). In some cases, you may be able to claim the actual cost of certain qualified energy-efficient property. Each type of property has a different dollar limit. Examples include the cost of qualified water heaters and qualified heating and air conditioning systems. This credit has a maximum lifetime limit of $500. You may only use $200 of this limit for windows.” Watch out, however, “not all energy-efficient improvements qualify, so be sure you have the manufacturer’s credit certification statement.” This credit was only available through tax year 2013.
Casinelli and Pease added, “There is an additional credit for residential energy efficient improvements. This tax credit is 30 percent of the cost of alternative energy equipment that you installed on or in your home (such as, solar hot water heaters, solar electric equipment and wind turbines). The credit is available through 2016.”
If you don’t know what you don’t know, you might be letting IRS play with your hard-earned money. The easiest way to familiarize yourself with all your potential tax deductions is to contact a tax professional in your area. They, along with the right financial planner, can help you maximize your income by minimizing your tax liability.1
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