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What are the most overlooked tax deductions?

Scissors with a dollar sign representing tax deductions that may be overlooked

What are the most overlooked tax deductions?

December 25, 2022

Scissors with a dollar sign representing tax deductions that may be overlooked

peakreliance

Accounting, Bookkeeping, Taxes

There are many tax deductions that individuals and businesses may overlook when filing their taxes. Here are a few common ones:

  • Charitable donations: Charitable donations are a common tax deduction that many people may overlook when filing their taxes. Donations to qualified charitable organizations are tax deductible, but it’s important to keep track of your donations and have proper documentation. This includes receipts for cash donations and a record of any non-cash donations, such as clothing or household items.

    In order to claim a charitable donation on your taxes, the organization must be a qualified charitable organization as determined by the IRS. This includes religious, educational, scientific, and other charitable organizations that are tax exempt under Internal Revenue Code Section 501(c)(3).

    There are different types of charitable donations, including cash donations and non-cash donations. Cash donations can include things like monetary gifts, checks, and credit card donations. Non-cash donations include items such as clothing, household items, and vehicles.

    For cash donations, it’s important to keep a record of the donation, including the date, the amount, and the name of the organization. A receipt from the charity or a bank record, such as a cancelled check or credit card statement, can serve as proof of the donation.

    For non-cash donations, it’s important to have a detailed record of the items being donated. This should include a description of the items, the date they were acquired, and their original cost. It’s also a good idea to get a receipt from the charity for the value of the items being donated.

    There are limits on the amount of charitable donations that can be claimed on your taxes. Generally, you can deduct charitable donations up to 50% of your adjusted gross income for the year. However, there are limits on donations of appreciated property, such as stocks or real estate, and there are also limits on donations made to certain organizations, such as private foundations.

    It’s always a good idea to consult with a tax professional or refer to the IRS guidelines to determine what charitable donations you may be eligible to claim on your taxes. Charitable donations can be a great way to give back to your community and make a positive impact, and they can also provide a tax benefit for individuals and businesses.

  • Student loan interest: Student loan interest is a tax deduction that many people may be eligible to claim when they file their taxes. If you have student loans and are making payments, you may be able to deduct the interest you paid on your taxes. This deduction can help reduce your tax liability and provide some relief for the cost of higher education.

    To claim the student loan interest deduction, you must meet the following criteria:

    • You must be legally obligated to pay the interest on a qualified student loan.
    • The loan must be for you, your spouse, or a dependent for whom you claim an exemption on your tax return.
    • The loan must have been used to pay for qualified education expenses, such as tuition, fees, and other related expenses.

There are limits on the student loan interest deduction. The deduction is limited to $2,500 per year and is subject to income limits. The deduction is also phased out at certain income levels. It’s important to refer to the IRS guidelines to determine if you are eligible for the deduction and what the limits are for your specific situation.

To claim the student loan interest deduction, you will need to file Form 1040 and attach Schedule 1. On Schedule 1, you will enter the amount of student loan interest you paid during the tax year. You will also need to have a Form 1098-E, Student Loan Interest Statement, which will be provided to you by your lender. This form will show the amount of interest you paid during the year.

It’s important to note that the student loan interest deduction is an “above-the-line” deduction, which means you can claim it even if you don’t itemize your deductions on your tax return. This makes it a valuable tax break for many people who may not be able to itemize their deductions.

In summary, the student loan interest deduction is a tax break that can provide some relief for the cost of higher education. If you have student loans and are making payments, you may be eligible to claim this deduction on your taxes. It’s important to refer to the IRS guidelines and consult with a tax professional to determine if you are eligible and what the limits are for your specific situation.

  • Home office expenses: If you work from home and use a dedicated space in your home as your primary place of business, you may be able to claim a deduction for home office expenses. This can be a valuable tax break for those who work from home, as it allows you to deduct a portion of your rent or mortgage, utilities, and other expenses related to the use of your home as an office.

    To claim the home office deduction, you must meet the following criteria:

    1. You must use a dedicated space in your home exclusively for business purposes.
    2. You must use your home as your principal place of business or as a place where you regularly meet with clients or customers.
    3. You must not use the space for any personal activities.

There are two methods for claiming the home office deduction: the regular method and the simplified method.

The regular method involves calculating the actual expenses related to the use of your home as an office. This includes a portion of your rent or mortgage, utilities, insurance, and other expenses. You will need to calculate the percentage of your home used for business and apply that percentage to your eligible expenses to determine your deduction.

The simplified method allows you to claim a flat rate of $5 per square foot of your home used for business, up to a maximum of 300 square feet. This method can be simpler and less time-consuming, but it may result in a lower deduction than the regular method.

It’s important to keep good records of your home office expenses, including receipts and documentation of the expenses you are claiming. You will need to file Form 8829, Expenses for Business Use of Your Home, to claim the home office deduction.

It’s always a good idea to consult with a tax professional or refer to the IRS guidelines to determine if you are eligible for the home office deduction and which method is best for your specific situation. The home office deduction can be a valuable tax break for those who work from home and use a dedicated space in their home for business purposes.

  • Medical and dental expenses: 

Medical and dental expenses can be a significant cost for individuals and families, and the good news is that you may be able to claim a deduction for these expenses on your taxes. The medical and dental expense deduction allows you to deduct qualifying expenses that exceed a certain percentage of your adjusted gross income (AGI).

To claim the medical and dental expense deduction, you must meet the following criteria:

    1. The expenses must be for medical care or dental care as defined by the IRS. This includes things like doctor’s visits, prescription medications, and insurance premiums.
    2. The expenses must be paid during the tax year for which you are claiming the deduction.
    3. The expenses must not be reimbursed by insurance or another party.

There are limits on the medical and dental expense deduction. You can only claim expenses that exceed 7.5% of your AGI. This means that if your AGI is $50,000 and you have $5,000 in medical and dental expenses, you can only claim a deduction for the amount that exceeds $3,750 (7.5% of $50,000).

To claim the medical and dental expense deduction, you will need to file Form 1040 and attach Schedule A, Itemized Deductions. On Schedule A, you will enter the total amount of your medical and dental expenses for the year and the amount that exceeds 7.5% of your AGI. You will also need to have documentation of your expenses, such as receipts or explanations of benefits from your insurance provider.

It’s important to note that the medical and dental expense deduction is subject to change and may not be available to everyone. It’s always a good idea to consult with a tax professional or refer to the IRS guidelines to determine if you are eligible for the deduction and what the limits are for your specific situation.

In summary, the medical and dental expense deduction allows you to claim qualifying expenses that exceed a certain percentage of your AGI on your taxes. This can be a valuable tax break for those who have significant medical and dental expenses. It’s important to keep good records of your expenses and consult with a tax professional to determine if you are eligible for the deduction.

  • Professional development: Professional development, such as conferences, workshops, and continuing education courses, can be an important investment for individuals looking to advance their careers or stay up-to-date in their fields. The good news is that you may be able to claim a tax deduction for these expenses.

    To claim a deduction for professional development expenses, you must meet the following criteria:

    1. The expenses must be for education that is directly related to your current job or business.
    2. The education must maintain or improve the skills required in your current job or business.
    3. The education cannot be required as a condition of employment or necessary to meet the minimum requirements of your job or business.

There are limits on the professional development expense deduction. You can only claim expenses that are considered “ordinary and necessary” for your job or business. This means that the expenses must be common and accepted in your field and must be helpful to your business or profession.

To claim the professional development expense deduction, you will need to file Form 1040 and attach Schedule C, Profit or Loss from Business. On Schedule C, you will enter the total amount of your professional development expenses for the year and the amount that is considered ordinary and necessary for your job or business. You will also need to have documentation of your expenses, such as receipts or invoices.

It’s important to note that the professional development expense deduction is subject to change and may not be available to everyone. It’s always a good idea to consult with a tax professional or refer to the IRS guidelines to determine if you are eligible for the deduction and what the limits are for your specific situation.

In summary, the professional development expense deduction allows you to claim qualifying expenses on your taxes. This can be a valuable tax break for those who invest in their professional development and seek to improve their skills and knowledge in their fields. It’s important to keep good records of your expenses and consult with a tax professional to determine if you are eligible for the deduction.

It’s important to note that these deductions are subject to change and may not be applicable to everyone. It’s always a good idea to consult with a tax professional or refer to the IRS guidelines to determine what deductions you may be eligible for.

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All About IRS: Tax Filing and Audit

All About IRS and Filing Taxes

All About IRS: Tax Filing and Audit

November 15, 2022

All About IRS and Filing Taxes

peakreliance

Accounting, Bookkeeping, CPA

What is IRS?

The Internal Revenue Service also famously known as the IRS is a bureau of the US Department of Treasury. The IRS is responsible for collecting tax revenue and assessing finances for companies operating in the US.

The IRS has gone through several reorganization and modernization changes, over the years since it’s foundation back in 1862, during this time it was renamed and experienced a change in authority by being placed under the Department of Treasury, USA.

IRS is very clear in its mission. The bureau’s work is to “Provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.”

What does IRS do?

IRS aims to carry out the tax laws in the US. It evaluates and collects taxes, assists taxpayers understand and meet their tax responsibilities and helps implements tax law to ensure everyone pays what they rightfully owe the state.

The IRS executes three main functions:

  1. Administer tax laws
  2. Process tax returns and collect revenue
  3. Taxpayer service
  4. Tax law enforcement

Collecting taxes

One of the most significant responsibilities of the IRS is to assess and collect taxes on behalf of the government. The sum consists of income taxes, employment taxes, business income taxes, excise taxes and estate and gift taxes etc.

Along with the timely collection of taxes, they are also in authority for issuing tax refunds, which an individual or business can collect as a result of the overpayment of the due tax amount.

Providing services to taxpayers

Another central responsibility of the IRS is providing services to taxpayers in the form of guidance and help regarding tax laws and legal matters. These services can be availed through the IRS website, its telephone helplines, IRS Taxpayer Assistance Centers and volunteer tax assistance.

Enforcing tax laws

A final responsibility of the IRS is the implementation of tax laws. The IRS identifies and pursues those who have underpaid/not paid their taxes, whether as a result of a calculation error or deliberate criminal activity. These examinations typically take the form of either correspondence or field examinations. They carry out criminal investigations and supervise tax-exempt organizations and qualified retirement plans. It is the responsibility and accountability of the IRS to ensure all companies and individuals pay their fair share on time and accurately.

The IRS and Audit

As part of its tax law implementation mission, the IRS audits a hand-picked portion of income tax returns each year. In the fiscal year 2020, the agency audited 509,917 tax returns.

The reasons for an IRS audit vary according to some factors which may also increase the chances of examination for some companies. The chief amongst these is higher income levels. Other factors that may prove to be red flags for an audit include; not declaring the right and accurate amount of income, claiming a higher-than-normal number of business-related deductions, making excessively hefty charitable donations compared to income, and claiming rental real estate losses. However, no single factor determines who does or does not face an IRS audit each year.

The IRS and Taxes

Companies can pay their due taxes to the IRS through the following ways:

  1. An electronic funds transfer from your bank account
  2. A debit/credit card
  3. A same-day bank wire or
  4. An electronic funds withdrawal at the time of e-filing your return.

There are other payment options available as well for businesses and individuals who cannot mare electronic payments. They can pay through:

  1. A personal check
  2. A cashier’s check, or
  3. A money order in the name of the US Treasury.

 However, they need to be sure that it contains the following information:

  • Company’s name and address
  • Phone number
  • Social Security number (where applicable)
  • Employer identification number (where applicable)
  • Tax year
  • Related tax form or notice number

Businesses can even pay in cash if they wish however, with each payment method all terms and conditions must be followed to avoid any future problems or delays as this is a sensitive legal matter.

Out of all of these options, the best and most efficient, quick and safe way is to use on of the electronic payment methods to clear the payment.

Do we really need IRS?

IRS claims to be one of the worlds most efficient tax administrators. The taxes that they collect are used to fund public utilities like national defense, aid for veterans, Social Security, medical care services, foreign affairs, community development and other services that the government provides.

IRS performs an important function for the US government, keeping all organizations, companies and business individuals in line with the tax laws. The bureau collects the necessary funds that the state needs to provide public services to its inhabitants and makes the functions of the entire federal government possible.

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How to Hire an Appropriate CPA for Your Business

How to Hire an Appropriate CPA for Your Business

How to Hire an Appropriate CPA for Your Business

November 11, 2022

How to Hire an Appropriate CPA for Your Business

peakreliance

Accounting, Bookkeeping, CPA

What does a CPA do?

Usually, when a business is just starting out, the financial tasks fall squarely on the owner’s shoulders. As tempting as it can be to maintain that arrangement once the money starts to flow, not only to avoid paying someone else to do it but also to avoid allowing someone else to have access to the information, it can become a tiring and mundane task in the long run.   

Hiring an accountant at the right time through the journey to establishing a successful business is an integral step towards victory. It is a great idea to hire an online CPA when it comes to this. A CPA is a tax expert with a sound knowledge of tax laws and legal processes. CPAs can take a good legal care of your business’s taxes, answer important financial questions and potentially save your business a lot of money. They, unlike general accountants have passed the challenging Uniform CPA Exam that tests their understanding of tax laws and standard accounting trials. Through this exam they attain a state license. 

 The kind of exposure and skill that a CPA has can improve your overall tax representation.  

Some of the tasks that they can help you with include: 

  • Addressing legal requirements: tax return filing, compliance documents, audits.
  • Preparing yearly financial statements, statements of accounts, and reports.
  • Presenting a breakdown of company’s financial conditions.
  • Evaluating financial decisions about the company progress.

CPAs are equipped with hands on skills to help small businesses and start-ups with a lot of technical financial matters. 

Is your business ready to hire a CPA?

Every owner of a small business should consider hiring a professional accountant before the need even arises. Accounting services are extremely vital for the health of your business, so as soon as you start to feel overwhelmed by managing your finances, that is the best time to hire an accountant or a CPA. However, taking other factors into consideration, hiring one at the wrong time can slow down your processes as well. 

Here are a few appropriate instances to hire a CPA: 

  1. At the beginning of the fiscal year to ensure you start right. 
  2. At the end of a month and going into newly reconciled accounts to maintain a fresh set of financial statements and records. 
  3. When it’s time to file your taxes. 
  4. When you as the owner feel overwhelmed by bookkeeping and financial record maintaining and other areas that need your dedicated time and focus are being over looked. 

Hiring a CPA can help you keep your business agile regardless of the economic or societal changes that may occur around you. 

Tips for finding an appropriate CPA:

1. Do background research by looking for referrals and reviews

It’s a good idea to start by asking around for recommendations from other experienced people and companies in your area who have a CPA onboard. This is a chance to use your connections. Ideally, you should be able to find a valuable referral for a new CPA through your bank, realtor, or employees. 

In case your local referrals aren’t working, you can search online for accountants in your area and use online reviews about their services to help you make a decision. Forums and other online platforms like Yelp, LinkedIn, or Facebook groups can be helpful resources. Making sure you find a skillful and dignified CPA is an integral part of the process because of the responsibilities that they will be looking after for you and your company. 

2. Evaluate your needs and their quality service

CPAs specialize in many different services. Some choose being a tax preparer for numerous companies, while others would rather assist a handful of small business owners steer financial decisions year-round. Some offer bookkeeping services and will prepare the company’s tax returns, and others will prefer intricate compliance cases. 

As part of your preliminary consultation with an accountant, inquire about the services they provide to their clients. Also, discuss how they tend to work with their clients and how much experience they have in your industry.  

It is important to be clear about the kind of services you need to avail from a CPA before you bring them on board. 

3. Examine their qualifications

CPAs specialize in many different services. Some choose being a tax preparer for numerous companies, while others would rather assist a handful of small business owners steer financial decisions year-round. Some offer bookkeeping services and will prepare the company’s tax returns, and others will prefer intricate compliance cases. 

As part of your preliminary consultation with an accountant, inquire about the services they provide to their clients. Also, discuss how they tend to work with their clients and how much experience they have in your industry.  

It is important to be clear about the kind of services you need to avail from a CPA before you bring them on board. 

4. Meet with prospective accountants

Once your background checks are complete, you need to set up meetings and have a more meaningful conversation with each of your shortlisted accountants. You can consider focusing on the following things when interviewing them: 

  • Questions about licenses, certification, relevant qualifications or professional organizations.  
  • Their experience working in your industry.  
  • Their rates for several services like tax preparation fees.  
  • Do they use outsourcing and if yes then for which services?  
  • The kind of accounting software they use.  
  • Their E-file policies for tax return.  
  • Their communication policies (Email, phone etc.)  
5. Determine your level of comfort

The right choice for an accountant will be a professional whose financial and legal advice will direct you through long-term decisions for your business. Their advice will be your direction every year through legal statutes at tax time. 

A talented accountant will not only formulate your tax documents but will also sign them with their credentials. They will represent you if any tax questions or issues arise throughout their tenure. You, as a business owner, want to be confident in your decision with giving access to information this sensitive and essential to an outsider. 

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Accounting, Bookkeeper, Bookkeping, cpa, Home office deductions, Online CPA, Tax Deductions, Taxes

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Reclaiming Home Office Deductions: Tips and Tricks

Reclaiming Home Office Deductions Tips and Tricks

Reclaiming Home Office Deductions: Tips and Tricks

November 10, 2022

Reclaiming Home Office Deductions Tips and Tricks

peakreliance

Accounting, Bookkeeping, Taxes

“The first mistake people make when it comes to home-office deductions is they fail to claim them,” says Bob Meighan of San Diego, a lead CPA for a famous company in USA. 

Many business owners with home offices waive off the tax breaks because they fear that the write-offs will trigger a tax audit and bring accountability on their shoulders. Tax experts say that now home offices no longer set off alarms at the IRS (Internal Revenue Service). Although, there are some parameters one needs to examine, when it comes to checking if you are eligible for the home-office deduction. Millions of Americans have shifted to worked from home this year, due to the COVID-19 pandemic. 

The endorsed tax break is generally only available for the people who are self-employed, gig workers or independent contractors. As a small business owner, whichever industry your business may belong to, you can by all means claim this deduction while filing your taxes. 

Expenses You Can Claim

There are two types of expenses that you can deduct:

The first, direct expenses, lets you deduct 100 percent of costs linked specifically with your home office. It includes everything from hiring someone to paint/ renovate your room to buying equipment like work computer, office supplies or cell phone dedicated for the home-based business.  

Businesses can also write off remodeling, if the home office is being used to meet with clients or customers. This is because, logically, the appearance of the house is important to the success of the business. 

The other deductible home-office expenses are indirect expenses. These are proportioned equally, based on the dimensions of the home office space including your utility bills, property insurance, mortgage and a home security system.  

The write-off amount can be calculated in two ways. First is calculating the portion of the house that is being used for office work. That is then taken as a percentage of the whole house area and the business owner is eligible to write-off that percentage. 

Second method is counting the total number of rooms and taking the number if rooms as a portion of the house used for home office. The business owner can write-off that portion only. Out of these two, the percentage method is more widely used.  

However, the monthly charges/ fees for the primary phone line in your home cannot be deducted, though long-distance calls for work, call waiting and call forwarding can be claimed. Also, if you have only one cell phone being used partly for work and partly for personal things, it’s a gray area that needs to be discussed with a tax advisor. 

Tips and tricks for claiming the deductions: 

Taxpayers and business owners must solely and regularly use the dedicated part of their home as their primary place of business-related work. This means, a place where you greet clients or customers and have meetings, conduct your business, store supplies and inventory etc.  

The good thing is that you don’t have to be the homeowner to claim the deduction — apartments, mobile homes, boats or other property are also eligible according to the IRS. 

Another possibility is to claim only a part of the deduction, which accounts for the time the business spent being operated in a certain location. The business owners must have proper documentation for all home office spaces that were used within a tax year. What better documentation can there be than an actual picture of the work space. This was, once the deduction has been claimed and IRS initiates an audit, owners can have a solid proof. 

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The Top 7 Tax Deductions for Your Small Business

The Top 7 Tax Deductions for Your Small Business

The Top 7 Tax Deductions for Your Small Business

November 5, 2022

peakreliance

Accounting, Bookkeeping, Taxes

What is a tax deduction?

A tax deduction is a compulsory expanse that every business is liable to pay to the state or the government at end of a financial year. Tax is calculated as a small percentage of the total income of a business.  

Paying off taxes can be a botheration for business owners since the total amount can go up to a lot. Also, filing taxes accurately is a huge task that requires focus and precision so to ensure transpiracy and eliminate risk business owners are compelled to hire tax experts, bookkeepers or CPAs.  

There are tons of small and huge tax deductions in play for small and large businesses alike. Below mentioned are the 7 common and major tax deductions. 

Top 7 Tax Deductions:

1. Home Office Expense  

Home office expense is a major expenditure and a primary one. It is one of the most common small business deductions. This expense can be calculated using two state-approved methods: 

    • The standard option; this requires you to calculate the percentage of your home space being used for business versus personal use. You then apply that percentage to your other qualifying expenses like mortgage, utilities, and insurance. To do this, detailed records must be kept on all relevant expenses. 
    • The simplified option; it needs you to take a standardized amount of say $5 per square foot of home office space and multiply that to a specific square foot of area being using for office work. Hence, home office deduction is calculated. The standardized amount varies with time and according to the state rules.  
2. Insurance Premiums 

Insurance deductions can include the following depending on certain attributes of the business: 

    • Property coverage for office equipment like furniture, equipment, and other major items like the building itself 
    • Liability handling   
    • Auto insurance which includes business vehicles 
    • Health insurance for employees; Group health, dental and vision  
    • Owners’ professional liability or malpractice insurance
    • Workers’ compensation coverage 
    • Life insurance that covers employees 
3. Advertising and Promotion 

Reasonable amounts of expenses that are used for marketing and promotion of the business are definitely deductible. These costs include things like: 

    • Hiring a graphics person to design your business logo 
    • The cost print publications like business cards or brochures 
    • Purchasing ad spaces in print or electronic media 
    • Sending printing or digital greeting cards to clients/ other stakeholders 
    • Investing in a new website and its maintenance  
    • Running a promotional social media marketing campaign 
    • Sponsoring branding and other event 
4. Rent Expenses 

This deduction is conditional to if a location is rented by a business for their day-to-day operations or equipment. You can deduct the payments made as rental expense for the business. 

What needs to be taken into consideration is that rent paid on your home should not be deducted as a business expense even if a home office is in place. That rent will be deducted as a portion of the home office expenses. 

5. Utility Expenses 

These include all utilities that the business is using for its operations like telephone, internet, office supplies, refreshment, air conditioning etc. 

These services are deductible if they are integral to your business’s operation. 

 The thing to keep in mind is that if you use a landline at home you cannot deduct that cost, even if you use it solely for work. However, a way out is having a second, dedicated landline devoted to the business’s needs only, the cost of that line is deductible. The same conditions are to be followed for internet and other utilities. 

6. Travel Expenses 

For this expense to be deductible in tax, the trip needs to qualify as business travel. It has to be regular, essential, and away from your tax home; the city or area where your business operates. The trip needs to be a travel away from the tax home and should be longer than a normal day’s work. 

Deductible, approved business travel expenses are listed below: 

    • Travel by plane, train, bus, or car 
    • Parking and toll fees and tips 
    • Use of owner’s personal vehicle 
    • Meals and lodging 
    • Laundry and dry cleaning during the trip 
    • Business calls 
    • Shipping cost of baggage and sample or display materials etc. 

It is essential to keep a record of all costs and amounts incurred during the trip like, fuel along with documents supporting the return/departure etc for these expenses to qualify as deductible taxes.  

7. Bank Fees and Interests 

All business must have separate bank accounts and credit cards as this is always a good idea. Bank fees including annual or monthly service charges, transfer fees, or overdraft fees are all deductible. Merchant or transaction fees paid to a third-party payment processor can also be deducted. These include PayPal and Stripe. 

Fees related to personal bank accounts and credit cards are not deductible.  

The bottom-line is that private businesses and start-ups, both have their own perks as different types of working organizations when it comes to tax deductions. However, claiming them all is tricky and sometimes if one does not seek professional help they may be overpaying their taxes. It is always best to invest in a tax expert such as an online CPA for this purpose. CPAs not only help with accounting and tax related matters, they are also well equipped with good insight about businesses and their financial status and hence can provide with good financial advise. 

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Accounting, Bookkeeper, Bookkeping, cpa, Online CPA, Tax Deductions, Taxes

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