Tax Day for individuals and C corporations is 45 days away. For flow-through entities such as partnerships and S corporations, March 16th is when federal tax filings need to be either filed or extended.
Below are commonly missed tax deductions that we flag for our clients. Both businesses and individuals have opportunities to either lower their taxable income or increase the tax credits they can claim with their filings.
Potential Business Tax Deductions:
- Accelerate depreciation: Depreciation of capitalized assets can be done either over a period of years or could potentially be taken in the year that the assets are placed into service. When determining which approach to choose, state tax considerations should also be factored.
- Cell phone – when used for business purposes: If you utilize your cell phone for business calls and emails, you may be able to deduct the cost of the cell phone plan depending on your usage. Keep your cell phone bills and discuss the usage with your CPA to determine the appropriate deduction.
- Credit card interest – when used for business purposes: Clients typically think that credit card interest is nondeductible – which is correct when thinking of personal credit cards. For business credit cards that are used exclusively for business purposes, there may be opportunities to deduct the interest. An example – did you purchase any business assets on your credit card and you are paying the balance off over time? The interest may be a deductible business expense.
- Petty cash: The cash that is kept in the office for quick needs sometimes is forgotten. Over the course of the year and depending on your business type, it could add up. Keep records of the cash to maximize your deductions.
- Professional club dues: Dues for professional business associations – such as a trade association – could be deductible. Some taxpayers think club dues are all nondeductible, but it depends on the club’s purpose. Yes – your country club dues are nondeductible, but the trade association fees may be deductible.
- Employee gifts: Employers can deduct up to $25 for non-cash gifts to each employee. This is commonly seen as small tokens of appreciation around employee anniversaries and birthdays.
- Vehicle expenses: You may be able to deduct expenses for using your vehicle for business purposes. This includes visiting clients or customers, traveling to meetings, and traveling from one office location to another.
Potential Individual Tax Deductions:
- Sales tax vs. state income tax deduction: Prior to the Tax Cuts and Jobs Act (“TCJA”), it was uncommon to see taxpayers that reside in states that impose an income tax take the sales tax deduction. With the TCJA’s $10,000 cap on state and local taxes, the thought process has changed. If your real estate and personal property taxes are already close to or over $10,000 – depending on your state of residence – you may benefit from taking the sales tax deduction in your resident state.
- State income tax refunds: Another area where the TCJA has required a change of thinking is state income tax refunds. Confirm if this is taxable in 2019 before you claim it as additional income. If you didn’t receive an itemized deduction benefit in 2018 due to the $10,000 cap, it may not be federal taxable income in the current year.
- Educator expenses: Eligible educators – such as K-12 teachers, instructors, counselors, principals, and aides –may be able to deduct $250 from their income.
- Self-employed health insurance: Make sure to deduct the health insurance paid as a self-employed business owner on Schedule 1 of your Form 1040. It likely is more beneficial reported here rather than as an itemized deduction (note, you cannot deduct it twice).
- Timing of itemized deductions: With the increased standard deduction ($24,400 for a Married Filing Jointly couple), reviewing the timing of your charitable contributions and mortgage payments is now more important to receive the maximum tax benefits.
- Mileage for charitable activities: If you drove your car for charitable interests, you may be eligible to claim a charitable deduction based on the mileage.
- 529 contributions: Contributions towards a 529 plan can provide a state tax deduction and allow for tax-free growth of your investment. Each state has different rules regarding the deductibility.
- Child care credit: Costs paid to child caring organizations could afford you a tax credit for the total child and dependent care expenses. The tax credit is determined by the amount of expenses paid per dependent, and your income. Tax credits can reduce your tax liability dollar-for-dollar.
With these potential deductions and credits, consulting with a CPA is important. They will be able to help guide you through the intricacies of the tax law. If you have any questions with your business and individual taxes, please don’t hesitate to reach out to our office!
About Wolf Tax Advisory
Wolf Tax Advisory LLC is a tax, accounting, and business consulting practice based in Annapolis, MD. We believe in providing a five-star, full-service financial and tax advisory experience for our business and individual clients. The statements listed in this newsletter are general in nature and not intended to be personal tax or financial advice. Please consult your professional tax and financial advisors for specific advice related to your circumstances.