Tax deductions

What deductions do I qualify for? How can I maximize my deductions and credits?

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    There is a difference between tax deductions and tax credits. A tax deduction is a reduction in overall tax amount owed for every business-related expense claimed on your taxes. Deductions reduce total tax by a percentage of based on deduction dollars. This is determined by your tax bracket. A tax credit is a dollar for dollar reduction in your tax and these tend to be more valuable to taxpayers who are in lower tax brackets. There are many tax credits that have limits and qualification rules that your business must meet in order to take advantage of the credit. Review them first before attempting to claim every credit available. If you are unsure, contact a tax professional for guidance.
    All businesses are allowed to deduct expenses that are ordinary (industry related) and necessary (appropriated and useful) for the business. Examples of allowable expenses are wages and salaries paid to employees, loan interest, and even rental expenses.
    A 20% deduction (non-taxable) on small business income is allowed by owners (sole proprietorships, partnerships, S corp, and LLCs) who report operational income and losses on an IRS Form 1040 Schedule C as per the tax reform. This reduces the 15.3% self-employment tax and potentially reduce the marginal tax rate to less than 30%. There are a lot of deductions business can take. Below are a few of the deductions to consider.
    Home Office Deduction
    If you have a home office that is used completely for business activities (administrative / managerial) and often then you can claim a home office deduction for mortgage interest, real estate taxes, rent, utilities, cleaning fees, and depreciation.
    Start Up Deduction
    Business start up costs up to $5,000 can be written off. Once this amount has been exhausted, the remainder amount of start up expenses can be amortized over a 15-year period, starting at the month operations began. This is useful for the remote freelancer and home e-Commerce sellers.
    Retirement Deductions
    As a business owner, if you contribute to your personal and employee retirement plans these contributions can be deducted. The types of qualified retirement plans are 401(k) or SIMPLE Plan, IRAs, SEP IRAs and SIMPLE IRAs. Small business owners are allowed a tax credit of 50% of the initial $1,000 acquired in the plan start up.

    Mileage/Car deductions
    As a rideshare driver, you can qualify for common driving expenses such as tolls taken out of your pay from Uber and Lyft, vehicle costs that are work related, snacks for passengers, cell phones used for business driving and any phone accessories (chargers, phone dashboard holder, etc). Keep your receipts and track your mileage to compare if taking the mileage vs the itemized deductions would give you the larger deduction.

    Research and Development Expenses
    Business may incur expenses for technically natured information discovered and used for the development of a new or improved business component. Such as a restaurant developing machinery to mass produce a particular food product and eliminate waste, or a technical company creating a more efficient platform that would cut end user time for a search engine, or an aeronautical company that developed a new plane system component to eliminate the number of buttons used in a simulation.

    Business travel
    Business travel is deductible, but it must be considered reasonable, not extravagant or over the top! If you can stay at a Hilton Hampton Inn hotel instead of the Waldof Astoria, you probably should stay at the Hampton Inn for the lodging to be considered a deductible expense on your taxes.

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