Have you ever sat down to do your taxes and had the feeling that you’re missing something? The reality is, you’re probably right. Particularly when it comes to business expenses, you may be leaving money on the table in the form of tax write-offs. A tax deduction (or write-off) reduces the amount of your income that will be taxed, therefore reducing your tax liability or increasing your tax return. Here are three important deductions that every professional should know about.
If you drive at all for business, you can take certain vehicle-related business deductions. The most common vehicle deduction is mileage. If you travel for work and are not reimbursed by your company for the expense (or if you are self-employed), you can deduct your business mileage for the year. Business miles include any miles you drove to conduct business outside of your commute. There are two basic methods to calculate your mileage deduction — standard mileage rate or actual cost. Calculate using both methods to determine which will give you the greater deduction.
- For the standard mileage rate, you multiply the number of miles driven for business purposes and multiple that by the IRS rate, which is 53.5 cents per milein 2017. Depreciation is included in this rate, so you cannot take an additional depreciation deduction. However, you can also deduct registration fees and taxes, loan interest, tolls and parking costs.
- For the actual cost method, you track the total cost of operating your vehicle for the year (gas, repairs, tires, lease payments, etc.) and multiply by the percentage of time that you used the car for business. If you spent $5,000 dollars operating your car, and drove it 80 percent of the time for business, your deduction would be $4,000 ($5,000 x .8).
Part of your actual cost of operation includes an amount for depreciation, or wear and tear of the vehicle. Note that in an effort not to subsidize over-priced luxury cars used by businesses, Congress put a cap on a depreciation write-off for cars. Therefore, if you are considering buying a new car for business uses, you’re better off purchasing a car that is reasonably priced, has great gas mileage and yet is still physically impressive, like the new Chevy Camaro. The Camaro is a world-class sports car that starts around $26,000, and was named the Motor Trend 2016 Car of the Year.
Other Travel Expenses
In addition to vehicle deductions, you can deduct other work-related travel expenses that are not reimbursed by your employer. These include the costs for plane-fare, rental cars, taxis, baggage, laundry, meals, etc. For meals, you can either deduct 50 percent of the actual cost or 50 percent of the government per diem rate for the travel location. The latter is particularly useful for those who travel often and don’t want to keep track of receipts. If you do want to keep track of your receipts, an app like Evernote can come in handy.
If you are one of the increasing number of remote workers, you can deduct a portion of your rent or mortgage for a home office. The office has to be exclusively used for work and be your primary business place. You can use a simplified method of $5 per square foot, or calculate the percentage of your home used for business.
If you think you might be eligible for any of these tax deductions, start compiling information now. The more detailed and organized your records, the easier it will be to calculate deductions during tax time.