The tax season is slowly kicking into gear. It’s a constant struggle to keep up with the legal changes, leaving many of us with missed opportunities, pondering just how much we could have gotten in tax refunds.
In this article, we aim to help you with a few simple tips. Each of them offers a glimpse into the current law, more like a lead you can use to further find out how you can benefit most from tax refunds this year. Interested? Keep reading.
The Power of Tax Credits
Tax credits are often mentioned to be better than deductions themselves. This is because they subtract from your tax bill in a 1:1 ratio, and not in proportion to your rate. It’s a pure “dollar-for-dollar” deal.
There are several tax credits for which you can qualify as a business owner:
- Work Opportunity – a credit for employers who hire candidates facing significant employment obstacles, such as food stamp recipients or ex-felons;
- Disabled Access – similarly to the first one, a credit for employing candidates with disabilities;
- Qualified Research Activities – credit for resources spent on research and development – whether for a product, software, or a patent.
Look into the tax credit regulations to know which ones you are eligible for.
If there are any fees that should be paid in January of the following year, try to pay them off by the end of December.
However, don’t get carried away in the race to pre-pay everything and run your account balance low. Look for smaller expenditures in membership fees, software subscription renewals, office space rental, warranties, etc.
Whether you are an employer or an employee, track your commute to work. Over time, the mileage can add up to a significant tax deduction. There are two ways to go about it:
- The Standard Deduction Rate – which covers the actual mileage (the IRS adjusts the rate each year, so make sure to stay informed), and
- The Actual Expense – which covers everything else: gas, parking fees, insurance, etc.
According to a lot of firsthand online testimonials, many have found that the standard deduction rate works best for them. If you’re having trouble tracking mileage, there are smartphone apps that can help you get accurate tracking. Plus, it’s easier to turn it into a habit.
Stay in the Loop
When it comes to taxes, changes are being implemented every year. More so for businesses than for private households. It’s expected that most of it will be difficult to follow, especially when we’re busy.
Luckily, you can hire a tax expert to help you. Together with them, you can look over your current state, where the missed opportunities are, and how to fix any possible mistakes you’ve been making so far. It’s a great way to get a leg up on your finances and to make the taxes work for you, not against you.
“Investing” in your 401K or IRA (Individual Retirement Account), is a great way to ensure your future money is safe from taxation. It stays that way until you make your first withdrawals, which can be a few decades from now. Look into maxing out your contributions each year, and if the company you work for has a specific percentage for matching your investment, be sure to take advantage.
If you are a business owner, your follow-ups to the employees’ contributions can also be written off as tax-deductibles. Just make sure to consult your tax expert beforehand, because the return value depends on the payment method.
We all know about the health and retirement plans, but there are also company picnics, gifts, bonuses, and even educational assistance. These can all be tax-deductible. Again, the best way to go about it is to visit the IRS webpage and check which ones are eligible for your business.
Write off Bad Debts
While many are already familiar with bad debts, it doesn’t hurt to remind: you can write off bad debts from clients that didn’t manage to pay you out. However, this comes with numerous caveats. It depends on how much time has passed for your request to be valid, and also on how well the business is doing financially. You’re more likely to get the debt written off if the company is near foreclosure and bankruptcy.
In the End
The secret to boosting your tax deductibles lies in your knowledge. Get informed as thoroughly as you can. A lot of the abovementioned tricks are known among experienced business owners and employees as well. If possible, hire an accountant or a tax expert for help. Look for advice among your peers, as firsthand accounts give great insight into what is possible and what isn’t.
Guest Post: About the Author
Michael Deane is one of the editors of Qeedle, a small business magazine. When not blogging (or working), he can usually be spotted on the track, doing his laps, or with his nose deep in the latest John Grisham.