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Tax deductions: ensure you are claiming all yours

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This guide outlines the most common tax deductions and how to ensure you claim all your tax entitlements.

Save money to earn money, they say. And tax deductions are a great way for anyone to save money, be it a large enterprise, small business, or an individual. The key thing with tax deductions is to know which ones to go with so that you can minimize your tax liability and maximize your profit.

And, figuring all of that out can be a daunting task if you don’t have a background in accounting (or you’re bad with math). That’s why we decided to break it down for you, so here’s our list of the most common tax deductions.

What Are The Different Tax Deductions?

When it comes to tax deduction strategies, there are two ways you could go – standard deduction or common itemized deductions. What’s the difference between the standard deduction and common itemized deductions, you may ask?

The standard deduction reduces your tax liability by one amount that applies to all while itemized deductions are different kinds of tax deductions you can apply. Is it better to take the standard deduction or itemized? Well, whichever lowers your tax liability the most, of course. Today, we’ll talk about itemized deductions.

Mortgage Interest & Real Estate Expenses

Mortgage and real estate deductions are the most common tax deductions for homeowners. When it comes to mortgage, you can deduct the interest on your mortgage rates but it’s limited to interest on $750,000 of mortgage debt and for debt after December 15, 2017. You can also deduct mortgage insurance premiums and real estate taxes you pay for your home. 

Small Business Tax Deductions

If you are a small business owner, there are many ways you can go about reducing your tax liability. We will mention the most common small business tax deduction strategies that apply to sole proprietorships, partnerships, C-corps and S-corps, and LLCs. Note that even though they are all available to each of these, different rules may apply.

Startup and Organizational Expenses

Starting a business is not easy and it usually involves a lot of startup cash that takes time to get back. Even though startup expenses fall under the capital expenses as they are money transformed into assets you get to keep, you can still get deductions for it. Such kind of practice is called amortization and it usually takes several years before you can get the money back. But, it’s an opportunity you should take nonetheless.

Property Rent and Home Office Tax Deductions

Other important deductions you can use as a small business owner are related to your office space and its expenses. If you rent a place, you can deduct your rental or lease expenses from your tax. If you have a home office and run your business from there, you can also qualify for many home office tax deductions. These can include mortgage interests, repairs, utility costs, insurance, and depreciation.

Equipment, Machinery & Supplies

If you lease any kind of machinery or equipment for your business, from computers to trucks, you can fully deduct these expenses and claim depreciation. The thing is, you’ll get your money back over several years. You can also deduct costs for the things you own like office furniture or even office supplies.

Taking advantage of these tax reduction strategies however small they may seem (pencil costs) can add up and save you a huge amount of money, especially in the long run.

Student Loan Interest

Student loans are a massive burden on millennials nowadays so it’s always good to know your student loan tax reduction options. If a student is not a dependent, they can get up to $2,500 deducted from their student loan interest. This now remains the case even if your parents paid back the student loan, which wasn’t the case in the past. If you are not a dependent and your parents paid off your student loan, it’s treated as if you paid it, so you can still qualify for deductions. 

Health Care Premiums for Self-Employed

If you are self-employed, you should consider one of the most common self-employed tax deductions – health care insurance premiums. You can deduct 100% of your monthly health insurance premiums for yourself, your spouse, and your kids (dependents). Sometimes you can even deduct your children’s premiums even if they’re not dependents. You can deduct your health insurance premiums whether you choose to go standard deduction or itemized deductions.

Operating expenses as tax deductions

Operating expenses that qualify as tax deductions are e.g. lawyer’s fees, work equipment, study, company taxes, office costs, specialist books/magazines, travel expenses, training costs, personnel costs, debt interest, insurance contributions, advertising expenses etc.

For the decision of whether expenses are deductible as operating expenses, it depends on whether the expenses are initiated by the company. The concept of operational instigation requires that there is an economic connection between expenses and the company. If such a connection exists, the expenses can in principle be tax deductions when determining the profit.

Therefore, the expenses incurred to open a particular business or profession and the expenses still incurred after the sale or abandonment of a company are also deductible as ex post or preparatory operating expenses. If, on the other hand, these are costs attributable to the private person, a deduction is out of the question.

Expenses caused by the operation arise not only in legal transactions incurred in the context of the operation, but also in losses suffered by a taxable person in connection with his operation can be tax deductions.

This applies, for example, to expenses that a person of a particular profession makes to restore his health if it is a typical occupational disease or the connection between the disease and the profession is clearly established. This also applies to the damage suffered by a taxable person during a company (professional) trip to his motor vehicle.

A legal context alone does not create an operational reason for tax deductions. If, for example, a private building becomes unnecessary business assets (and vice versa) due to the burden of securing an operating debt. In any case, an indirect operational context is not sufficient if it is superimposed by extra-company circumstances.

Expenses for the fulfillment of claims for damages by third parties that have been damaged in the context of the exercise of business (professional) may also be induced as tax deductions. However, there is only a operational reason for damages if the damage is essentially to be regarded as a direct result of the operational activity.

If, on the other hand, the cause context is significantly influenced by circumstances that are attributable to the non-operational area, it can no longer be said of an operational cause for tax deductions.

Now That You Know the Tax Deductions – Claim Them!

There are so many tax deductions and information on it that books were made about it. It’s hard to make a list that includes it all and applies to all because there will be some differences depending on your situation. So, we decided to share the most common ones and once again, reiterate the importance of taking advantage of even the smallest ones. Claim all you can claim and save all you can save!e

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