As I promised last week, this week I’m sharing a few more items that apply to both business owners and real estate investors. Here they are!
#1 Check Your Vehicle
The vehicle deduction is one of my favorite tax deductions because it has the ability to turn non-deductible personal expenses into legal tax deductions. This creates permanent tax savings!
To make this tax reduction strategy work, there are a few things that need to be tracked.
First, your mileage needs to be tracked. This means tracking how many business miles versus total miles you put on your personal car in a year.
Your business miles divided by your total miles is your percentage of business use. This is a very important percentage because it is applied to your total vehicle expenses to determine how much you can deduct.
This leads to the second item that needs to be tracked, which is your vehicle expenses.
Vehicle expenses include:
Maintenance Tune-ups Replacement parts New tires Gas Oil Washes Car loan interest Depreciation Lease payments
These expenses add up, which can mean big tax savings!
The final item to track is how to actually claim your deduction. This depends on your business or investing activity and the type of entity (or entities) you have in your tax structure. You many need to be reimbursed by your business or you may claim the deduction directly on your tax return. This is one to discuss with your CPA!
#2 Secure Your Home Office Deduction
As I mentioned in #1, tax planning that creates permanent tax savings by eliminating tax is my absolute favorite type of tax planning. The home office deduction is another great example of this. It takes expenses you already have for your home (that are not deductible) and turns them into legal tax deductions.
The result: You are not spending any additional cash, but you are still decreasing your tax…permanently!
Certain requirements must be met to claim a home office deduction, including:
You own a business (if you are an employee, you must meet the “for the convenience of the employer” test)
You have an area set aside in your home used regularly and exclusively for specific administrative or management activities for your business
There is no other place of business where you conduct those activities
If you don’t think the area you use qualifies, you may just need to change the facts. Are there too many nonbusiness items in your office area? Move them to another room and you may qualify. Are you struggling to find business activities that you can do at home? Bookkeeping, billing and ordering supplies are just a few activities that are easily done from home.
Once you have determined you have an area that qualifies as a home office, it’s time to start tracking your home office expenses. Allowable home office expenses include:
Utilities Mortgage interest Property taxes Homeowners and liability insurance Repairs and maintenance Depreciation
These expenses are then allocated based on the percentage of your home used for your home office area.
As with the vehicle deduction, how you claim your home office deduction depends on your business or investing activity and the type of entity (or entities) you have in your tax structure. You many need to be reimbursed by your business or you may claim the deduction directly on your tax return. This is another one to discuss with your CPA!
Minimize Your Taxes! There are key parts of a tax strategy that must be in place in order to successfully and legally minimize taxes.
About the Author: The vehicle deduction is one of my favorite tax deductions because it has the ability to turn non-deductible personal expenses into legal tax deductions. This creates permanent tax savings! https://www.ProVisionWealth.com