by Helen Johnson, Tax Manager at Sensiba San Filippo
The New Year is quickly approaching, and that means it’s time to start getting your deductions and credits in order for tax season. From common household deductions to specific business endeavors, here is our list of the Top 40 Tax Deductions to Consider this tax season.
Small Business Deductions.
- Home Office.
If you have a space in your home dedicated as a home office, it can be deducted under the home office deduction.
Maintaining a log of miles, gas, tolls and parking fees related to your business will make the calculation of the deduction easier come year end.
In an increasingly globalized economy, travel is often a necessity. The entire cost when traveling for business is deductible. Costs associated with travel such as airfare, hotel, rental cars, etc. are all deductible.
- Telephone Charges.
Any business-related use of the phone can be deducted. In this day and age where almost everyone carries a cellphone, the estimated percentage of business use can be deducted as a business expense.
- Insurance Premiums.
Any insurance expenses pertaining to your business may be deducted so long as they are typical insurance needs. Some insurance that may be deducted include: casualty and theft, professional liability or malpractice, vehicles for business.
Any interest paid on loans or credit cards pertaining to business expenses can be deducted at the end of the year.
Rent expenses that are essential to the operation of your business can be deducted in the year they are paid. Similarly, if you have a home office, a portion of your home rent may be deducted as a business deduction.
- Contractor Labor.
If your business used a contractor for labor during the year, the cost of the labor can be deducted at the end of the year. Be sure to issue the contractor a 1099-MISC for any payment of $600 or more.
- Legal and Professional Fees.
Any legal and professional fees (such as accounting) can be fully deducted when incurred by the business. Similarly, and legal fees paid while attempting to collect taxable income can be deducted.
Ordinary repairs and maintenance, those that do not add value, can be fully deducted. If they do add value, they must be capitalized and deducted through depreciation in the future.
- Research and Development Credits.
Starting in 2016 those companies with less than $50 Million in receipts, the R&D credit can be applied against their Alternative Minimum Tax (AMT).
- Hire your child.
As a business owner, you can take a deduction for the wages paid to your child, while your child can utilize his or her standard deduction (up to $6,300 in 2016) to offset those wages making them income tax-free. If you operate as a sole proprietor or a husband-wife partnership without other partners, your child’s wages are exempt from FICA and FUTA taxes if he or she is under 18.
- Advertising and Promotion.
Fees paid for advertising and promotion can be deducted as a business expense. Even Sponsorship of community teams and events and be categorized as promotion so long as there is a clear indicator of advertisement.
Furniture may be depreciated over time. If the business is profitable, the furniture purchased for your business office can be fully expensed in the year it was purchased.
- Start- up Costs
Any costs incurred in starting your business, including research, can be deducted up to a certain amount.
Individual and Family Tax Deductions.
- 529 Plan.
Although contributions are not deductible, earnings in a 529 plan grow federally tax-free and will not be taxed when the money is taken out to pay for college. Unlike a Roth IRA and Coverdell Education Savings Accounts, 529 plans have no income limits, age limits or annual contribution limits. You can make deposits up to annual gift tax exclusion of $14,000 per individual per year or $28,000 for married couples.
- Standard Deduction and Gifts.
The standard deduction for single taxpayers and married couples filing separately is $6,350 in 2017. For married couples filing jointly, the standard deduction is $12,700. For heads of house households, the standard deduction is $9,350.
- Charitable Mileage.
Much like charitable donations can be deducted; mileage when volunteering can also be deducted. Any miles while driving can be deducted per mile, plus any tolls and parking fees.
- Penalty on Early Withdrawals of Savings.
If you withdrew a Certificate of Deposit (CD) early and were charged a penalty, the penalty may be deducted on your 1040.
- Solar Energy.
Installation of solar energy systems on your primary or secondary residence will earn you a credit of 30% of the cost.
- Mortgage Interest & Real Estate Tax.
The interest paid on the first $1.1 million loan that is secured by your first or second home to buy, build, or improve your home can be deducted. Only interest may be deducted in addition to any real estate tax. Principal payments may not be deducted.
- Refinanced Mortgage Points.
Much like point deductions for new mortgages, you can deduct points when your mortgage is refinanced with the difference being that they must be taken over the life of the loan as opposed to all at once. If you used a portion of your refinance proceeds to improve your home, the points related to the home-improvement portion of the loan can be deducted in the year you paid them.
If you refinanced with the same lender, any undeducted points left over from the first mortgage will be deducted over the life of your new loan. But if you refinanced with a new lender, any leftover undeducted points can be deducted in the year of the refinance.
- Child and Dependent Care Credit.
Childcare expenses up to $3,000 (for one qualifying individual) or $6,000 (for two or more qualifying individuals) related to child (under 13) or qualified dependent care may be returned in the form of a tax credit.
- Student Loan Interest.
Any interest paid towards student loans, up to $2,500, may be deducted per year, for the life of the loan. The deduction is phased out for higher earning individuals.
- For Teachers.
If you are a qualified K-12 teacher, who paid for materials out-of-pocket, you can deduct up to $250 of qualifying expenses, such as payment for participation in professional development courses, books, supplies, computer equipment, related software and services, other equipment, and supplementary materials that you use in the classroom.
- Job-Related Moving Expenses.
If the moving expenses are not reimbursed by your employer you are eligible to deduct moving expenses so long as you meet the following criteria:
(a) The new workplace must be at least 50 miles further away from your home than your previous workplace
(b) You are employed full time for at least 39 weeks in the 12 months following the move (even when the 39 weeks are not consecutive and when it’s for multiple employers).
- Job Searching Expenses.
While searching for a new job in your current occupation, expenses that exceed 2% of your Adjusted Gross Income can be deducted. The deductions can include resume preparation, travel expenses, hotel stays, and employment agency fees that are directly related to job searching. You cannot deduct job search expenses if you are looking for a job for the first time or in a new occupation.
- Adoption Credit
If you adopted or paid adoption expenses during the year, you may be eligible to receive a credit for adoption fees and expenses up to $13,460 per eligible child subject to certain phase out levels. The credit is not refundable. Any credit in excess of your tax liability may be carried forward for up to five years.
- Tuition and Fees Deduction
You can deduct up to $4,000 of college tuition and fees paid during the year. If you can be claimed as a dependent, then you are not eligible for the deduction, but those claiming you as a dependent can claim the deduction. The deduction is not available if you are using married filing separately. Adjusted Gross Income limitations apply.
- American Opportunity Tax Credit (AOTC).
The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student. A credit of up to $2,500 can be claimed if the following criteria are met:
(a) Pursuing a degree in higher education
(b) Enrolled at least part-time for one academic period in the tax year
(c) Must be in the first 4 years of post-secondary education
(d) Cannot have claimed the AOTC for more than 4 years
(e) Not have a felony drug conviction during the tax year
If the credit pays your tax down to zero, you can have 40 percent of the remaining amount of the credit (up to $1,000) refunded to you.
- Retirement Savings Contribution Credit (Saver’s Credit).
The credit is eligible if:
(a) You are over age 18
(b) You are not a full-time student
(c) You are not claimed as a dependent on another person’s return
(d) You contribute to an IRA and your income is below a certain limit.
A full deduction may be available depending on filing status and income for the year, even if you are covered by a retirement plan at work.
- Earned Income Tax Credit.
A refundable tax credit is available for certain taxpayers who fall below an income threshold.
- Jury Pay Paid to Employers.
Some employers may pay their employees their full salary while they are in jury duty in exchange for their jury pay. If this is the case, the jury pay can be deducted since the money was just passed on to the employer.
- Charitable Contributions.
Any charitable contributions donated at the time of death may reduce the estate value subject to tax, dollar for dollar. Contributions must be made to a qualified organization for a public purpose.
- Charitable donations of Stock.
If the stocks has increased in value since you bought it, you will be better off donating it to charity instead of selling it first. That way, you will avoid the capital gain taxes on the profit. If the stock has decreased in value, it is better to cash it in first so you can deduct the loss.
- Military Reservist Travel.
Much like business travel deductions, Military Reserve and National Guard personnel may deduct travel expenses if they are called to training or meetings further that 100 miles from their home.
- Safe Deposit Box.
The fee for a safe deposit box may be deducted so long as it is not used for personal effects. If you use the box to store investment related paperwork such as stocks, bonds, or other documents, the rental fee can be deducted.
- Hobby Expenses.
Hobby expenses can be deducted up to the amount of income they generate, and cannot be deducted further from other income if a loss is incurred. In order to claim hobby expenses, your deductions must be itemized through a schedule A.
- Credit or Debit Card Convenience Fees.
Any fees assessed by the payment processor to process you tax payment when filing your tax can be deducted for the filing year.
- Gambling Losses.
Gambling losses are eligible to be deducted up to the amount of your gambling winnings. In order to claim this deduction, you must be eligible to itemize your deductions and keep a diary with a log of your wins and losses realized while gambling.
Helen Johnson is a Tax Manager at Sensiba San Filippo. With 25 years of experience she specializes in corporate, partnership and individual tax issues, and is an expert in multi-state compliance. Helen can be reached at firstname.lastname@example.org or at 650.358.9000.