We get several clients, year after year, who will outwardly express their frustration around the IRS and all things taxes. They trust us to not only file their personal and business taxes, but also to help them understand the complexities of their taxes. As we enter into the last quarter of 2021, there is one thing we know for sure: tax season is approaching!
In anticipation of tax season, some may think it is the most dreadful part of the year for them and their business. Take our advice and get ahead of the curve!
First Things First!
Here are several ways to save with tax deductions and tax credits.
Wait, these aren’t the same thing? Of course not!
So, what is the difference and what does it mean for me?
TAX DEDUCTIONS are applied before your taxable amount is shown, and more specifically, impacts your total taxable income.
TAX CREDITS, on the other hand, are applied to your total owed, and are applicable after receiving the amount owed.
Plain and simple, tax deductions lower your taxable income, and tax credits help lower the amount owed to the IRS.
Great, glad we have that understanding!
For the purpose of this article, we’re going to list the Top 10 Tax Deductions we recommend to all of our tax clients. Remember, tax deductions are applied on the front end, tax credits are applied on the back end. And since we are on the front end of tax season, these are easy tips that if applied now, can help reduce your taxable income for next tax season.
Top 10 Tax Deductions Recommended by VAAS Professionals
These 10 Tax Deductions are applicable for any business. Most are pretty simply explained, however at VAAS Pro, we leave nothing to chance and want YOU to be prepared.
Enjoy our brief overviews of each deduction and how these may translate to your business.
Tax Deduction #1: Advertising Cost
Yep, that is right! Any costs generated to attract and retain customers is accepted by the IRS as a deductible expense.
Tax Deduction #2: Employee Expenses
When claiming this deduction, it’s best to utilize the 2% rule, in which you claim expenses that are more than 2% of your adjusted gross income. Within this deduction, you can deduct any employer contributions made to your employee’s benefits, and even, employee wages. Acceptable business expenses that can be claimed within this deduction include: payments to retirement plans and cost of insurance.
Tax Deduction #3: Dues & Membership Fees
Membership dues can be viewed as a true write-off.
The IRS accepts membership fees paid by businesses on behalf of an employee as tax deductible. Membership payments must be used to maintain an employee's eligibility within the organization, or as an application qualifier for the organization. To see the list of organizations that are IRS accepted, check out this link.
Tax Deduction #4: Training Cost
As business owners, you may provide training for your employees or yourself, and all related to these trainings are tax deductible!
Tax Deduction #5: Rent
On March 2020, most businesses began operating remotely and many employees embarked on a new "work-from-home" journey. With much success, many small businesses have decided to allow a permanent work-from-home environment for their employees, and this decision comes with benefits.
Employees can deduct percentages of your home used for work from your taxable income. If this applies to you, let your tax consultant know so we can assist you in calculating the appropriate percentage.
Tax Deduction #6: Cellphone Fees
Raise your hand if:
- you use your cell phone to take calls,
- use your hotspot while working on the go,
- or access a Zoom or Cisco meeting via your mobile app?
…. We’re assuming your hands are raised. Great news, those expenses are deductible!
Tax Deduction #7: Travel Expenses
Needed to catch a quick flight for a business meeting? Or maybe you drive for work and use your vehicle to travel for business-related events. All of these can affect your taxable income. Make sure you save your receipts or keep track of your mileage to apply next tax season.
Tax Deduction #8: Meals Expenses
Know that you can impress clients with confidence.
As it relates to tax deductions, what a business owner spends on meals for the purpose of business can deduce how much income is taxed by the IRS. And as of now, business owners can write off 100% of their meal expenses for the 2021 tax year and beyond.
So, remember to keep your receipts. Most business cards allow holders to organize business related expenses through their mobile apps. Check with your bank institution to explore your options because, who wants to show up to a tax appointment with a folder full of paper receipts.
Tax Deduction #9: Supplies
Say it with us, sup-plies! --- Not equipment. Equipment used for a business is deducted through depreciation. But, this is not that. A taxpayer can deduct the cost of office supplies and materials used for that tax year, and only if those purchases were made within that tax year. Refer to this IRS document to gain a deeper insight, or just trust your VAAS Pro Consultant to deduct these when you’re ready to file.
Tax Deduction #10: Professionals Services Fees
Some small businesses aren’t able to fully operate with existing resources, and may seek external support to help. We refer to those as professional services, and some acceptable services may include legal, accounting and bookkeeping services – like VAAS Professionals. Any fees associated within the tax year can be deducted from your taxable income. This is but only another benefit of utilizing our services.
We hope you found some great tips and encourage you to record, track, and save ALL of your receipts. Again, check with your business banking institution, for they may offer automated expense management tools within their mobile apps. As always, your VAAS Professionals consultant is primed and ready to deliver pristine services to all of our clients. And, we look forward to seeing you next tax year!