Most Overlooked Tax Deductions
Hey peeps? How’s it going? Its so good to be here with you today! and in honor of the fast approaching tax deadline we’re gonna be discussing the most overlooked tax deductions that budding entrepreneurs and newbie side-hustlers can take. Click HERE for a downloadable list of these deductions! Of course, we’ll have also have Tips To Tame Your Taxes AND a few new stories for Shocking Scandals and Dirty Deeds - Tax Edition. Ready? Lets roll!
I know when you’re starting out it can cause a lot of anxiety: Can I deduct this? Should I deduct that? Will this trigger an audit?
And, the reality is that anything can trigger an audit: The IRS’s algorithm, omitting income, luck of the draw; but what you need to remember is that you are entitled to deduct any and all business expenses that are ordinary and necessary to your trade. So the goal is not to avoid an audit; the goal is to maximize the legitimate deductions you’re able to take. Here is a list of the most overlooked deductions you should consider:
First, bank fees. I cannot tell you how many times I’ve gotten to the front of the line at an ATM only to realize “Gross, an ATM fee”. Now, if you have a business bank account you may be able to deduct those pesky ATM fees as a ‘bank fee’ but you’ll have to be careful because this only applies to business bank accounts; not personal accounts.
Another well kept secret is the deduction for Interest payments. This one is especially important because lets say, for example, you need equipment for your business but you can’t pay for it outright; well, if you’re thinking about taking out a loan or a line of credit, a perk to consider is that you may be able to deduct the interest payment.
This next one you should be familiar with Contract Labor - Personally, I think we’ve beaten this horse to death on the last episode so if you want more info on deducting contract labor make sure you listen to the previous episode “W4s, W2s, W9s and 1099s!”.
Yay!!! Wow! With how much fun we’re having I’m not sure we should go back to taxes do you? Okay. Lets take a break for a sec.
Think about your favorite thing about either having co-workers or having employees. What did you pick? Camaraderie, right? Me too! And I tend to bond over tasty things to eat. Not stuffy corporate lunches but think more like a muffin run or some impromptu bagels and cream cheese...Yuuuum!!!! So one of my favorite ‘most overlooked deduction’ is the petty cash expenses - “Petty cash”, simply means any cash that you have lying around for things like small office purchases. Like maybe for treating everyone to bagels and cream cheese? Nudge nudge wink wink Okay you don’t need to buy me bagels and cream cheese but if you do treat the office you may be able to take a petty cash deduction for that expense.
Now that we’ve taken a break, let's dive into the biggie...the big kahuna...the one everyone is afraid to claim…the home office deduction…before I tell you why this deduction is really cool lets misspell the most common misconception there is: that claiming a home-office deduction puts you at a higher risk for an audit. That is incorrect. Peep this: in 2013 Forbs.com released an estimate that out of the 26 million Americans who had home offices only 3.4 million claimed this deduction. Do you know what that means? Loads of cash just left on the table; Why? Because with the home-office deduction you can expense things like:
General repairs and maintenance.
In addition to that, you may even be able to deduct a portion of your utility bills. So as you can see, it adds up quick.
But, in order to claim the home office deduction, the space must be used exclusively as your principal place of business, and it can’t be used for personal purposes. For example, if the majority of your work is done in the living room, you won’t be able to deduct the home office expense since your family probably uses this space for leisure.
One more thing: If you’re thinking of claiming the home-office deduction make sure you speak with a tax pro since there are two equally legitimate and correct ways to claim this deduction.
Now, a word from our sponsors: Heroic Music. In a world where wendy asked: Which do you like best? Our fearless sponsors, YOU, came out in droves, from all corners of the social media world to vote and make your voice heard! You roared and I listened. Thanks for helping me choose our new intro. Special shout-outs to Dante, Holly, Kim - waddup G?, Danielle, She Copes, and my two peeps who voted on twitter. Thank you! Your love and support have made this PodCast possible. Thanks for showing me love.
Next on the agenda are Tips To Tame Your Taxes. Why? Because lifehacks rock. Listen up. As a tax pro I get asked this a lot: How long should I keep my tax records?
Generally, the IRS can go back three years to begin an audit or review; however, if they find a substantial error, like you’ve been claiming deductions you’re not allowed to take, they can go back further but typically no more than 6 years, so generally you’ll want to keep your tax records for 3 years from the date you file (if you had no balance) or two years from the date you paid the tax (if you had a balance).
Now, the question I get right after is: What’s the best way to store my records? First, make sure to keep your tax records together by year. Then you can either store them og style: in a folder with subfolders OR digitally in a secure and encrypted manner. Hey, quick tangent but it's kind of related, promise; I have a love/hate relationship with technology. Yup. I really love it, and if you follow me on social you know why. But, I also really dislike it; seriously, ask the hubster. He’s convinced I’m a Luddite. BUT, I have nothing but love for the accounting software I recommend to my budding entrepreneurs and newbie side-hustlers, and I’m sure you guessed what they are:
Quickbooks Self-Employed is great for peeps who need mileage tracking, and Freshbooks is great for newbies who need time tracking functionality. But, whatever your needs are, these are two great softwares to try if you’re starting out. I’ll put my affiliate links in the show-notes. And whether you use these or the OG methods, the most important thing to remember is that you want to be able to access all of your information should the IRS audit your return.
Now, I think we’re ready for another break. How ‘bout some Shocking Scandals and Dirty Deeds - Tax Edition? Howd’s that sound? Great! I’m ready for that too.
I’m sure you’ve heard about the recent college admission scandal where incredibly wealthy parents paid hundreds of thousands of dollars (some millions) to get their under performing and undeserving children into some of the best schools this nation has to offer.
And, before you dismiss this as “of course, rich people get to do this all the time”: This was not a typical “I’ll pay you to get my kid in” scheme; this was fraud on an entirely new level.
There were two cons at play: The first involved bribing a mental health professional to certify that these wealthy children had learning disabilities. This allowed them to take extended time for tests, AND in a more private setting. Now, I’m not opposed to giving people with disabilities the proper support they need to thrive but these disgusting individuals exploited these accommodations to have another person take the test for their children; thus achieving the desired scores needed for the prestigious schools.
The second con involved having the wealthy children classified as athletic recruits; even though they’d never played the sport in their freaking life.
Shocking right? I’m sure you’re probably asking yourself: Yes, this is disgusting, but how is it related to taxes? Well, these perps did something that I would consider money laundering. They set up a non-profit organization to receive payments, avoid paying taxes, AND give the bribers a tax deduction incentive to move forward with the bribe. Now, obvs the feds are looking into this so there’ll definitely be more to come, but what really bothers me is that when the organization filed for exempt status they claimed their organization “endeavors to provide education that would normally be unattainable to underprivileged students”. Gross.
Now, I’m going to share something personal with you. For my entire childhood and a large portion of my adulthood, I was an undocumented person, and every single day society has systemically and continously reinforced the idea that: I do not belong here. That I am taking someone else’s spot. That I am cheating and lying. That I do not deserve to be here. And it may seem inconsequential but when society indoctrinates you with this mindset it can have disastrous and self-harming consequences.
Once, when I was in college, I remember starting my school day at 6:45PM; I had just worked full-time during the day, and my body was overtaxed and exhausted. I could not keep my eyes open. My head was nodding off. And, the pressure to prove I belonged and to earn my place pushed me to stab myself in the leg so that I could get a bit of an adrenaline rush to make it through four hours of chemistry.
So when I hear about stories like these, where entitled individuals take advantage of the system to swallow up scarce resources that they’ve not earned it makes me incredibly angry and upset. How many children, undocumented and otherwise, are working faithfully and diligently to earn these places only to have them robbed by the privileged few? Do you know how disheartening that is?
So, I want to tell you something that I’d longed to hear as a child: You belong. You matter. This is a place for you.
This podcast is called Tax Tribe the PodCast because in a tribe there is a place for everyone. I’m going to say that again: In a tribe there is a place for everyone. You belong here.
And, if you know someone might be a great addition to our tribe please please make sure to share. And if you’ve enjoyed this episode please make sure to rate and leave a review wherever you listen to podcasts so others can find out about the show too!
As always, sending you love and happiness, I’m Wendy Uken, have a wonderful day!
P.S. this is not legal advice specific to you or your situation; and you should consult a professional (like me!) to determine what is right for you and your business.