Whether you are filing for your own taxes or for the taxes of a business, tax deductions can be a huge help in reducing your taxable income. If you want to know all you wanted to know about IRS form 706NA, then you should be aware of the tax implications associated with it.
However, the key to taking advantage of these deductions is to keep detailed records and itemize expenses. This is especially true for business owners.
1. Business Travel
Travel expenses are one of the most important deductions to understand. They can save you thousands of dollars on your taxes.
However, the IRS has some strict guidelines for deducting them.
In order to be deductible, your business trip must be primarily related to your business.
This means you must spend more than half of your time on business activities and document everything you do.
Expenses can include transportation to and from your business destination, hotel or lodging, dry cleaning and laundry, phone calls, shipping baggage, some meals and more.
You can also deduct costs of communication and other business-related services while on your trip, such as internet, Wi-Fi, hotspots and international calls. If you travel internationally, be sure to check the rules in IRS Publication 463 before you claim these deductions.
2. Insurance
You may be able to deduct your business insurance premiums, depending on the nature of your business. You can also deduct the cost of any computer or mobile device that you use for your business.
However, be sure to keep your receipts if you’re going to claim this expense on your tax return.
It is also possible to deduct the cost of your health insurance premiums, but only if they exceed 7.5% of your adjusted gross income and you itemize your deductions. This rule applies to both self-employed and non-self-employed individuals, as long as they don’t receive a subsidy from an employer or health exchange.
3. Home Office Expenses
Home office expenses can be deducted from taxes if you meet certain IRS rules. These include using part of your home exclusively for business purposes and a regular and predictable schedule for the use of the space.
Licensed daycare providers and business owners who store inventory in their homes also qualify for the deduction.
The IRS doesn’t require you to keep any specific records to prove your home office, but they do recommend that you keep receipts of all business expenses, including utility bills and other items related to your business.
The IRS introduced a simpler method for calculating and determining your home office deductions in 2013. Instead of keeping detailed records and calculations, you can take a $5 per square foot deduction on up to 300 square feet of your home used for business — that’s $1,500 maximum.
4. Medical Expenses
Medical expenses are a great way to get tax breaks, says Chris Whalen, CPA in Red Bank, New Jersey. However, there are certain rules that need to be followed.
The IRS defines medical expenses as “payments for the diagnosis, cure, mitigation, treatment or prevention of disease or other conditions affecting any structure or function of the body.”
This includes doctor and hospital fees, health care insurance premiums, dental and vision care, mental health care, and even legal fees.
The IRS allows you to deduct medical expenses that exceed 7.5% of your adjusted gross income on Schedule A. You must itemize your deductions to claim them, and the amount you can deduct depends on your individual circumstances.
5. Entertainment
Entertainment can be deducted from taxes in a number of ways. However, it is important to note that not all entertainment costs are deductible.
For example, if you are a clothing designer and you put on a fashion show for your retail customers, this would not be considered entertainment.
Rather, it would be considered a business meal and only 50 percent of the cost could be deducted.
Another type of business entertainment expense is the cost of tickets to events such as sporting games and concerts. These can be deducted at the rate of 50% of the costs if they are not donated for charitable purposes.
The tax law also allows for deductions for club dues. These can be a significant write-off for companies with large employee populations, but there are some limits on how much you can claim.