Stop Cheating Yourself on Your Tax Deductions.
Updated: Mar 21, 2019
We’re all friends here, so let’s be honest. The first thing everyone wants to do when filing their taxes is find ways to make sure they can maximize their return/minimize what they owe. But hold your horses! Nothing makes the IRS crankier than reviewing what you filed and getting the idea that you’re trying to get away with something!
You want to make sure you do you take advantage of the benefits built into the system, while not getting too greedy and raising undue suspicion. Here are a couple of common things you can deduct without raising an eyebrow.
We’ve looked into the difference between hiring a 1099 freelance employee versus a regular W2 employee. One of the common benefits of going the 1099 route is that it’s cheaper in the short term for your business. It’s a one to one relationship; you agree on what to pay the freelancer, you pay them that and it’s over. W2 employees are viewed as more expensive since you have to place them on payroll.
But, having regular employees can come in handy when making deductions on your taxes!
While chances are you won’t be able to deduct any money you draw from the business to yourself, salaries and wages to employees are deductible. The onus of organizing and paying taxes is on freelancers when they’re 1099. For regular employees, though, there is a built in cost as an employer. Be sure to find out how to deduct salaries, wages and even certain bonuses.
Plus, you can even deduct the cost of certain payroll services. Keep in mind, you can also deduct the cost of certain freelancers, so long as they’ve filed a 1099 themselves.
Office supplies (traditional ones, like pens and paper) can always be deducted for all business types, as well as certain supply related expenses. Be sure to keep track of what you spend on necessary supplies for your business throughout the year.
Driving expenses are also common deductibles, using the standard IRS mileage rate. If you choose to, you can go in-depth and try to get deductions for gas costs, repairs, maintenance and more - but for those, you’ll probably need receipts handy.
The most common question, especially those who work in sales, is how to deduct client and employee entertainment. The rule of thumb is that you can usually deduct about 50% of the cost of a meal or entertainment, given that you or an employee was involved and it’s not a noticeable splurge.
Team dinners and food for meetings and team activities are also deductible. And here’s the one a lot of people don’t realize: mandatory social events held for employees are oftentimes 100% deductible! That team-building beach trip or year-end Christmas party could net you all of your money back.
There are plenty of ways to get money back on expenses, but the trick is to know the rules well and to make sure not to try to deduct something clearly lavish. Be sure to keep track of all expenses over the course of the year, and then when it comes tax time, going through all of them to find where you might find some relief.