Tax Deductions! What can You Deduct from Your Taxes?
By Arthur B. —
Published February 19, 2018
What are tax deductions?
If you are a taxpayer, you may be aware of the hassles involved in filing your tax return. It can be an intimidating process, especially when you have to deal with countless forms, facts, and figures. You need to work out the math, check your figures, and recheck them again. It's certainly not a piece of cake.
Filing your tax returns requires you to pay attention to many technical aspects; one of them being deductions. Tax deduction is basically a reduction in your income that is taxable. By lowering the total taxable income, you can reduce the amount of tax you owe to the federal and state government. More often than not, tax deductions can be claimed after some business expenditure. Nonetheless, tax deductions can also result from incentives given by the government for participating in socially-beneficial activities.What can you deduct from your taxable income?
If you are clueless about what and how to deduct from taxes, you should read on. Following are a few examples of business expenses that are deductible:
• Fees to professionals preparing your income tax return
• Tax planning advice
• Legal advice on tax issues
• Fees for tax audit representation.
• Legal fees to professionals for representing in a criminal tax issue
• Tax collections expenses
• Purchase of tax preparation software
• Cost of tax-related publications and books
Fees for the professionals for tax advice is deductible in the same year the expense is incurred. You can deduct such expenses in the following ways:
• Fees for preparing Schedule C of a sole proprietor are deductible as professional and legal fees on Schedule C.
• Fees for preparing Schedule E for rental income and expenditures are deductible as professional and legal fees on Schedule E.
• Fees for preparing Schedule F for farm-related incomes and expenditures are deductible on Schedule F under the “other expenses” section.
• Fees for preparing other parts of the returns are deductible as “miscellaneous itemized deduction” on Schedule A on line 22.
Itemizing items involves tallying all deductible expenses for that particular tax year. Certain expenses like mortgage interest, charitable contributions, work-related expenses, medical expenses, and local and state taxes are deductible. Adding up all these expenses should be more than your standard deduction.
It's important that you itemize expenses if you are not a landlord of a rented property, farmer or self-employed. You can either claim the deduction or itemize expenses, but you are not allowed to do both. Traditional IRA contributions, health savings accounts, and employer-sponsored retirement plans are common examples of the retirement planning tax deduction. However, you should know that no retirement planning deductions fall under itemized deductions.What about green businesses?
Is your business planning on using green energy and saving power bills? The good news is you can claim for a tax credit for such environmentally-friendly investments. You have to show these investments as one in an “investment credit property” that can be amortized or depreciated.
At the same time, it's relatively easier to get tax deductions for constructing a “green” office building. You can claim the Section 179D deduction if you are incorporating high-efficiency, high-energy systems in your office building. In order to qualify for this deduction, you:
• Must be the lessee or owner of the commercial property.
• Must have a certification saying that you will be able to achieve 50 percent energy-savings requirement.
If you succeed in meeting the 50 percent energy-saving requirement, you can get up to $1.80 per square foot for constructing floors with new systems. You can include this deduction in the section called “Other Deductions” on your tax return.