It’s the least magical season of all—tax season! For most of us in the US, this means a time of mad scrambling to make sure that all of our business and personal paperwork is in order and any rogue receipts have been dug up from underneath our car mats. Hopefully, the scenario is not that bleak for you, but just in case, we did a little research and a little insight from our CPA, Kim Siegel from ECS Financial Services, Inc in Northbrook, Illinois and we put together this handy list of tax tips and myths for both your business and your personal lives.
Business Tax Tips
Tip #1: If you have to buy technology or equipment for your business, you can deduct those expenses, however, depending on the type of equipment, you may want to spread the deduction out over several years, rather than all in one fell swoop. If a piece of equipment or technology will be benefitting your business for more than one year, you can spread those deductions out over the reasonable amount of time that you will receive those benefits.
Tip #2: Did you travel for work this year? Maybe to attend a conference or event? Good news, it’s deductible! You can write off expenses like airfare, hotel costs, car rentals and mileage, even food is deductible up to 50%. Did you entertain along the way? These costs are also deductible up to 50%, provided you were entertaining a client or potential investor.
If you attended a conference or educational event, the entrance fee is also tax deductible. NOTE: The nature of the event has to be directly related to bettering your business.
Tip #3: Make sure you keep a good record of who is an employee and who is an independent contractor. There are very different tax implications for each, but if you misrepresent an employee as an independent contractor, (or if you are the employee being misrepresented), you could be in for a world of audit trouble. You can use this 20 question guide* from the IRS to help you to determine the proper status to claim.
Personal Tax Tips
Tip #1: If you’re a single parent, filing your taxes as “head of household” instead of “single” can save you taxes. The tax rates used for the Head of Household filing status are lower than the single tax rates. In order to qualify for Head of Household, you must be unmarried on December 31st and provide more than 50% of the financial support for a qualifying child and the child must live with you in your home for more than half the year. If that’s the case, there is also a Child Tax Credit available. This credit can be worth as much as $1,000 per qualifying child depending on your income.
Tip #2: If you paid someone to care for your child you may be able to claim the Child and Dependent Care Credit on your tax return. This credit is available for a qualifying child age 12 or younger. The care must have been provided so you, and your spouse if you are married filing jointly, could work.
Tip #3: If you live in Illinois and if your child is in school (kindergarten through 12th grade), you could be entitled to an education credit up to $500. Check with your tax preparer or on your state’s website and see if your state offers a similar credit, what qualifies for the credit and how the credit is calculated.
Common Tax Myths
Myth #1: Scenario: If I donate my couch to a charity, I can write off the cost of the furniture on my tax return as a charitable contribution.
Answer: WRONG! You are able to deduct the fair market value of your couch as a charitable deduction. Sentimental value doesn’t count, and the IRS suggests you use Thrift Shop Value to value your donation. In other words, what you would pay for a similar item at a Thrift Shop.
Myth #2: Scenario: That check I write to the Girl Scouts each year when I buy Girl Scout Cookies is a charitable contribution.
Answer: WRONG! Since you received goods (or goodies as the case may be) for the money you paid, you’re required to reduce the charitable contribution made by the value of the goods you received. And remember, you can’t write off calories.
Myth #3: I own my own business and to save some money I’m going to slap a decal on our family car that has my logo, website, and contact info on it and declare that car (and all of its expenses) as a tax write off.
Answer: WRONG! Not the case at all. The only thing that can be written off is the cost of that decal.
We also asked Kim what people should do to make the 2016 filing year easy and she had this to say, “I always tell people to make a file and label it TAXES. Anything they receive during the year that’s tax related goes into the file. These could be business or medical receipts, donations made, payments for childcare, etc. This way you’re not scrambling to find receipts on April 15th and you may have even forgotten that you paid/donated some of these things.”