It seems like yesterday you were just signing your income tax return and yet, in the blink of an eye, we are quickly approaching a new filing season.
Prepare Your Expenses
Let me begin this section with the following statement, the US tax code favors small business owners and corporations. I'm going to repeat it for the people in the back, "THE US TAX CODE FAVORS SMALL BUSINESSES AND CORPORATIONS!"
This is not breaking news and was very evident once the Tax Cuts and Job Act (TCJA) passed in 2018. If you are not a business owner, sadly you are playing against "the house"
...and let's call the house the Internal Revenue Service (IRS). An individual filing their taxes would be the equivalent to a slot machine player, you are at the total mercy of the machine. A business owner filing their taxes is more like a poker player, you have more options and with some skill you can come out on top.
This is where expenses come in, business owners are able to deduct the expenses necessary to run their business against the gross income generated. Conversely, a W-2 wage earner cannot deduct any expense related to their occupation. For example, a Personal Chef can deduct the cost of his knifes as business expense, a Chef working at a restaurant does have that same privilege because as an employee all of your resources should be provided by your employer even if you had to purchase required equipment.
Well... What can you deduct and how can you save on your taxes?
Itemized Deductions
Individuals are able to take "certain personal deductions" identified by the IRS, but... there's a catch to this. All individuals are given a standard deduction based on your filing status. Those personal deductions must be greater than the already given standard deduction in order for it to be counted. For example, the standard deduction for a single person is $12,500, if your total personal deductions are less than $12,500 than you will be paying more taxes using your deductions instead of the standard deduction. The list of allowable personal deductions are mortgage interest payments (the interest portion of your mortgage payment), sales or state and local taxes paid, property taxes paid, gambling losses, charitable donations and medical/dental/vision associated expenses (with limitations). If you are a home owner you can really take advantage of the allowable deductions helping to reduce your tax liability resulting in a higher tax refund if applicable.
Going Electric
Your new electric vehicle may be eligible for a tax credit of up to $7,500. The IRS has a specific list of vehicles and the qualifying credit amount for each electric car model type accepted. There are also another limitations on the credit based on income and your tax liability.
Teacher's Educational Expenses
An eligible educator can deduct up to $250 of any unreimbursed educational expense for classroom materials and supplies.
Gambling Losses
As tempting as this deduction sounds, there is a huge requirement to take this deduction. YOU HAVE TO WIN! If you go to the casino and win $1,000, then and only then can you deduct your gambling losses against the winnings. If you were losing all year, unfortunately those losses are not deductible. Gambling losses are also a part of the itemized deductions and fall under the same standard deduction rule.
IRA Contributions
In 2022, you can contribute up to $6,000 as a single person and $12,000 filing married to a tradition Individual Retirement Account (IRA) and take advantage of a $6000 deduction from your income. Please keep in mind that if your income is more than $129,000 your contribution limit is reduced. Another lesser-known fact about this deduction is that you have until April 15 of the following year let's say 2023 to make the contribution and still take advantage of the deduction for the tax filing year 2022. So if you have forgot to make the contribution its all good, you have plenty of time.
Residential Energy Credit
You may be able to get this credit for certain types of repairs on your home, this credit was approved to help promote more green and energy efficiency. Upgrades such as solar, energy efficient water heaters, some roof repairs and small wind energy such as wind turbines to name a few.
In closing, these are just a few of the tax planning strategies that you can take advantage of now that will benefit you this upcoming tax season. I'm not saying to go out a buy a new electric car, as everyone's situation is different, I recommend doing the research to find what will best fit your needs.
As always if you have any questions, we are here to help!
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