As an entrepreneur, you are likely well aware of the many tax deductions available. But maximizing your tax deductions can be tricky, especially if you’re not sure which ones apply to your business. This article will provide tips for maximizing your tax deductions as an entrepreneur.
Keep Track of All Business Expenses
One way to maximize your tax deductions is to keep good records. This means keeping track of all your business expenses to deduct them from your taxes.
It’s always good to keep receipts for any significant purchases, such as office equipment or inventory. This will help you prove to the IRS that these expenses were business-related.
Avail of Medical and Dental Deductions
If you use itemized deductions, you can avail specific medical and dental deductions.
Sum up the medical and dental expenses you incurred for the year for yourself and your spouse and dependents. Compare the total to 7.5 percent of your taxable gross income. If your costs exceed 7.5 percent, the excess is tax-deductible.
Here are some medical and dental expenses that you can deduct, according to the IRS:
- Fees paid to dentists, including dental extraction
- Fees paid to doctors and surgeons
- Fees paid to psychologists and psychiatrists
- Fees paid to chiropractors and non-traditional medical practitioners
- Total fees for medical care in a hospital
- Fees for medical care in a nursing home. Total fees (including meals and lodging) are deductible if admission is for medical care. If medical care is only part of the reason for admission, you can only deduct the cost of medical care
- Acupuncture treatment fees
- Fees for inpatient treatment for alcoholism or substance addiction
- Fees for smoking-cessation treatment
- Costs of prescribed nicotine withdrawal medication
- Fees for a weight-loss program due to obesity or a medical condition diagnosed by a doctor
- Costs of insulin
- Costs of prescription medicine
- Costs of wheelchairs and crutches
- Costs of hearing aids
- Costs of reading glasses, prescription glasses, and necessary contact lenses
- Costs of false teeth
- Costs of a guide dog for persons with physical disabilities
- Costs of admission and transportation to and from a medical conference if it is necessary for your medical care for a chronic illness or that of your spouse or dependent
- Costs of transportation to and from medical care, including ambulance fees; taxi, bus, or train fare; gas and oil for your car; toll fees; and parking fees.
- Payments for health care insurance premiums and qualified long-term care insurance, including insurance for your child who is not your dependent provided the child is younger than 27 by the end of 2021
Avail of Child and Dependent Care Deductions
If you pay for the care of your child below 13 years old or your spouse or another dependent not capable of self-care due to physical or mental disability, you can avail of this deduction. The IRS now sets the maximum to be $8,000 for an individual and $16,000 for the care of two or more people.
Unlike previous years, this is now refundable for up to 50 percent. That means if the deductible amount exceeds your taxable income, you can be refunded $4,000 and $8,000 respectively.
Avail of Restaurant Food Deductions
All meals purchased for the business from a restaurant in 2021 and 2022 are tax-deductible. They do not have to be eaten in a restaurant. Take-outs are qualified. Make sure you have all the receipts. From now on, buy food only from a restaurant. Packed food from the supermarket does not qualify.
Note that meals you provided for employees, even for company parties or picnics, are deductible 100 percent. Meals you purchased in carrying out the business are 50 percent deductible. You or an employee must be present.
For easy documentation, note down at the back of the receipt whether the meal was for employees or with a client or business associate. Indicate what the meeting was for.
Avail of the Higher Business Mileage Deduction
Business mileage deductions increased from 56 cents per mile in 2021 to 58.5 cents per mile in 2022. That can be a significant increase if you did a lot of driving.
Hopefully, you accurately logged all your business trips on your business vehicle. You must have documentation backing up your claim if your vehicle is not exclusively used for business.
Consider Hiring a Tax Professional
Finally, one of the best ways to maximize your tax deductions is to hire a tax professional. A tax professional can help you identify all the deductions available to you and ensure that you claim them correctly on your taxes.
While there may be an upfront cost to hiring a tax professional, the money you save on your taxes will likely more than make up for it. So if you’re serious about maximizing your tax deductions, consider hiring a tax professional today.
Every Cent You Deduct Counts
By following these tips, you can be sure that you are taking advantage of all the deductions available to you as an entrepreneur. By doing so, you can save a significant amount of money on your taxes. So if you want to keep more of your hard-earned money, be sure to follow these tips.