tax deductible Archives - The Free Financial Advisor

April is fast approaching and soon, everyone will have to visit their accountants and file their taxes. That said, we need to make sure we are filing taxes correctly. Keeping accurate and up-to-date records is important. Here are some tax tips and how to be well-prepared for tax time.

Contribute to retirement accounts

If you haven’t done so yet, or you’d like to contribute more, you have until tax filing day to do so. For a refresher, here are the contribution limits for some IRAs: IRA/Roth IRA – Max contribution is $6,000 ($7,000 if you’re over 50 or older).

If you have a SEP IRA and you get an extension, you have until October 17, 2022, to make your 2021 contribution.

This is more of a tip for the end of the year, but make sure you take your Required Minimum Distributions. For people that are either over 70 ½ or over 72, depending on when you turned those ages, you need to withdraw money from your IRA. If you don’t, you’ll pay a tax penalty of 50% of the amount you should have withdrawn. For example, if your required amount was $10,000. You’ll pay a $5,000 tax penalty if you didn’t take that distribution.

Make a last-minute estimated payment

If you didn’t pay enough or you didn’t make a payment to the IRS for 2021 taxes, you have until you file to make your payment.

According to the IRS rules, you must pay 100% of last year’s tax liability or 90% of this year’s or you will owe an underpayment penalty.

Get tax docs in order

Get all of your tax documents in order. For earnings for the year, you’ll need one to several forms, depending on what you do for a living and how your business is set up. W2s are pretty common. If you’re an independent contractor, you’ll need 1099.

Itemize your deductions

Most people will take the standardized deduction, which is $12,550 for single filers and $25,100 for married couples filing jointly.

However, if you are self-employed or you have a lot of expenses that are tax-deductible, itemize your deductions. You could save a lot more money IF your total itemized deductions are larger than the standardized deduction.

Home office tax deduction

With the move to work from home still taking place, it might make sense to take advantage of the home office tax deduction. Here are some of the rules:

You must use the space exclusively for business
Expenses related to the space used for business are tax-deductible but need to be calculated according to the amount of square footage used for business
A lot of taxpayers stay away from this deduction, as they think it’s a red flag for an audit. If you’re legitimately using the space as you say and you aren’t fabricating numbers, then you have nothing to worry about

Last-minute tax tips for tax time

Triple-check your work if you prepared your own taxes and file on time. If you’re having someone prepare your taxes on your behalf, make your appointment ASAP because their calendars will fill up really fast.

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Jacob Sensiba

Jacob Sensible is a financial advisor with decades of experience in the financial planning industry. His journey into finance began out of necessity, stepping up to support his grandfather during a health crisis. This period not only grounded him in the essentials of stock analysis, investment strategies, and the critical roles of insurance and trusts in asset preservation but also instilled a comprehensive understanding of financial markets and wealth management. Jacob can be reached at: jake.sensiba@mygfpartner.com.

mygfpartner.com/jacob-sensiba-wisconsin-financial-advisor/

How do you strengthen relationships with customers and/or business partners? A tried and true way is using gifts. However, gifts cost money, so the next question is, are business gifts tax deductible?

The straight answer is yes, but it’s much more nuanced than that.

There are limitations

Business gifts are tax deductible, up to a certain dollar amount. You can deduct no more than $25 of the cost of the gift you give to each person through the course of the year.

Incidental costs such as engraving, packaging, and shipping are not included in the $25 limit as long as it doesn’t add substantial value to the gift.

Gifts that cost $4 or less are not included in the $25 limit IF the company name is permanently placed on the item and the gift is widely distributed.

Entertainment

Any item that can be considered a gift or entertainment is usually considered entertainment and is deducted at 50% of the value of the gift. For purchases that fall under both categories, use the “gift deduction” on lower-cost items and the “entertainment deduction” on items larger than $50.

Gifts to others

If you and your spouse give gifts to the same person, you’re treated as one taxpayer. The same rule applies to partnerships.

Gifting to a customer’s family counts as a gift to that customer, unless the customer’s family member(s) is a client as well.

The $25 limit only applies to gifts given to individuals. Gifts given to other companies, generally, don’t apply and are fully tax deductible.

Gifts to employees are taxable compensation.

Other relevant information

Keep adequate documentation that includes the purpose of the gift, what was spent, the date of purchase, and the business relationship.

Gifts given to a 501(c)3 non-profit are tax-deductible. Up to 25% of taxable income for a corporation.

A large majority of the information I have listed above came from the IRS publication about “Gift taxes”.

Tax Tips for Tax Time