Deductible expenses decrease initially reported income; thus, said taxpayer or company can reduce the amount of taxes that they will pay in the end.
With what characteristics must an expense meet to be considered deductible?
For an expense to be considered deductible from the total tax to be paid, it must meet certain requirements. These include paying for medical services, paying for drugs, and bills for dental services.
In addition, expenses such as payments for property taxes, mortgage interest and expenses related to the payment of services for remote work are also deductible.
What expenses are NOT deductible?
Although it is possible to reduce the amount of taxes that have to be paid, it is also important to note that there are many regular expenses that a person will never be able to report as deductible.
Among these are food, rent, gasoline and all the expenses that the taxpayer makes for their entertainment. Also, clothing is not considered a deductible expense.
1 Costs of Goods Sold
On USA, the cost of goods sold is not considered a deductible expense in the tax return, even if a significant loss of capital was obtained during the transaction.
The only way to deduct these costs is by declaring that said property served for business purposes or is taken into account within an investment project.
2 Capital Expenditures
The basis on which the payment of taxes for deductions is sustained is that these can only be declared when they actively contributed to generating the taxpayer’s income.
Thus, capital expenditures are not considered among the deductibles, since they have the ability to contribute to the finances of the taxpayer greater than the fiscal year in which the tax return was made.
3 Personal Expenses
Generally, a taxpayer’s personal expenses are not taken into account to be tax deductible, unless they have actively contributed to the generation of their annual income.
Some personal expenses that are not deductible are the purchase of clothes, legal fees, funeral expenses, political contributions and fines acquired during the fiscal year.
Expenses that are deductible according to the IRS
1 Payments to employees
For employers, there are certain expenses that are deductible, among which are workers’ salaries and fees, including commissions and bonuses that they have received in the fiscal year.
Small businesses tend to benefit the most from these deductible expenses; However, it is necessary to take into account that these expenses are only deductible if they are ordinary and necessary expenses, in addition to being within a reasonable amount.
2 Retirement Plan Expenses
The individual savings account, IRA, is one of the retirement plans that are within the list of deductible plans of the IRS; This means that the taxpayer will benefit from investing in it.
For people who are self-employed, there is a special plan through which they can pay up to $ 6,000 and receive a tax deduction; this, for people under 50 years of age.
3 Commercial Rental Expenses
In this area, the taxpayer must be specifically identified at the time of filing the tax return; In this way, you can receive benefits such as the deductible on business rental expenses.
This is because the United States government allows businesses that pay commercial income to deduct all state and local taxes in the same tax year.
The interests originated by various loans or credits may become deductible in the tax return of a taxpayer, but the deductible percentage will correspond to the category in which the taxpayer falls.
The credits or loans that are included in this category are: student loans, interest for mortgage payments. The latter refers to the interest generated by any type of property.
State and local taxes withheld from wages for the tax year will appear on the W-2 form. There, the taxpayer can decide whether to deduct state or local taxes, but can never deduct both.
If the taxpayer chooses to deduct local taxes, they should take into account that the deductible amounts are all estimated taxes that have been paid to local or state governments during the fiscal year or any taxes that have been paid during the year.
6 Insurance Expenses
Health insurance premiums may be federal tax deductible, as these expenses are classified by the government as medical expenses that most taxpayers pay annually.
Generally, if the taxpayer pays this amount independently, then they will be able to deduct this amount on the tax return they make.
7 Business lunches
As explained above, all expenses that are considered necessary for the growth of a business can be tax deductible, such is the case of business lunches.
According to the regulations made by the IRS, 50% of the cost of business meals that have been held during the tax year can be deducted; if it is in a restaurant, the deductible percentage is increased to 100%.
8 Business trips
All expenses involved in a business trip are tax deductible, and it is because they are considered necessary for the proper functioning of a business. These expenses include a large number of services such as:
Plane tickets, train tickets, taxi payments, buses, ferries or any means of transport necessary for the taxpayer to move from one place to another. Likewise, accommodation and food expenses are included during the days of the trip.
9 Commercial use of your car
A taxpayer may include his car as a means of work to deduct taxes, as long as he uses it exclusively for his business. Thus, you can deduct expenses such as:
Gasoline, maintenance, spare parts and insurance derived from its use. All of these expenses enter into the tax return and are deductible when reported as business expenses.
10 Commercial use of your home
This is especially useful for people who work remotely, since the IRS offers important benefits for those who have a home office or make business use of it.
This is applicable if the home in question is 300 square feet or less, in which case the IRS It will give a deduction of $ 5 for each square foot used as a business area, up to a maximum of $ 1,500 for a space of 300 square feet.
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