Since charities ask for larger and more frequent donations from the public these days, soliciting by mail, telephone, television, and radio, for example, they should be checked out before you donate money or time. Here are some tips on how to maximize your charity dollar and avoid scams.
Here are some basic, common-sense suggestions for avoiding rip-offs in making charitable contributions:
Related Guide: Please see the Financial Guide: FRAUDULENT CHARITIES: How To Protect Yourself.
You should, of course, keep receipts, canceled checks and bank statements so you will have records of your charitable giving at tax time.
Related Guide: Please see the Financial Guide: ADVANCED CHARITY TECHNIQUES: Maximizing Your Deductions.
Volunteering your time can be personally rewarding, but it is important to consider the following factors before committing yourself:
Although the value of your time as a volunteer is not deductible, out-of-pocket expenses (including transportation costs) are generally deductible.
Many charities use direct mail to raise funds. While the overwhelming majority of these appeals are accurate and truthful, be aware of the following:
Deceptive-invoice appeals are most often aimed at businesses, not individuals. If you receive one of these, contact your local Better Business Bureau.
If you respond to mail appeals, you should be aware that certain charities consider this to be a significant part of their educational budgets. In a recent survey, half of 150 well-known national charities included their direct mail and other fund-raising appeals in their public education programs. This practice makes fund-raising drives look like a smaller part of a charity's expenses than they are. These 75 charities allocated $160 million of their direct mail and other appeal costs to public education programs.
A charity whose purpose is to combat cruelty to animals uses direct mail to raise funds. The cost of a nationwide direct mail campaign is $1 million much more than the $200,000 the charity has budgeted for its program of research grants. This embarrassingly high allotment for fund-raising costs can be significantly reduced if the direct mail pieces include some information about cruelty to animals. Since the information is considered educational, the charity calls it a program expense and allots half the cost of the mailing to public education, thus reducing fund-raising expenses from $1 million to only $500,000, and bumping up program spending from $200,000 to $700,000.
The line between pure fund-raising and genuine public education activities is not always clear. However, if the charity is confident that the fund-raising appeal truly serves its educational purposes, it should be willing to disclose this fact in the appeal. This disclosure allows donors to make an informed decision about whether to support the activity.
When you are approached for a contribution of time or money, ask questions - and do not give until you are satisfied with the answers. Charities with nothing to hide will encourage your interest. Be wary of any reluctance to answer reasonable questions.
Contributions to tax-exempt organizations are not always tax-deductible.
Registration, by itself, does not mean that the state or local government endorses the charity.
Sweepstakes mailings, used by businesses for many years to promote their products, have recently become popular with charities. Here are some points to consider when reviewing a sweepstakes appeal.
For a national campaign, the probability of winning the big prize may be quite low. Some campaigns involve mailings of a half-million to ten million or more letters.
If you are considering a donation, check out the appeal as you would any other request for funds. Does it clearly specify the programs your gift would be supporting? Do not hesitate to ask for more information on the charity's finances and activities.
Since all charity thrift stores do not necessarily operate the same way, it is important to find out if the charity is benefiting from thrift sales. There are three major types of thrift store operations:
The fair market value of goods donated to a thrift store is deductible as a charitable donation, as long as the store is operated by a charity. To determine the fair market value, visit a thrift store and check the going rate for comparable items. If you are donating directly to a for-profit thrift store or if your merchandise is sold on a consignment basis whereby you get a percentage of the sale, the thrift contribution is not deductible.
Remember to ask for a receipt that is properly authorized by the charity. It is up to the donor to set a value on the donated item.
If you plan to donate a large or unusual item, check with the charity first to determine if it is acceptable.
If you are approached to donate goods for thrift purposes, ask how the charity will benefit financially. If the goods will be sold by the charity to a third party such as an independently managed thrift store, then ask what the charity's share will be.
Sometimes the charity receives a small percentage, e.g., 5 to 20 percent of the gross or a flat fee per bag of goods collected.
Dinners, luncheons, galas, tournaments, circuses, and other events are often put on by charities to raise funds. Here are some points to consider before deciding to participate in such events.
If you decide not to use the tickets, give them back to the charity. In order to be able to deduct the full amount paid, you must either refuse to accept the tickets or return them to the charitable organization. In this way, you will not have received value for your payment.
Make donations by check or money order out to the full name of the charity and not to the sponsoring show company or to an individual who may be collecting donations in person.
Ask the charity what anticipated portion of the purchase price will benefit the organization.
It has happened that the number of children eligible to receive free tickets has been limited or transportation has not been arranged. So, in effect, free tickets given to the few needy children who attend the event are paid for many times over by businesses and individuals who purchase tickets.
You may receive an offer to apply for an affinity credit card bearing the name and logo of a particular charity. Sometimes offered exclusively to an organization's donors or members, these cards are issued by banks and credit card companies under agreements worked out with individual charities. These cards are just like other credit cards, but the specified charity gets some kind of financial benefit.
All affinity credit cards are not created equal. Offers vary in terms of how the charity benefits as well as the terms of the credit agreement with consumers. So check the terms carefully!
Consider the specific terms as you would any credit card offer: the amount of the interest rate/finance charges, the amount of the annual fee, if any, the amount of late fees and over-the-limit fees, if any, and the length of the grace period, or amount of time after which finance charges begin to accrue on any unpaid balance.
The charity usually receives a benefit in one or more of the following ways:
Make sure the promotional literature states exactly how the charity benefits. For example, one affinity card offer declared that a specified national charity would receive half of one percent of all transactions made with the card (that works out to 5 cents for every $10 worth of purchases). If the financial benefit for the charity is not spelled out, then ask.
Contributions made by a bank and/or credit card company through the use of an affinity credit card are not deductible to consumers as charitable donations for federal income tax purposes.
Remember also to consider your interest in the charity and not to hesitate to seek out more information on the charity's programs and finances.
If saving money is your bottom line, make a direct donation to the charity and seek a credit card with the best terms and lowest interest rates, regardless of affinity.
The following points should be kept in mind when considering promotions that partner charities and businesses:
The tragedy of a flood, massive fire, hurricane, earthquake, or another disaster always triggers an outpouring of public support and concern. During such crises, watch out for fraudulent appeals by some who see disasters as an opportunity to take advantage of American concern and generosity.
Examine your options instead of giving to the first charity from which you receive an appeal. There will be a variety of relief efforts responding to the diverse needs of disaster victims. Be wary of appeals that are long on emotion and short on what the charity will do to address the specific disaster.
Ask how much of your gift will be used for the crisis and how much will go towards other programs and to administrative and fund-raising costs. And find out what the charity intends to do with any excess contributions remaining after the crisis has ended.
Check with organizations before donating goods for overseas disaster relief. Most groups involved in overseas relief will not accept donated goods since purchasing goods overseas is often less expensive and more efficient. If a charity accepts donated items, ask about their arrangements for shipping and distribution.
Some charities change their program focus during a crisis in order to respond to the changing needs of disaster victims. Do not assume the charity will carry out the same activities throughout a crisis situation.
In reviewing such appeals, potential donors should be aware of the following points.
- Ask about any affiliations the group might have with other organizations. Some groups operate as a lodge or chapter of a larger organization. Others are independent associations of local, state, and/or federal law enforcement officers.
- Do not believe promises that your donation will "give you special treatment" from your police or firefighters. If such suggestions of threats are used, contact your state attorney general's office and your Better Business Bureau.
- Ask how your contribution will be used and what programs and activities it will support. Do not hesitate to ask for written materials on the police or firefighter group's programs and finances.
- Groups offering legitimate help to your police, firefighters, and community will welcome your questions and encourage your interest.
Not all sponsorship programs are alike. Sponsored donations usually benefit a project for an entire community (for example, medical care, education, food) and not the sponsored child exclusively. Some groups believe this is the most effective way to make significant and lasting changes in a child's living conditions. Other organizations do give a certain amount of the contribution directly to the sponsored child. Before deciding to participate in a sponsorship program, you may want to consider the following:
Contact other child sponsors to get a sense of their overall satisfaction with the organization.
While some organizations are a single entity under one name, others may be a network of local affiliates or chapters. If you give to a local chapter or affiliate, do not assume your donation will be spent locally. Nor should you assume that a chapter's operations are fully controlled by the national office.
Many different types of relationships can exist between a charity's national office and its chapters. Here are three possible relationships chapters:
The bottom line for you is that, depending on the organization's structure, the local affiliate may carry out different activities from those of the national office. It is important to inquire about this difference. In addition, donors may want to identify how much of a local affiliate's contributions are spent on local programs.
When considering a donation to a local chapter, it is wise to check out the chapter separately.
This Content is for informational purposes only. Nothing contained herein constitutes accounting, tax, financial, investment, legal or other professional advice, and, accordingly, the author and the distributor assume no liability whatsoever in connection with its use. This Content is not an exhaustive explanation of any topic, practice or process. You should seek the advice of a licensed professional before making any accounting, tax, financial, investment or legal decision.
Generally not. Usually, you can only deduct costs of meals when you're away from home overnight. Even so, the deduction is allowed only to the extent of 50 percent of the cost of meals and related tips. Also, because business-related entertainment expenses were eliminated under tax reform, starting in 2018, the deduction for meals at entertainment events is deductible (at 50%) only when costs for meals are itemized separately from entertainment costs.
For tax years 2021 and 2022, the deduction was allowed at 100 percent if purchased from a restaurant (eat-in or take-out).
Under tax reform, miscellaneous itemized deductions subject to the 2-percent floor were eliminated for tax years 2018-2025. However, prior to tax reform (i.e., for tax years prior to 2018), the following applied:It depends. If you give your employer a detailed expense accounting, return any excess reimbursement, and meet other requirements, you don't have to report the reimbursement and you don't deduct the expenses. This means that any deduction limits are imposed on your boss, not you, and the 2-percent limit on miscellaneous itemized deductions won't affect your travel, entertainment and meals costs.
Prior to tax reform (i.e., for tax years before 2018), the deduction for business entertainment and business meals could not exceed 50 percent of the cost. Note that due to the coronavirus pandemic, business-related meals purchased from a restaurant (eat-in or take-out) were deductible at 100 percent for tax years 2021 and 2022. There are no dollar limits. Expenses must be "ordinary and necessary" (meaning appropriate and helpful) and not "lavish or extravagant," but this doesn't bar deluxe accommodations, travel or meals. Additionally, there were additional special limitations on skyboxes and luxury water travel.
Starting in 2018 and continuing through tax year 2025, no deduction is allowed for business entertainment. Tax reform also eliminated deductions for expenses relating to sporting events such as those for skybox expenses (previously 50%), tickets to sporting events (previously 50%), and transportation to and from sporting events (previously 50%).
Yes. Living expenses at the temporary work site are away from home travel expenses. An assignment is temporary if it's expected to last no more than a year. If it's expected to last more than a year, the new area is your tax home, so you can't deduct expenses there as away from home travel.
A wide range of expenses can be deducted while traveling away from home.
Here are the main ones:
Transportation fares, or actual costs (or a standard per mile rate) of using your own vehicle. Also, transportation costs of getting around in the work area-to and from hotels, restaurants, offices, terminals, etc.
Lodging and meals (subject to the 50 percent limit on meals; 100 percent in 2021 and 2022)
Phone, fax, laundry, baggage handling
The following travel expenses cannot be deducted:
Costs of commuting between your residence and a work site, but it's a deductible business trip if your residence is your business headquarters.
Travel as education
Prior to 2018 and the passage of the TCJA, the following generally applied:
After tax reform, and starting in 2018, the rules changed and the entertainment expense deduction was eliminated entirely with the exception of certain activities such as office holiday parties, which remain 100% deductible. For example, the deduction for business entertainment expenses is eliminated but meals remain deductible at 50 percent (100 percent in 2021 and 2022). In addition, the following now applies:
Entertainment-related Meals. Prior to tax reform expenses for meals purchased during entertainment activities such as meals included at a sporting event were deductible at 50%. Starting in 2018; however, the deduction is eliminated unless the costs of meals are invoiced separately.
Sporting Events. Tax reform eliminated all deductions relating to sporting events including deductions for sky box expenses (previously 50%), tickets to sporting events (previously 50%), tickets to qualified charitable events (previously 100%), and transportation to and from sporting events (previously 50%).
Club Memberships. While there was never a deduction for club dues, business owners were able to take a 50% deduction for expenses incurred at a business, recreational, or social club as long as it was related to their trade or business. Under tax reform, however, that deduction has been eliminated.
If you're an employee who is reimbursed for expenses you'll need to file an expense report for your employer, which is a written accounting of your expense while on travel. If you received a cash advance, you'll also need to return to the employer any amounts in excess of your expenses.
Some per diem arrangements and mileage allowances called "accountable plans" take the place of detailed accounting to the employer, if time, place and business purpose are established.
For tax years 2018 through 2025, miscellaneous itemized deductions (Form 1040, Schedule A) have been eliminated due to tax reform (Tax Cuts and Jobs Act of 2017). Prior to tax reform (i.e., tax years prior to 2018), the following held true:Where expenses aren't fully reimbursed by your employer or excess reimbursements aren't returned, detailed substantiation to IRS is required and, if you're an employee, your deductions are subject to the 2-percent floor on miscellaneous itemized deductions. In addition, your expense records should be "contemporaneous," that is, recorded close to the time expenses are incurred.
This Content is for informational purposes only. Nothing contained herein constitutes accounting, tax, financial, investment, legal or other professional advice, and, accordingly, the author and the distributor assume no liability whatsoever in connection with its use. This Content is not an exhaustive explanation of any topic, practice or process. You should seek the advice of a licensed professional before making any accounting, tax, financial, investment or legal decision.
Complete and accurate financial record keeping is crucial to your business success. Good records provide the financial data that helps you operate more efficiently. Accurate and complete records enable you to identify all your business assets, liabilities, income, and expenses. That information helps you pinpoint both the strong and weak phases of your business operations.
Moreover, good records are essential for the preparation of current financial statements, such as the income statement (profit and loss) and cash-flow projection. These statements, in turn, are critical for maintaining good relations with your banker. Finally, good records help you avoid underpaying or overpaying your taxes. In addition, good records are essential during an Internal Revenue Service audit, if you hope to answer questions accurately and to the satisfaction of the IRS.
To assure your success, your financial records should show how much income you are generating now and project how much income you can expect to generate in the future. They should inform you of the amount of cash tied up in accounts receivable. Records also need to indicate what you owe for merchandise, rent, utilities, and equipment, as well as such expenses as payroll, payroll taxes, advertising, equipment and facilities maintenance, and benefit plans for yourself and employees. Records will tell you how much cash is on hand and how much is tied up in inventory. They should reveal which of your product lines, departments, or services are making a profit, as well as your gross and net profit.
The Basic Recordkeeping System
A basic record-keeping system needs a basic journal to record transactions, accounts receivable records, accounts payable records, payroll records, petty cash records, and inventory records.
An accountant can develop the entire system most suitable for your business needs and train you in maintaining these records on a regular basis. These records will form the basis of your financial statements and tax returns.
You must have a clear understanding of your firm's long- and short-range goals, the advantages and disadvantages of all of the alternatives to a computer and, specifically, what you want to accomplish with a computer. Compare the best manual (non-computerized) system you can develop with the computer system you hope to get. It may be possible to improve your existing manual system enough to accomplish your goals. In any event, one cannot automate a business without first creating and improving manual systems.
Business Applications Performed by Computers
A computer's multiple capabilities can solve many business problems from keeping transaction records and preparing statements and reports to maintaining customer and lead lists, creating brochures, and paying your staff. A complete computer system can organize and store many similarly structured pieces of information, perform complicated mathematical computations quickly and accurately, print information quickly and accurately, facilitate communications among individuals, departments, and branches, and link the office to many sources of data available through larger networks. Computers can also streamline such manual business operations as accounts receivable, advertising, inventory, payroll, and planning. With all of these operations, the computer increases efficiency, reduces errors, and cuts costs.
Computer Business Applications
Computers also can perform more complicated operations, such as financial modeling programs that prepare and analyze financial statements and spreadsheet and accounting programs that compile statistics, plot trends and markets and do market analysis, modeling, graphs, and forms. Various word processing programs produce typewritten documents and provide text-editing functions while desktop publishing programs enable you to create good quality print materials on your computer. Critical path analysis programs divide large projects into smaller, more easily managed segments or steps.
To computerize your business you need to choose the best programs for your business, select the right equipment, and then implement the various applications associated with the software. In addition, application software is composed of programs that make the computer perform particular functions, such as payroll check writing, accounts receivable, posting or inventory reporting and are normally purchased separately from the computer hardware. QuickBooks is a good example of this type of software.
To determine your requirements, prepare a list of all functions in your business. in which speed and accuracy are needed for handling volumes of information. These are called applications.
For each of these applications make a list of all reports that are currently produced. You should also include any pre-printed forms such as checks, billing statements or vouchers. If such forms don't exist, develop a good idea of what you want - a hand-drawn version will help. For each report list the frequency with which it is to be generated, who will generate it and the number of copies needed. In addition to printed matter, make a list of information that you want to display on the computer video screen (CRT).
For all files you are keeping manually or expect to computerize list, identify how you retrieve a particular entry. Do you use account numbers or are they organized alphabetically by name? What other methods would you like to use to retrieve a particular entry? Zip code? Product purchased? Indeed, the more detailed you are, the better your chance of finding programs compatible with your business.
When implementing computer applications for your business, problems are inevitable, but proper planning can help you avoid some and mitigate the effects of others. First, explain to each affected employee how the computer will change his or her position. Set target dates for key phases of the implementation, especially the last date for format changes. Be sure the location for your new computer meets the system's requirements for temperature, humidity, and electrical power. Prepare a prioritized list of applications to be converted from manual to computer systems, and then train, or have the vendors train, everyone who will be using the system.
After installation, each application on the conversion list should be entered and run parallel with the preexisting, corresponding manual system until you have verified that the new system works.
System Security
If you will have confidential information in your system, you will want safeguards to keep unauthorized users from stealing, modifying or destroying the data. You can simply lock up the equipment, or you can install user identification and password software.
Data Safety
The best and cheapest insurance against lost data is to back up information on each diskette regularly. Copies should be kept in a safe place away from the business site. Also, it is useful to have and test a disaster recovery plan and to identify all data, programs, and documents needed for essential tasks during recovery from a disaster.
Finally, be sure to employ more than one person who can operate the system, and ensure that all systems are continually monitored.
This Content is for informational purposes only. Nothing contained herein constitutes accounting, tax, financial, investment, legal or other professional advice, and, accordingly, the author and the distributor assume no liability whatsoever in connection with its use. This Content is not an exhaustive explanation of any topic, practice or process. You should seek the advice of a licensed professional before making any accounting, tax, financial, investment or legal decision.
This Financial Guide provides tax saving strategies for deferring income and maximizing deductions and includes some strategies for specific categories of individuals, such as those with high income and those who are self-employed.
Before getting into the specifics, however, we would like to stress the importance of proper documentation. Many taxpayers forgo valuable tax deductions because they haven't kept receipts or other records. Not only are adequate records required by the IRS, but neglecting to track deductible expenses throughout the year can lead to overlooking them. You also need to maintain records regarding your income. If you receive a large tax-free amount, such as a gift or inheritance, make certain to document the item so that the IRS does not later claim that you had unreported income.
The checklist items listed below are for general information only and should be tailored to your specific situation. If you think one of them fits your tax situation, we'd be happy to discuss it with you.
Most individuals are in a higher tax bracket in their working years than they are during retirement, so using tax-advantaged retirement accounts to defer income until retirement can reduce your current-year taxes plus may ultimately result in paying taxes on that income at a lower rate. Additionally, you may be able to invest the money you would have otherwise paid in taxes to increase the amount of your retirement fund. Deferral can also work in the short term if you expect to be in a lower bracket in the following year or if you can take advantage of lower long-term capital gains rates by holding an asset a little longer.
Another way to use timing to reduce your current-year taxes is to accelerate deductions, for example, by paying a state estimated tax installment in December instead of at the following January due date. But be mindful of the $10,000 ($5,000 if you're married filing separately) annual limit on the deduction for state and local taxes, which through 2025 applies to the combined amount of property taxes and income or sales tax.
Many employers offer plans where you can elect to defer a portion of your pay by contributing it to a tax-deferred retirement account. For many companies, these are 401(k) plans. For nonprofit employers, such as universities, a similar plan called a 403(b) is available. If your employer offers such a retirement plan, contribute as much as possible to defer income and accumulate retirement assets.
Some employers match a portion of employee contributions to such plans. If this is available, you should structure your contributions to receive the maximum employer matching contribution.
If you have your own business, consider setting up and contributing as much as possible to a retirement plan. These are allowed even for a sideline or moonlighting business. Several types of plans are available which minimize the paperwork involved in establishing and administering such a plan.
Related Guide: For details on retirement plans benefiting self-employed owners, see the Financial Guide: EMPLOYEE BENEFITS: How To Handle Them.
If you have income from wages or self-employment income, you can build tax-sheltered investments by contributing to a traditional or a Roth IRA. You may also be able to contribute to a spousal IRA even if the spouse has little or no earned income. All IRAs defer the taxation of IRA investment income and in some cases contributions may be deductible or be withdrawn tax-free.
Related Guide: For details on how Roth IRAs work and how they compare in other respects with traditional IRAs, please see the Financial Guide: ROTH IRAs: How They Work and How To Use Them.
To get the most from IRA contributions, fund the IRA as early as possible in the year. Also, pay the IRA trustee out of separate funds, not out of the amount in the IRA. Following these two rules will help ensure that you get the most tax-deferred earnings possible from your money.
If you are due a bonus at year-end, you may be able to defer receipt of these funds until January. This can defer the payment of taxes (other than the portion withheld) for another year. If you're self-employed, defer sending invoices or bills to clients or customers until after the new year begins. Here, too, you can defer some of the tax, subject to estimated tax requirements. This may even permanently save taxes if you are in a lower tax bracket in the following year. Be advised, however, that the amount subject to Social Security or self-employment tax increases each year.
If you have investments on which you have an accumulated loss, it may be advantageous to sell it prior to year-end. Capital losses are deductible up to the amount of your capital gains plus $3,000. If you are planning on selling an investment on which you have an accumulated gain, it may be best to wait until after the end of the year to defer payment of the taxes for another year (subject to estimated tax requirements). For most capital assets held more than 12 months (long-term capital gains) the maximum capital gains tax is 20 percent. However, make sure to consider the investment potential of the asset. It may be wise to hold the asset to maximize the economic gain or sell it to minimize the economic loss.
When your mutual fund manager sells stock at a gain, these gains pass through to you as realized taxable gains, even though you don't withdraw them. So you may prefer a fund with low turnover, assuming satisfactory investment management. Turnover isn't a tax consideration in tax-sheltered funds such as IRAs or 401(k)s. For growth stocks you invest in directly and hold for the long term, you pay no tax on the appreciation until you sell them. No capital gains tax is imposed on appreciation at your death.
You can give away $18,000 ($36,000 if joined by a spouse) per donee in 2024 without owing federal gift tax or using up any of your lifetime gift and estate tax exemption. You can make these annual exclusion gifts to as many donees as you like. While these transfers are not taxable, any income earned on these gifts after the transfer will be taxed at the donee's tax rate, which in many cases is lower.
Special rules apply to children subject to the "kiddie tax." Also, if you directly pay the medical or educational expenses of the donee, such gifts will not be subject to gift tax.
For high-income taxpayers who live in high-income-tax states, investing in Treasury bills, bonds, and notes can pay off in tax savings. The interest on Treasuries is exempt from state and local income tax. Also, investing in Treasury bills that mature in the next tax year results in a deferral of the tax until the next year.
Interest on state or local municipal bonds is generally exempt from federal income tax and from tax by the issuing state or locality. For that reason, interest paid on such bonds is somewhat less than that paid on commercial bonds of comparable quality. However, for individuals in higher brackets, the after-tax return from municipal bonds will often be greater than that from higher-interest commercial bonds. Gain on sale of municipal bonds is taxable and loss is deductible. Tax-exempt interest is sometimes an element in the computation of other tax items. Interest on loans to buy or carry tax-exempts is non-deductible.
If you're planning to make a charitable gift, it generally makes more sense to give appreciated long-term capital assets to the charity than to sell the assets and give the charity the after-tax proceeds. Donating the assets instead of the cash prevents your having to pay capital gains tax on the sale, which can result in considerable savings, depending on your tax bracket and the amount of tax that would be due on the sale. Additionally, you can obtain a tax deduction for the fair market value of the donated assets, assuming you itemize deductions.
Many taxpayers also give depreciated assets to charity. The deduction is for fair market value; no loss deduction is allowed for depreciation in value of a personal asset. Depending on the item donated, there may be strict valuation rules and deduction limits.
If you drive your car for business, medical or charitable purposes, you may be entitled to a deduction for miles driven. For 2024, it's 67 cents per mile for business, 21 cents for medical and moving purposes (members of the armed forces only for tax years 2018-2025), and 14 cents for service for charitable organizations. To substantiate the deduction, you need to keep detailed daily records of the mileage driven for these purposes.
From 2018 through 2025, employees who drive their own cars for business can't deduct such expenses. This is due to the Tax Cuts and Jobs Act of 2017 (TCJA) suspension of miscellaneous itemized deductions subject to the 2% of adjusted gross income floor. This means that, generally, only businesses and the self-employed can claim a deduction for business miles driven.
Medical and dental expenses are generally deductible only if you itemize and only to the extent they exceed 7.5 percent of your adjusted gross income (AGI). For most individuals, particularly those with high incomes, this eliminates the possibility of a deduction. You can get a tax benefit similar to a deduction if your employer offers a Flexible Spending Account, sometimes called a cafeteria plan. You can redirect a portion of your compensation to the account to pay these types of expenses with pretax dollars. Another such arrangement is a Health Savings Account (HSA), though it's available only if you have a high-deductible health plan (HDHP). Self-employed with an HDHP? You can set up an HSA for yourself and make tax deductible contributions to it.
Certain married couples may benefit from filing separately instead of jointly. Consider filing separately if you meet the following criteria:
Separate filing may benefit such couples because the adjusted gross income "floors" for taking the medical expense deduction will be computed separately. On the other hand, some tax benefits are denied to couples filing separately. In some states, filing separately can also save a significant amount of state income taxes.
You may be able to expense up to $1,220,000 in 2024 for qualified equipment purchases for use in your business immediately instead of writing it off over many years. Additionally, self-employed individuals can deduct 100 percent of their health insurance premiums as business expenses. You may also be able to establish a SEP or SIMPLE IRA plan, or a Health Savings Account, as mentioned above.
If your child is under age 18, he or she is not subject to employment taxes from your unincorporated business (income taxes still apply). This will reduce your income for both income and employment tax purposes and shift income to the child at the same time; however, you cannot hire your child if he or she is under the age of 8 years old.
This Content is for informational purposes only. Nothing contained herein constitutes accounting, tax, financial, investment, legal or other professional advice, and, accordingly, the author and the distributor assume no liability whatsoever in connection with its use. This Content is not an exhaustive explanation of any topic, practice or process. You should seek the advice of a licensed professional before making any accounting, tax, financial, investment or legal decision.
