Tax season is here, and if you're like millions of other Americans, figuring out what to write off can be kind of (or extremely) stressful. It's not your fault, though. We should have learned this stuff in high school, pretty cool that we all know y=mx+b instead.
What we can and can't deduct from our taxes isn't always super clear, so we decided to talk to an expert! We brought all our deduction questions to Brandon Adkins, a CPA and financial adviser, and he broke it down for us.
First things first: What is the difference between standard and itemized deductions?
BA: Whether to take the standard or itemized deduction carries some of the greatest confusion when filing taxes. You should always be taking the higher of the two for tax purposes because it reduces your total income.
The standard deduction is available to nearly anyone when filing taxes (with a few exceptions). It is an amount set by the IRS. Itemized deductions are expenses that you paid for in the tax year that the IRS deems eligible for you to itemize. Common itemized deductions include mortgage interest and charitable donations.
Unless you have a mortgage or make considerably large amounts of charitable donations, taking the standard deduction will be in your best interest. The US tax system encourages home ownership, so if you are on the fence about wanting to get a house, tax incentives are just one more reason to add to the pro list.
What’s the most common deduction people miss out on?
BA: With the way tax systems are set up now, it’s very hard to miss out on deductions. Online filing services walk you through a list of questions that help you determine which deductions you qualify for. One of the most common deductions people do miss out on though is student loan interest. And you don’t have to itemize your deductions in order to qualify.
Can I deduct any of my pet care costs?
BA: Unfortunately, you cannot deduct pet care costs. There are special circumstances such as if the pet is a service animal but for most of our furry friends, we cannot get a tax break.
What about my medical/dental expenses for the year?
BA: Yes, you can in fact deduct medical and dental expenses for the year but only if you itemize deductions. Here, the government is encouraging us to practice healthy habits and provide assistance if we incurred heavy medical fees.
Not all of the costs and not every medical expense can be deducted. For example, you couldn’t deduct a teeth whitening kit. Be sure to consult your tax expert or someone knowledgeable in the field regarding what you can and cannot include.
I’m a freelancer. Can I deduct the cost of a new computer I bought for work?
BA: Yes, you can write the new computer off as a business expense. If you freelance, it’s important to keep your receipts and know where your expenses are going.
If I work from home, can I deduct rent from my taxes? What about other utilities?
BA: If you work from home, you can deduct a portion of your rent and utilities as business expenses but there are a few caveats. The area you work in must be specifically designated for work. For example, your bedroom would not count because it would be difficult to convince someone that you only use your bedroom as a work space.
In addition, the area which you designate for work must be the principal place of the business. This means that you couldn’t work 50% of the time in the work area at home and 50% in an office building. In houses, a lot of people generally have offices or a study that they use for work. Rooms like these that are only used for business would qualify for the home office deduction. The size of the room proportional to the rest of the home would be the amount of rent or utilities usage you could deduct.
Any other advice, tips, or fun tax deduction facts you want to share?
BA: It is perfectly fine to not know what should or should not go on your taxes. There’s a common phrase, “you don’t know what you don’t know.” You can always ask a trusted friend, peer, or colleague. In addition, most tax filing programs have very guided and specific questions that help you determine what goes on your tax return.
Also, I know a lot of people look forward to tax time because they believe they will be getting a refund. One of the worst things you can do is plan on paying for a necessity with an anticipated tax refund and when you complete your taxes, you find out you actually owe. A tax refund means you paid more taxes than you owed during that year. It is okay to anticipate a refund but be mindful and be prepared if it’s not as large as you think it should be.
Brandon Adkins, CPA is an Indianapolis native who graduated from the Kelley School of Business at Indiana University with undergraduate degrees in Accounting and Finance and an MBA in Financial Analysis. He went on to work as an auditor for one of the big four accounting firms and later obtained his CPA. Brandon currently works as a financial analyst at one of Indiana’s largest hospital provider systems and serves as the treasurer for the Indianapolis chapter of NABA (National Association of Black Accountants). He enjoys giving back and volunteering with the youth, and aims to encourage children to make wise decisions that set them up for long and fulfilling futures. Brandon wants to be a positive example that younger generations can follow and lean on. In his spare time, he enjoys binge watching Netflix shows and listening to music.
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