A few times in this spot I have recently mentioned how being on top of your bookkeeping and/or tax preparation gives you the chance to potentially take more advantage of legitimate tax deductions. I recently was struck by the idea, however, that maybe that ideas starts a step or two ahead of what some people need. So let me take those steps back today.
First, a tax deduction does not mean that it decreases your final tax bill by that amount. Instead, a deduction will decrease the amount of your taxable income, meaning you will be taxed on a lower amount. So let’s say you bought $100 of office supplies for your business, it doesn’t mean you have to pay $100 less in taxes, but if means you will be taxed on $100 less of income.
Next, obviously not everything you buy during a year is tax deductible. If that were the case, you could just spend all your profit and never have to pay taxes. The rules on what is deductible (and possibly how much of it is) are where you can start to get into the weeds of where people feel overwhelmed with tax talk.
If you have specific areas you are interested in, though, you may be able to get some knowledge without getting too stuck. The IRS’s rules for deductions are published in Publication 535, which can be reached via this link.
This publication only discusses deductions but is still 57 pages of information laid out over three columns with a small font. And it is probably no surprise that this is not the most scintillating reading, either. It is grouped together well, though, with clear subject headings, so it may help lead you to an answer of a definite question. At the same time, there could be value in looking it over and maybe thinking about some areas where you could find deductible expenses that you would not have thought of before.
Either way, there is power in having information, even if the answers found aren’t the ones you were hoping for. There is also the potential for information overload, though, and that is where having someone on your side you can interact with and ask questions can be beneficial. So do not shy away from gaining the power of having even more information and know we are happy to help you get it over this next month as we finish up this often confusing season.
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To ensure we don't make the folks at the IRS ornery, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.