To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
If you have a large capital gain this year from an investment, it may be advisable to hold onto the investment until next year to put the gain into next year’s taxes. You may also want to sell off any investments that you have that are losing value at the moment to claim your losses.
The interest gained from state and local bonds is usually exempt from federal income taxes. These investments generally pay back at a lower interest rate than commercial bonds of similar quality.
Since Treasury Bonds are similarly exempt from state and local income tax, they can be a particularly good investment for those who are in high tax brackets and live in high-income-tax states.
You have the ability to invest some of the money that you would have paid in taxes to add to your retirement fund. Many employers will offer the opportunity to defer a portion of your earnings and contribute them directly to your retirement account. Some of them may even match a portion of your savings. If this is the case, it is always advisable to save at least the amount that your employer will match. This will give you an automatic 100% gain on your money.
If you are self-employed, look into getting a Keogh, SIMPLE or a SEP IRA.
If you own your business you may want to postpone sending certain invoices to ensure that you will receive payment in the following tax year. This can help greatly if some of this income would push you into a higher tax bracket. You may want to accelerate paying for expenses to cover your taxes in the current year.
Record Keeping for Taxes
It is a good idea to keep all of your receipts and any other records that you may have of your income and expenses. These will come in very handy if you are audited.
It is advantageous to categorize your expenses:
It is recommended that you keep these documents for three to seven years, depending on the document. Check the Retention Guide on this site for additional details.
If you are audited, it is very likely that the auditor will ask to see the last few tax returns. It is recommended to keep these tax returns forever.
An added benefit of keeping your tax returns is that you can see what you claimed last year, allowing you to adjust for the current year.
If you purchased goods that you plan to sell later, you should keep the receipts to calculate your gain or loss on it correctly.
If you are an employee of a company, your system needn’t be complex – you can keep your records separated in folders.
If you are a business owner, you may want to consider hiring a bookkeeper or accountant. Check the Financial Guide for Business on this website.
There are many different ways to use tax breaks for the higher education of your children. Be aware that you can only receive one type of relief for one item. It is best to consult with a professional to determine which would be the most advantageous.
You must make a choice between two types of tax education credit.
An education IRA is different than a standard IRA in these ways:
It is possible to have various 530 accounts for the same student, each opened by different family members or friends. There is no limit to the number of people that can open an account like this for a child.
The account can be transferred to another family member at any time. If the original child decides against going to college or is granted a scholarship, another family member can still utilize the money that has been saved.
The Section 529 is a college savings program available in most states. Money is invested to cover the costs of future education. These investments grow tax free and the distributions may also be tax-free.
Yes, you can take distributions from your IRAs for qualifying education expenses without having to pay the 10% additional tax penalty. You may owe income tax on at least part of the amount distributed, but not the additional penalty. The amount of the distribution that is more than the education expense does not qualify for the 10% tax exception.
There is a limited deduction allowed for higher education and related expenses. In addition, business expense deductions are allowed, without a dollar limit, for education related to the taxpayer’s business, employment included.
In certain instances, yes, although deductions need to adhere to a few guidelines. The deduction is also subject to income phaseouts.
If you are receiving this education to maintain or improve skills at your current job, yes, but not if it is to meet the minimum requirements.