Some of the common expenses that can be deducted when figuring income taxes are:
Mortgage interest. Payments made to a lending institution for real estate loans usually include principal (part of the amount borrowed) and interest (charges for loaning the money). Rental-property owners can borrow to purchase property or to improve property. In addition, interest on credit card payments may be deductible if the purchase was strictly for the rental property. Rental-property owners should know, from the start, that interest expense must be at the top of the deductible list.
Owners of rental property should take care to reap the benefits of depreciation of property. In most cases, this deduction is available after the first year of ownership and generally continues for 27 years. Property owners should consult with a tax adviser to make sure that depreciation is handled correctly.
Rental-property owners know that keeping up with repairs is one of the major tasks of being a landlord. But repair costs are deductible for the year the costs are incurred. For example, if it is necessary to put new tile on the kitchen floor of a rental property, refinish the walls with new plaster or drywall, or replace old/broken windows, the labor and materials cost is deductible. This includes any tool rental such as a. These repairs must be necessary for the daily operation of the property and should not be improvements made to enhance value (capital improvements). Again, it would be wise to consult with a tax expert to make sure this deduction is taken properly.
Some rental-property owners forget about the travel expense of owning property and miss out on what can be a significant deduction. If the owner must travel to the rental property to meet with tenants or to make repairs, for example, the travel expense may be deductible. Travel expenses incurred for visits to plumbers, electricians and contractors can also be included in tax deduction calculations. If the visit to rental property involves travelling to another city, it may be possible to deduct airfares, hotel bills and some other costs.
Many rental-property owners conduct their business from their home, which allows them to deduct a portion of the home's square footage for business purposes. Other expenses associated with this home office may be deductible as well (separate phone, office equipment etc.).
Property owners who work with a knowledgeable tax adviser also deduct losses such as flooding and fire damage. The amount allowed for deduction can depend on the insurance coverage terms, and the loss may be figured as partial or full. This brings up another key item in a successful rental-property business - insurance. Landlords are allowed to deduct insurance costs (premiums) for their rental property. Types of insurance include: landlord liability, theft, fire, flood etc.
Property owners should also keep track of fees paid in connection with the rental-property business. This category can include fees paid to real estate advisers, property management businesses, attorneys, accountants etc. Those who own rental property should be aware that some expenses are not deductible under current tax codes. If an apartment remains vacant, for example, the property owner cannot deduct loss of income. New appliances and room additions are not generally deductible. The advice of a good tax expert is essential to a successful rental-property business.
As a business person or everyday taxpayer you may think that you have taken every conceivable tax deduction available to you. However, if you paid closer attention to recent amendments to the tax code you may have uncovered some additional special deductions for the most recent tax year. Yes, you already filed your tax return but the following information may encourage you to amend your return for more expansive deduction options.
Disaster donations ? From time to time the Internal Revenue Service will rule that certain donations to help out with disasters can be made. In the case of the tsunami which devastated the Pacific Rim region all the way to Africa, you could deduct those contributions with either your 2004 or 2005 return, but not both. Yes, even if the donation was made in 2005 you could amend your 2004 return to show your contribution.
Sales tax ? State sales tax can be a deductible expense. Did your accountant overlook this fact? Not all states charge for sales tax and maybe your business is based in a state where no tax is charged, but you purchased items in other states that were taxed. Check your receipts closely for the origin of each purchase!
Deducting the Business SUV ? Companies can still get a tax deduction, for as much as $25,000, for an SUV purchased for the business. It used to be that the deductible amount was $100,000 but that amount was trimmed to the lower figure in 2004. If you have a non-SUV vehicle you can still deduct the larger amount.
Small Business Pension Plan ? If you started a pension plan for your small business, you could end up with a sizable deduction for establishing such a plan. Geared toward helping small businesses with 100 or fewer employees, you need to consult the IRS? guidelines to learn what your deductions are. This deduction includes the cost of implementing and maintaining the program as well as deductions for any educational retirement planning programs you establish.
Any four of these deductions alone could help you save a mint in taxes. Consult with your accountant to have him make the amendments needed and go over with him other possible deductions that may have been overlooked. You know that paying taxes is a fact of life, but you also know that the government has established some nifty deductions that no business or taxpayer should overlook.
Both Eric Slarkowski & Jeff Lakie are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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