When it comes to taxes, most Americans are looking for any and every way possible to avoid handing over their hard-earned dollars to Uncle Sam. While failing to file or pay one’s taxes is not an advisable means of accomplishing this goal; there are legitimate ways that one can deduct both personal and, if applicable, business expenses to reduce tax liabilities.
When it comes to personal tax deductions, there are certain deductions that anyone who qualifies can take advantage of. These include school supply expenses for teachers, alimony payments and interest on student loans. Additionally, self-employed individuals who contribute to their own retirement plan and pay their own health insurance can deduct these expenses.
In some cases, it makes financial sense for an individual to use a Schedule A tax form and itemize deductions. Such deductions may relate to medical expenses, gifts and donations as well as taxes paid on real estate, personal property and mortgage interest. When it comes to both standard and itemized personal deductions, it’s important to understand and abide by the Internal Revenue Service’s restrictions and rules.
This same advice should be heeded by individuals who plan to deduct business-related expenses. In general, business deductions include “anything that is an ordinary or necessary expense for your business, or that enhances your business.” It’s important to note, however, that not all business-related expenses can be deducted at 100 percent of their value. This includes business lunches, client gifts and motor vehicle expenses.
Individuals and business owners who fail to seek advice and assistance when taking tax deductions can make mistakes and incur IRS fines and penalties. In some cases, such deductions can even lead to an IRS audit and possible criminal charges.