There’s no doubt you have your own stories on some of the outrageous tax deductions your clients have asked you about, but what about other deductions that are perfectly legitimate? Here’s a list of some of the lesser-known deductions you can share with your clients:
- Business Travel (including exotic places) – If your clients need to travel out of town for business, the cost of getting to, and from, the destination, and any business-related expenses when at the destination, can be deductible. To be allowable by the IRS, the travel expenses must be considered reasonable, and not lavish or extravagant. Attending business conferences in exotic locations, such as Hawaii or the Caribbean Islands, are allowable if they are reasonably justified.
- Website Expenses – In this technology age, your clients running a company are most likely hosting a website to promote their business, and to buy and sell goods and services. The costs associated with hosting the website, obtaining a domain name, and engaging security and privacy services would be deductible.
- Salary Paid to Kids – If your clients have children who help in the office, their salary can be deducted as a business expense. The added benefit here is that you’re able to move the money from a higher tax bracket of the business to the children’s lower rates.
- Insurance Premiums– Be sure your clients take a deduction for fire, property and liability insurance premiums associated with the building and other property used in the business, in addition to any general business protection.
- Guard Dogs – If your clients have a guard dog to protect their business from robberies or break-ins, they can deduct any expenses necessary to take care of the animal.
- Cat Food and Related Expenses – Really! If your clients have a business and a cat provides pest control, some of the expenses may be deductible. To qualify, the expenses must be reasonable and directly related to the business. One couple claimed a deduction for cat food to feed wild cats that were used to keep their junkyard free from snakes and rats. The taxpayer won the case in tax court.
- Driving to a Class – If your clients drive to an educational class, they may be able to deduct the standard mileage rate (54 cents/mile in 2016) for the cost of commuting. If the education meets the following conditions, they would be able to take the deduction on Schedule A (if itemizing) or Schedule C:
- the class is required by the employer or by law to keep the clients’ present salary, status or job;
- the clients must maintain or improve their job skills; and
- the class does not qualify the clients for a new trade or business.
- Summer Day Camp – Clients may be able to take the Child and Dependent Care Credit of up to $1,050 for one child, and $2,100 for two or more kids, if they send their kids to daycare or summer camp so that the parents can work.
- Equipment and Supplies Used in the Business – Your clients can elect to deduct the full amount of equipment and supplies in the year they place them in service, up to a $500,000 limit.
- Cost of an SUV or Car – If you have clients who are freelancers and use their car for business, they may be able to deduct a big chunk of the cost. If the vehicle is over 6,000 pounds, but under 14,000 pounds (such as an SUV), they can deduct up to $25,000 (based on the business use percentage). For example, if they use the vehicle 80 percent for business and 20 percent for personal purposes, the deduction is $20,000 (25,000 x 80 percent). They can only claim this Section 179 deduction in the year the vehicle is placed in service. So, if the vehicle is first used only for personal purposes in a previous year, they would not be able to take this deduction.
- Social Security and Medicare Taxes Paid – Unfortunately, your self-employed clients have to pay the entire 15.3 percent Social Security and Medicare tax; for employees, the employer picks up half of these payroll taxes. However, the self-employed get a break and are allowed to deduct one-half of their payroll taxes.
Good luck for the rest of tax season 2016!
Editor’s note: Check out more Tax Pro Center articles highlighting tax credits to help you find ways to lower your clients’ taxes.