Six tips to lower your tax bill during the holiday season
December’s no time to forget about taxes! Follow these tips to maximize your tax savings while you celebrate.
- Plan tax deductible travel
Dreading that expensive trip to Grandma’s? Schedule a meeting with a client or vendor on the way and the travel there and back is tax deductible. Family visits are so much better when part of the trip’s on the IRS.
- Treat yourself (to a tax deductible gift)
The holidays aren’t just a great time to give to others, they’re also a great time to buy yourself that something you’ve been craving all year. And if that present is tax deductible, you save money on your taxes too!
Most tempting are tech toys such as iPads and smartphones. You can deduct electronic purchases if you are self-employed, have a hobby that generates income, or work for an employer that won’t cover business expenses.
The IRS is pretty strict with equipment purchases, so it’s important you be able to demonstrate that you use the equipment at least 50% of the time for business, and that it’s a usual and necessary expense, given your line of work.
Note that if you are an employee of a business that doesn’t cover equipment purchases, you can only deduct expenses that exceed 2% of your household’s AGI.
Don’t forget, home office furniture is tax deductible too – even if you don’t take the home office deduction. In addition to holiday sales, you could save 20-35%, depending on your bracket.
- Entertain to the tune of a tax deduction
A great way to save tax dollars as you celebrate is to throw a tax deductible business party.
There are some caveats however. Basically the IRS doesn’t want you having too much fun. You must actually business before, during, or after the partying and if the IRS deems the party lavish or extravagant they’ll disallow it.
A party for the general public or your employees and their spouses is 100% deductible. A party for customers, prospective customers, or independent contractors is only 50% deductible. If the company’s is mixed, take your deduction proportionally, based on the percentage of guests in each category.
Be sure to keep records such as the guest list, pictures or video of the business portion of the event, and receipts for expenses in the event of an IRS audit.
- Give to charity
As you probably know, donations to charity are tax deductible. December is a great time to get into the spirit of giving and minimize your tax bill at the same time. Remember, you must donate cash or property to a qualified tax-exempt organization, and keep records of your donation.
Did you know you can also give the gift of charitable donations? You can give a charity gift card to someone else as a present. You’re the donor and your recipient can choose which charity receives the donation. It’s a great gift for the person who has everything.
- Give business gifts
Give a business gift and deduct the cost, as long as it’s below the $25 limit per gift recipient per tax year.
