How to find a great bookkeeper for a small business

So you made the decisions to step out into the marketplace and put up a sign that reads “Open for Business!” Building a successful business is an incredibly rewarding experience. But there’s a lot to do and there’s a lot to learn. Here’s what you need to know about how to find a great bookkeeper for a small business.

Do I need a bookkeeper?

There’s some differences of opinion about when you will need a bookkeeper, but there is zero disagreement that you will need one.

Look at it like this:

Say you work for somebody else while learning a marketable skill. After a little while, you get pretty good at that skill and decide that more of the revenues should go into your pocket than into the pocket of your boss. So you strike out on your own.

Now 100% of the revenues come into your hands. But at the same time, now you’re responsible for all the other parts of the business that your boss used to take care of. Sales, marketing, and accounting being the very least of these.

The bootstrapper in you might advise you to tackle these all on your own to keep all the revenues to yourself.

Now it’s true that you will need to understand the fundamentals of business. But there is a trade off. There are only so many hours in a day – and most of the working hours should be spent doing the thing that makes you the most revenue.

So now it’s simple math.

Economists like to use the expression “Opportunity Cost”. Doing one activity for an hour comes at the expense of doing something else for an hour. So ask yourself, do you make more money by selling your skill for seven hours and then doing the books for one? Or do you make more money by selling your skill for eight hours a day and paying an expert to do the books once a week?

The wonderful thing about the “numbers” part of your business is that you can outsource it. When you’re getting started, you can hire somebody to do that work for you a handful of hours a month. Many new businesses start with a bookkeeper from day one to make sure it’s done right the first time, every time.

Double entry accounting can be very confusing, and it’s easy to make mistakes. Starting with a bookkeeper early means you don’t have to pay someone down the line to fix bad records. Learning how to find a bookkeeper can be a lesson in learning how to delegate – something new business owners struggle with.

So… what’s the difference between a bookkeeper and an accountant?

Strictly speaking, “Accounting” is a set of rules to track all the transactions in a business. When done correctly, you’ll have an accurate snapshot of your business on paper.

There’s two main reasons to do this:

• For External Users: You need to do this to pay your taxes. You’ll also need to do this if you want to, say, take a loan from a bank. You need a no-nonsense record of your business that is standardized.
• For Internal Users: How much did you make this month? How much did you spend? Are you carrying too much debt? Is it worth while to take on more debt to open a second shop?

Accounting lets you know what’s going on in your business in the most boiled-down way possible and make smart choices about what to do next. Think of the financial statements like the dashboard in your car – they give you everything you need to know to run smoothly.

The field of accounting has people with different training and skills in it. Bookkeepers are trained to efficiently do the bulk of the day-to-day tasks that are largely repetitive. They range from people who’ve earned certificates, to people who’ve learned completely by experience.

A CPA, on the other hand, is a person with a degree in business/accounting who then went on to become accredited in a professional association. They have to spend both time and money to maintain the CPA title.

Put simply, for the person starting their business from scratch, you’ll need to work with a bookkeeper every month. A CPA on the other hand, you might only need to see once a year (tax time).

How to find a great bookkeeper for a small business

CPA is a legally protected title – meaning that you have to go through certain steps to obtain and maintain it. Bookkeeping, on the other hand, is not a legally protected term. Meaning that a person can call themselves a bookkeeper whether or not they’ve had any formal training.

So it’s not about how to find a bookkeeper, it’s about how to find a great bookkeeper.

There are many different schools that will train people to become bookkeepers that issue certificates upon successful completion of the program. It’s advisable to only work with professionals that have completed one of these programs.

There are a few places to find someone who can provide bookkeeping services. There are bookkeepers that will work directly for CPA firms, there are bookkeeping businesses, and there are freelancers who work with multiple clients.

Consult several bookkeepers first

For most new business owners, it makes sense to start small. Arrange for consultations with a few bookkeepers to discuss your business model and your needs. New businesses are all a little different; some have relatively few transactions to record, others will have a large volume. They will offer you a quoted price (either an hourly rate or a fixed monthly/quarterly rate) and you can select the professional that you like.

Next, your bookkeeper will walk you through what information to send them. Some will require paper documents, but increasingly you can submit electronic copies.

Learning how to find a bookkeeper is only the first step. As your business grows, so too will your reliance on the bookkeeper. You may get to the stage that you may wish to hire one outright.

As a rough rule of thumb, you could start thinking about hiring a permanent employee if/when the person you outsource your bookkeeping to is keeping busy for at least three full days a week. A new employee could possibly fill some of your other administrative needs.

16 top triggers for an IRS audit

Have you ever wondered what the top triggers for an IRS audit are? Well, now that the season for giving is nearly over, the new year will bring a different kind of season.

Tax season, to be exact. 

I know, just the thought of it is enough to make you scowl like Ebenezer Scrooge on his worst day.

Before you begin brooding, there are a few important things you should know. 

The good news is there are only a handful of reasons why people get audited in the first place.

Odds are, unless you’re super wealthy or make an alarming error, you’ll probably never face an audit. 

Sometimes things do happen, however. 

You can steer clear of the frustrations of an audit by keeping these 16 top triggers for an IRS audit in mind. 

1. Too many schedule C losses

Sometimes, your business can have a bad year. It happens. 

However, if your business reports signficant losses three or four years out of five, you might find an IRS agent at your doorstep giving you the funny look, 

The reason for this is that claiming zero profits and considerable losses over a consistent period puts the legitimacy of your business at risk. 

The IRS will require you to show evidence that you truly intend to make a profit. 

If you’re wondering factors could trigger and IRS audit you’ll find that the main reason is usually attached to suspected fraud. 

People have been trying to not pay taxes since taxes were invented. If it’s been tried before, even if you aren’t engaging in fraudulent behavior, the IRS will look into it. 

2. Home office deductions

If you occasionally use your home office for work, it can be tempting to add a lot of deductions here.

However, this is an area that IRS carefully examines because it’s teaming with fraud.

So unless you use your home office on a regular basis for business purposes avoid claiming deductions that don’t actually represent your typical work week. 

3. Failing to include a Form 1099

If you receive multiple 1099 or W-2s, it’s really important you list that income on your tax return.

This is one of the most common answers when people wonder what the top triggers for an IRS audit are.

Failure to list all your income is a big deal. And that IRS knows if you’re not being honest. 

The IRS receives a copy of all these forms, which are stored in a database. Computers will  then crunch the numbers analyzing and looking for any mismatch. 

If the figure you list on your return doesn’t match the figure in the database, you could find yourself faced with an unexpected bill in the mail.

4. Too many unreimbursed business expenses

When it comes to business, this is the biggest slip up of the top triggers for an IRS audit.

Large write-offs for business meals, travel, and entertainment send off alarm bells. 

If you do spend a lot on meals, travel, or entertainment when it comes to your business, always make sure you keep all receipts, especially for accommodation that exceed $75.

5. Early IRA or 401 (k) payouts

Taking out an early payout, or loan, from your 401 (k), puts your tax return under some scrutiny.

Early payouts are subject to a 10% penalty, unless qualified for an exception. Nearly half of all the individuals given a second look by the IRS made errors on their returns in regards to their retirement payouts.

For this reason the IRS generally pays strict attention to anyone who receives a payout before age 59.

6. Too many, or too large, charitable deduction claims

If you claim charitable donations that don’t match up with your income level, you can instantly become a target.

Additionally, failure to file Form 8283 for donations made that exceed $500 or failure to get an appraisal of donated property can also make you live bait for an audit.

7. Failure to report extra income

This is one of the most important top triggers for an IRS audit. 

While you may not forget to report 1099 or W2s, it can be easy to overlook other forms of taxable income you make throughout the year.

These can include brokerage accounts, income from a rental property, and even using the funds from a college savings account. 

Another form of “income” that is often overlooked during the filing process is big earnings from Gambling. Gambling earnings must also be reported to the IRS via form 1040. 

8. Claiming too many small business deductions

Another area where you can end up in hot water with Uncle Sam is filing too many deductions for your small business.

Even if those deductions are completely creditable, they can still warrant an audit because so many small businesses try to squirm their way out of paying taxes by claiming large deductions, or not reporting all of their income. 

Always make sure that the deductions you give yourself are completely warranted and can be backed up a paper trail. 

9. Using a tax preparer with a bum rap (bad rap)

You know the saying, “if it looks like a duck…”?

Although you might have rolled your eyes at your parents when they gave you that lecture during your angsty teenage years, it still rings true with the IRS.

Using a tax preparer that is under scrutiny with the IRS will most likely get you put under the financial microscope.

Before selecting a tax preparer, do your research. 

Should you discover that your tax man is not all he’s cracked up to be too little, too late, having your financial records readily available can make your unwanted time in the limelight go by much smoother. 

10. Small errors

Mistakes happen. But some times a teeny-weeny error can turn into a huge miscalculation. 

Sometimes there’s no help for it. You can carefully review your return and still wind up making a mistake. 

Unfortunately, this is one of the top triggers for an IRS audit.

The most important thing to know is that getting audited over a small mistake is not the end of the world. 

However, there are some clumsy errors you ought to do your best to avoid completely, like using round numbers, especially when it comes to deductions. 

Other negligent mistakes include writing in the wrong social security number, typos, and failure to sign. 

Always make sure you review your return carefully because these mistakes can be costly.

11. Not filing, or filing late

An even bigger blunder that can  happen is forgetting to file your return. 

Failure to file, or file on time, will cause the IRS to file a return on your behalf using the information in your W2s and 1099s. 

However, what the system won’t account for is your deductions, which can hurt–a lot.

12. Vague deductions

If you don’t know what exactly it is you are claiming on your tax return, odds are an IRS agent also has no clue.

That’s why it’s really important to study up on what deductions you’re eligible for given your income and personal circumstances. 

If you’re really at a loss, the best thing to do is to seek the help of a reputable tax professional. 

13. Claiming earned income credit

Tax credits are another area where the IRS may just give you a second look. 

For anyone who’s curious to know what could cause you to get audited by the IRS, this is another big trigger.

Tax credits can be difficult to calculate and extremely attractive since they’re refundable, which makes the IRS suspicious. 

Claiming a large income tax credit despite having a big salary will most likely trigger an audit. 

So always claim credits that are applicable to you. 

14. Taking a huge pay cut

Significant drops in your income without much reason for it also raises some red flags for ole Uncle Sam. 

Losing your job is one thing. Being steadily employed for years and earning significantly less will make the IRS suspect fraud. 

The same goes for significant dips in profit that seem inexplicable. 

If you suffer either of these you might just become the target of an audit. 

15. 100% use of a business vehicle

This is a claim that can have an IRS agent all over you faster than a shark in bloody waters.

Odds are you probably don’t use a depreciated vehicle solely for professional purposes, and IRS agents know this.

If you do in fact own a vehicle that you only use for work, it’s really important that you keep your mileage and frequency of use records up to date.A great tool to keep mile log is MileIQ.

16. Making large bank transactions

The final point to note of the 16 top triggers for an IRS audit is questionable activity.

Though you may not be aware of it, your bank reports suspicious activity to the IRS.

While you may not be doing anything fraudulent, large wire transfers or deposits that exceed $10,000 or happen on frequent basis can raise some eyebrows.

If you really want to avoid an audit, don’t give Uncle Sam a reason to come poking around in your finances.

Do these 16 top triggers for an IRS audit make sense?

When it comes to dealing with the IRS, detailed records are your best friend. 

Keeping careful logs of expenses can be a life saver in the event of an audit. 

Detailed records can also do wonders for tax deductions. That’s why it’s so important to keep track of your financial activities throughout the year. 

If you have the evidence to back up the claims you made on your tax return, you’ll always be in the clear. 

However, simply keeping good records isn’t enough.

You also need to have a firm grasp on how taxes work.

Should you struggle to understand the process, the safest bet is to seek out a tax professional or program that specializes in filing.

Eight tips on how to talk about money with kids

Successful families talk about finances. Passing traditions, values and beliefs onto the next generation isn’t happenstance. The older generation must cultivate their wisdom and experience and communicate it to the younger generation and learning how to talk about money with kids is no different.

Once children reach their adult years, the training wheels largely come off and it’s now up to them to manage savings accounts and credit cards. The Millennial generation is exposed to more advertizing and mixed information than any generation that preceded it. Budgeting and investing is not intuitive, and it’s a skill that takes time to learn.

Parents can no longer dictate everything their adult children do, but they can engage with them as adults to give them advice on how to plan for their financial future. Here are eight tips on how to talk about money with kids:

One: Give advice, not a lecture

Keep your advice concise and to the point. Consider having a conversation about a small topic like the difference between credit card options and a line of credit, and give them some space to reflect on how the different kinds of financial charges would look like in their own situation.

You can give more advice as needed, or pass them some good articles to read. If they want to engage more, great. But one way or the other, they need to internalize these lessons on their own.

Two: Let them know you are human, too

Your children can benefit as much from hearing about your smart moves as they can from hearing about your blunders. Everyone makes bad choices in the moment, or choices where they didn’t understand all the consequences.

If you have a story of getting out of bad debt, or realizing you should have started saving for retirement ten years earlier – tell it. Lots of financial advice comes in the abstract, but the true story what happened to a real person in their lives will make a stronger impact and could be make all the difference in their own choices.

Three: Learn to be okay with their choices

Your kids aren’t going to take all of your advice. You can do the best job in the world of selling them on the idea of setting aside money for an IRA one day and watch them blow their monthly budget on a spending spree the next.

It can be frustrating to let go. Parents that are too judgmental or visibly disappointed with their children’s choices can drive a wedge in the relationship. If you show them that you can keep your own emotions in check, you build more trust and openness.

Four: Set rules and boundaries for financial support

It’s fairly likely that your children will need at least some form of financial assistance at some point after they leave home. That could mean sending them some money to cover a power bill or for groceries, or that could mean co-signing for a loan, or even having them moving back in with you at some point.

It’s up to you to decide how far you’re willing to go, but it’s a good idea to be open about that. You could go as far as having an explicit conversation about how much you’re willing to help (or not). It’s completely appropriate for you to set up boundaries and expectations.

Maybe you’ll be willing to bail them out of credit card debt once. Or maybe you’ll give them a $1,000 loan under the condition that they pay it back in six months and that they start setting aside $100 a month for an emergency fund. A positive constraint could be something like allowing them to move back your home for one year, but they have to show that they are contributing $200 to an IRA every month.

Whatever the arrangement, the key is to communicate clearly and that they give their agreement.

Five: Talk about investing

Your situation is generally going to be different from theirs; but, it’s a good idea to start a dialog about the different investment approaches out there and how that might fit in with their lives.

Compound interest works in the favor of the young. Even modest investments can have a big impact down the road. If they’re in a position to, encourage them to start early.

Remember that this is a big topic and much of it will be new to them. What is an asset class? An Investment Portfolio? It’s a good idea to talk them through your portfolio and your past because it will make it real to them.

Interested to learn a little about Individual Retirement Accounts (IRA)? Here are five reasons to contribute to an IRA today.

Six: Do as I do (not as I say)

It makes an impact on children getting to see parents taking their own advice. One strategy for how to talk about money with kids is show them something real. Maybe it’s time for you to cut some of your impulse spending to set aside some extra savings?

Seven: Don’t keep your net worth a secret

It’s fairly common for parents to shy away from discussing matters of inheritance. Particularly in families that have built up significant wealth. There’s a fear of the idea letting young adults know they’ll receive a windfall down the line will demotivate them from pursuing their own career and financial independence. This is a legitimate concern.

Consider the idea of opening up rather than closing down.

Tell them your concerns and your feelings. There’s a lot of satisfaction that comes from building one’s own legacy. Let them know that you trust their character, but that there’s a dark side to wealth that you want to help them avoid.

Eight: Have a family discussion about finances once a year

This is where you talk about your retirement plans and changes to your estate. This is another example of leading from the front. Your financial situation and your net worth has an effect on your family’s future for sure, but it’s also another opportunity to make a powerful impression on your children and gives them an opportunity to contribute.

They can ask questions and offer concerns, as well as share as much as they’re comfortable about their own situation. Being comfortable discussing finances is an important part of financial health.

Learning how to talk about money with kids also opens the door to discussing important issues like your overall health, contingency plans for eldercare and end of life planning. Remember, they’re as concerned about your future as you are in theirs.

Major Tax Breaks for Homeowners

Have you ever wondered what the major tax breaks for homeowners are?

If you recently bought a house, you might have found yourself paying a lot of money in the first few years.

Between  a downpayment, closing costs, home insurance, and any fees, you might just feel like you’ve signed up for more than you asked for. 

While you might feel as though you’re paying through the nose, there’s a plus side. 

You can actually end up seeing some of that money again in the form of a tax breaks. 

How?

If you’re a homeowner, especially a new homeowner, you qualified for some major tax breaks for homeowners. 

If this is your first time hearing about these breaks, however, you might not know where to begin. 

“Just what kind of tax deduction does my home qualify me for?” you’re asking. 

The answer depends. However, no matter your circumstances you’re bound to find a few tax deductions that apply to your home. 

Here are 9 major tax breaks for homeowners. 

1. Property tax 

Usually, a chuck of your loan goes to paying property taxes. Your lender will collect this sum from you each mortgage and then pay the taxes on your behalf once a year. Some home owners choose to make the tax payments themselves, hence no tax paid through their lender.

Each year, you can use the annual statement you receive from your lender to claim a tax deduction . 

New homeowners should keep in mind that if they paid a portion of their property taxes for 2017 at the end of 2016 that goes in their tax return for the fiscal 2016 year. 

Additionally, when you  purchased the home, you and the seller paid a portion of the property taxes up front. That information should be available in your closing package.

Remember, the portion you paid is tax deductible. 

In general, you really want to keep tabs on the amount of property taxes you pay each year since its one of the major tax breaks for homeowners.

If your taxes rise, you want to make note of that. You want to give the most accurate picture the amount of property tax you paid on your return. 

2. Mortgage interest 

Have you ever looked at where the majority of your first mortgage payment goes? 

In the past, homeowners couldn’t really tell just where exactly their mortgage went. Now banks and lenders will usually provide you with some sort of online tool that shows you the break down of your payment. 

It may shock you to discover that in the first few years most of your mortgage payments go to paying interest. 

While this can be disappointing to hear at first, there’s good news. All of that interest is tax deductible. 

The only caveat is the amount must be below $500,000 if you’re single, and $1 million if you’re married or purchased a house jointly. 

The neat thing about this little perk is that it applies to multiple properties as well. Therefore, if you own another house, or even an RV, the interest you pay on the loan is deductible.

However, you have to be able to prove that you spend sometime at this property. Otherwise the IRS will consider it a rental property and won’t deduct the interest. 

3. Penalty free IRA payout

If you’re under the age of 59 1/2 and request an early payout from your IRA, you’re likely to encounter an extra 10% income tax. 

However, one of the exemptions to this steep tax rate is buying a home.

The IRS allows you to pull up to $10,000 from your IRA to make a downpayment on a home, without having to pay additional taxes.

Even better, having a spouse or being a legal guardian of a child or grandchild can also make you eligible to withdraw another $10,000 completely penalty-free. 

Another option is to also borrow half the balance in your 401(k)–limited to $50,000. However, the interest you pay on this loan is NOT tax deductible. 

Loans from 401k and other retirement vehicles can be tricky. Learn more about loans from a 401k account before you do it.

4. Mortgage insurance 

If you managed to make a downpayment on a house that was less than 20 percent, you probably got stuck footing the bill footing for mortgage insurance premiums, also known as private mortgage insurance (PMI).

PMIs usually come in two forms. They’re either tacked on as a fee you pay on a monthly basis to your lender, or you pay the full amount upfront at closing. 

Lenders use PMIs to protect themselves against the possibility of you defaulting on your loan, or foreclosure.

The nice thing about this kind of insurance is that allows you purchase a home, even if you can’t afford the full downpayment.

Even better: it’s one the major tax breaks for homeowners that is most definitely applicable if you paid a PMI. 

There are a few things to keep in mind, however: 

• The house must have been purchased AFTER 2007. 
• Your gross income on your return must be below $109,000 OR below $54,000 if you’re married but filing separately. 
• If you bought the house jointly, you can only file for a deduction for the amount YOU paid. (i.e, if you spilt the cost with another person, you can only claim half of the total amount). 

5. Home improvements

If you take out a home improvement loan, the interest you pay is also tax deductible.

What’s more, renewing your home adds to the overall value, and increase your tax basis. Your basis is basically a tax estimation of what your home is worth. 

In general, the bigger your basis the less profit you walk away with.

But here’s where things get interesting:

That rule doesn’t apply if your house sells for less than $250,000 if you’re single or $500,000 if you’re married. 

In that case, increasing the value of your home is something you should definitely do.

6. Mortgage points

Sometimes to get a reduced interest rate on your mortgage, you have to pay “points” to a lender. 

Points are basically fees that you pay upfront to your lender. 

Here’s the thing:

This can be a really useful strategy if high interest rates are slapped on the loan.

Why? Because one point counts as 1 percent of your interest.

This means that on a loan for $300,000, one point will reduce your interest by $3,000.

While it might seem like a lot of money to fork over up front, it’s one of the major tax breaks for homeowners. All you have to do is file a 1098.

7. Home office

If you work from home, or run a business from your home, this is definitely among the best major tax breaks for homeowners you should take advantage of.

However, according to Fool.com of the 26 million Americans that work remotely, only 3.4 million claim a home office deduction on their tax return.

Why is that?

Unfortunately, there’s a prevalent misconception that claiming a home office deduction on your return can lead to an audit.

However, if you have the figures to prove it, you have nothing to worry about. Most of the time, the IRS won’t even look over it twice as long as everything matches up. 

And there are big savings to be had by claiming a home office.

First of all, you can write off whatever expenses it costs you to run your business from home, such as office supplies. 

Additionally, there are portions of home expenses that can be deducted for your office. This includes things like a fraction of the electricity bill, home insurance payments, and even maintenance costs. 

What percentage of these payments will actually be applicable to your tax deductions depends on the size of your office. 

Something to be extremely cautious about, however, is only claiming this kind of deduction if you regularly work from home.

This means that 9 times out of 10 you operate your business from home.

This doesn’t include occasionally answering an email, or the infrequent all-nighter. 

8. Energy tax credit

Installing wind, solar, or another source of renewable energy to power your house also falls under one of the major tax breaks for homeowners. 

The Residential Energy Efficiency Property tax credit is the equivalent of 30% of the cost of equipment and installation. 

It doesn’t stop there, however.

If you install wind, solar, or geothermal energy sources on your home, there’s no maximum limitation on the tax credit. It’s 30% of whatever YOUR expenses are.

However, keep in mind that the same rules don’t apply for fuels cells. For these energy sources the maximum tax credit is $1000 per kilowatt. 

9. Selling your home

Remember, when you sell your home you don’t have to pay taxes on profits as long as the selling price is under the specified amount.

In other words, if you purchased your home for $150,000 and later on sold it for $200,000, you walk away with a $50,000 profit that’s tax-free.

Otherwise, your tax basis is subtracted from your selling price.

So if you sell your home for $750,000 and your tax basis is estimated at $600,000, you walk away with $150,000 in profit. 

Conclusion

Although taxes aren’t something that anyone looks forward to (unless you’re some kind of an expert) it’s really important to remember that the IRS isn’t out to get you. 

Unless you make millions a year, there are a variety of tax deductions that apply to your return.

Even if you belong to the top ten percent, you can probably still find a few credits that apply to you. 

Your home is a great place to start, but there are also other places were you can get a tax break too.

Before you file your next tax return, think about what deductions can apply to you, and even consider doing some research. 

At the end of the day, the more deductions you rack up, the more money you’ll see back in your pocket. 

11 Tax Deduction Tips that Can Save You Hundreds (Part 2)

Are you missing out on some serious tax deductions? It might surprise you that the most overlooked tax deductions can save you the most money. 

No one likes to pay more money than they should, and taxes are no exception to the rule. 

With April 17 fast approaching, you need a thorough understanding of the deductions and credits you’re eligible. This makes the difference between owing money and owing nothing. 

But trying to navigate the murky waters of which tax deductions apply to you can be very difficult–especially if you don’t know where to look. 

Looking for (legal) ways to pay less on your taxes? Keep these 11 money-saving deductions in mind. 

1. Travel Expenses

Wouldn’t it be great if you could deduct all your travel expenses? 

Unfortunately, you can’t.

But, in some cases, you can deduct the cost of baggage fees. 

If you’re self-employed and travel for business, you can actually count these fees as business travel deductions.

Additionally, there are a wealth of other travel expenses that are eligible. 

Expenses incurred during temporary work assignments in other cities are just one example.  

These include things like meals, accommodation, and transportation. It can also include expenses like laundry, parking, gas mileage, and even tips. 

Here’s the deal:

This only applies when you’re working away from home for one year or less.

Also, being in the National Guard allows you to write off travel expenses associated with drills or meetings. 

Members traveling 100 miles or more can deduct lodging expenses and half the cost of meals. If you use your car to drive to these drills, you can also deduct a portion of this expense as well.   

2.  Medicare Premiums 

If it surprises you to hear that medicare premiums can be tax deductible, you’ll understand why this falls high on the list of the most overlooked tax deductions. 

Under many circumstances, having medicare parts B or D makes you eligible for a tax break.

How does the deduction work? 

Essentially, you claim your medicare premium–the amount you pay each month–as a medical expense.  

You can claim this break under two circumstances: being 65 or older OR being self employed. 

And there’s even better news: 

If you’re self-employed this tax deduction isn’t subject to the 7.5 percent Adjusted Gross Income (AGI) test applied to seniors. 

However, to qualify, you cannot be covered under a health plan provided by an employer or spouse. 

3. Day Care Credit

Are you a busy parent who relies on child-care services? Well, the IRS is reimbursing you part of that money. 

The child and Dependent Care Credit is worth 20 to 35 percent of any child-care service needs. 

There are a few caveats, however. 

Firstly, the child must be age 13 or younger.

There are some exceptions, however. For example, disabled dependents can be of any age. 

Additionally, these child care services must have enabled you to work or search for work.

Finally, the IRS will only cover up to 35 percent of $3,000 for one child, or 35 percent of $6,000 for two children.

Eligible expenses include the cost of babysitting, daycare, or summer camp.  

But there’s one other way you can save money.

When it comes to child care, one of the most overlooked tax deductions isn’t really a deduction at all. 

If your employer offers a child-care reimbursement account, this allows you to use pre-tax dollars to pay for such costs.

This money isn’t taxed, and you’re reimbursed the full amount rather than 35 percent.

4. Lifetime Learning Credit

If you, or anyone in your household, are students, you may apply for the Lifetime Learning Credit.

There’s no limit on the number of years for which you can claim this credit.

The credit applies to those enrolled in an institution for at least one academic period at the beginning of the tax year. Taking higher education courses to enhance employment skills also make you eligible. 

No matter you’re age, you can qualify for this credit.

For example, taking courses at community college even after retirement also applies to this credit. 

5. Bonus Depreciation Credit

For business owners, bonus depreciation is a great way to save money. 

If you bought business property in 2016, bonus depreciation allows you to take a 50 percent deduction in the first year of service.

The deduction is applicable to all businesses and applies to most equipment. This also includes things such as computers software. 

As with most tax laws, however, there are stipulations.

First, your business must be a first-time user of the property. Next, only certain types of property are included in this deduction. These include water utility and improvement properties. 

Another money-saving break is something called “supercharged” or “beefed up” expensing. 

Essentially, this deduction allows you to write off the full cost of assets within first year you put them into service. 

You can claim up to $500,000 for qualifying equipment as long as your business owns less than $2 million in assets. 

6. Social Security Taxes

The self-employed are eligible for a number of tax breaks. Unfortunately, this usually where you’ll find the most over looked tax deductions. 

For example, one lesser known deduction involves the social security tax. 

You can’t deduct the 6.2 percent you pay as an employee. However, you can claim a deduction if you’re self employed.

If you pay the full 12.4 percent social security tax, you can claim a tax break worth 50 percent of the amount you paid.

7. Alimony Legal Fees

Legal expenses are rarely ever tax deductible, and a divorce is definitely not one of them. 

However, if you secured alimony and sought the counsel of a lawyer in the process, you can claim his or her legal fee as an itemized deduction. 

Albiet, this deduction gets bundled under miscellaneous expenses. 

Remember, these expenses only become tax deductible once they exceed 2 percent of your income. 

8. Tax Penalty Waiver

Tax penalties occur when you file taxes late or make late payments. 

And these penalties can seriously add up. 

However, there are a few ways that you can get the penalty waived. 

 First time penalty abatement is the most popular. You qualify for this waiver if it’s your first time filing OR if you’ve had no penalties for the past 3 years. 

But there’s also another way to get the penalty waived.

If you’re a taxpayer over the age of 62, and recently retired, you can request a waiver.

Why?

Well, if you retired last year, it’s likely that you may have forgotten to make estimated tax payments. 

if you’re use to having the taxes withheld from your paycheck, it’s an understandable mistake.

But, if you forgot to pay them, you can request a penalty waiver on these grounds.

9. State Income Tax Refund

Most of the time your state income tax return is considered tax free. Itemizing deductions is only situation where this isn’t the case. 

On the other hand, itemizing doesn’t automatically make a state income refund taxable. 

If you deducted your State Income Tax on your federal return, then the refund is taxable. 

If you itemize and deducted things like state and local sales taxes, then you’re still in the clear. 

10. Student Debt Interest

If you’re paying off college debt, it might please you to hear that there’s a tax deduction for interest on student loans. 

Curious to know how it works?

Each year, you can deduct up to $2,500 of student loan interest, depending on your income. 

Additionally, if your parents pay the debt for you, the IRS handles it as though that money was gifted to you, and then YOU paid the debt. 

That means that as long as you’re not listed as a dependent, you’re still eligible for the deduction. 

11. Tax Credit for College Students

Another bonus to being a student is that there are several tax credits and deductions that are applicable to your return.

This includes this American Opportunity Credit. This credit is applicable to the first four years of college.  

Additionally, the American Opportunity Credit is refundable. This means that anything left over from the credit gets refunded to you–up to $1,000 dollars. 

In fact, this particular credit is one of the few that can save you thousands–up to $2,500 to be exact. 

So don’t let it go to waste by overlooking it. 

Conclusion

Saving money is one of the best feelings, especially on your taxes. 

So don’t pass up any opportunity. 

Get informed about the tax law, the different forms, how they work. Having this knowledge readily available is the key to saving money. 

Also, if you need advice or more information, seek out a tax professional. In most cases their understanding can save you even more.

When it comes to your taxes, the best course of action is to become active and involved, especially when trying to find deductions you qualify for.

Do this and tax season will be a breeze.