Learn something new every day
More Info... by email
Many people know little about what type of expenses may be used as tax deductions. Even persons who choose to itemize deductions on the annual tax return may only be familiar with a small number of the many tax-deductible options that are allowed by the government revenue agencies. While this lack of knowledge may not have a great impact on households with one source of income and no real permanent assets to consider, persons who run a home business often suffer from a lack of understanding of how to itemize items for taxes. There is no doubt that people who make a living through freelance or contract work need to have a working knowledge of potential itemized deductions is very important to the financial well being of the business.
Generally, a tax deductible expense normally meets three basic qualifications. First, the expense must be incurred in the process of conducting or securing business associated with a stated trade or profession. Second, the tax deductible expense will be easily identified as the type of expense that is considered to be ordinary and necessary to the operation of the business. Last, the expense must not be considered lavish, excessive, or extravagant, given the specific set of circumstances surrounding the expense.
There are two basic methods of determining what does and does not quality as a tax deductible expense. One method is to gather as much information from the appropriate government revenue agency as possible. Many revenue agencies provide more specific guidelines that will help the individual to categorize expenses and determine which ones are tax deductible, according to current guidelines. In many instances, these types of resources may be found as downloadable documents on the agency web sites. Hard copies may also be requested and delivered by standard mail.
A second approach is to engage the services of professionals who are well versed in current tax laws and regulations. This may include financial advisers, tax attorneys, and accountants who deal with financial issues on a daily basis. One of the advantages of this approach is that the professional not only knows what the current laws about tax deductible expenses, but also has a working knowledge of how the revenue agency tends to interpret a specific expense under current law. This can eliminate a lot of the guesswork when it comes to speculation about whether or not an expense is likely to be approved.
As can be imagined, there is the potential for great deal of individual interpretation as to whether a given expense meets current qualifications and is truly tax deductible. That is why it is so important to seek out documentation issued by the governmental revenue agency, as well as turn to accounting and financial professionals who understand taxes, especially itemized taxes. Finding out as much as possible about what types of expenses are currently allowed, and under what type of conditions, will make it much easier to classify tax deductible expenses properly, and prevent delays in the acceptance of the annual tax return.
One of our editors will review your suggestion and make changes if warranted. Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Thank you for helping to improve wiseGEEK!