Ideally, the best time to start thinking about taxes is before the end of the year. After all, that\u2019s when tax planning can be most effective. <\/p>\n\n\n\n
Now, you might be thinking, \u201cBut I get a W-2. There\u2019s nothing I can do for tax planning!\u201d <\/p>\n\n\n\n
I hear this a lot. It is true, the options available to W-2 employees are more limited than the options available to small business owners. But that doesn\u2019t mean you don\u2019t have options. Let\u2019s take a look at the problem, review some common expenses you need to deduct, and consider ways to save money on taxes this year.<\/p>\n\n\n\n
Make your tax prep easier this year with Quicken<\/a>.<\/p>\n\n\n\n The Tax Cuts and Jobs Act of 2017 made significant changes to how individuals are taxed. Perhaps the most impactful changes were the revisions to the individual deduction rules. Specifically, the standard deduction was doubled, and previously allowed deductions like unreimbursed business expenses for W-2 employees were limited or eliminated. <\/p>\n\n\n\n While this \u201csimplified\u201d tax reporting for thousands of Americans, it also created a situation that does not seem fair because now, only small business owners can take advantage of the most popular deductions. <\/p>\n\n\n\n So if you have all these business expenses but you can\u2019t deduct them because you\u2019re not a small business owner, what can you do? Become a small business owner! <\/p>\n\n\n\n It\u2019s actually easier than you think. The two best ways to become a small business owner are: <\/p>\n\n\n\n When you have rental properties or a side gig that pays a 1099, you open up opportunities to deduct lots of your expenses that you can\u2019t deduct as a W-2 employee. The particular rules for each deduction are important and I am not suggesting you claim deductions unrelated to your new small business. But overlapping expenses that are necessary for your new small business are fair game, and you are entitled to deduct at least a portion of these expenses that would otherwise not be deductible. <\/p>\n\n\n\n Need ideas for a side gig? Check out these 23 ways to make money fast<\/a>!<\/p>\n\n\n\n At a high level, rental property operations and 1099 side gigs are considered businesses. Therefore, they get to take business deductions. What qualifies as a business deduction is very much based on the business purpose and facts and circumstances, but in general, there are lots of expenses that qualify that you would not otherwise be able to deduct.<\/p>\n\n\n\n Again, the business purpose and your specific facts and circumstances are the main considerations when looking for deductions, but here\u2019s a list of popular deductions to give you an idea of the kinds of things you should be tracking because they are usually deductible. <\/p>\n\n\n\n Track all your deductions with Quicken<\/a>.<\/p>\n\n\n\n Rental property investments and side gigs are already a great economic opportunity for growing wealth. But the additional tax benefits you gain make these opportunities even more compelling. For example, consider this scenario: <\/p>\n\n\n\n What\u2019s the economic result? You effectively increase your side gig income by 33%. Why? Because without the deductions, you would have had to make $6,666 in income to keep that $5,000 after taxes. In other words, your deductions allow you to earn that $5,000 tax free. <\/p>\n\n\n\n Does this mean you\u2019ll get a big tax refund? Not necessarily. That depends on the rest of your financial picture including how much you paid in taxes during the year and how much you owe overall. But those business deductions are reducing your total tax obligation. Whether you get a bigger refund or you just pay less, you win either way. <\/p>\n\n\n\n Documentation is always important when it comes to ensuring you have minimal risk if audited, and you need to keep your records and receipts for three years. Using accounting software like Quicken<\/a> keeps you organized and ensures you don\u2019t miss any deductions.<\/p>\n\n\n\n This is a general disclaimer but also some good advice. As you can see from the example above, a small side gig has significant tax consequences. In fact, the amount of money at stake is far greater than the nominal cost of using a CPA. Because everyone\u2019s situation is different and the facts and circumstances matter, a CPA can make sure everything is done correctly. Plus, a CPA might identify additional tax savings opportunities. <\/p>\n\n\n\nMaximizing your refund as a W-2 employee<\/h2>\n\n\n\n
The W-2 problem in tax planning<\/h3>\n\n\n\n
Popular deductions that W-2 employees can\u2019t claim<\/h3>\n\n\n\n
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The solution<\/h3>\n\n\n\n
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Using business deductions to maximize your refund<\/h2>\n\n\n\n
Rental property or 1099 tax planning: the basics<\/h3>\n\n\n\n
Popular rental property or 1099 tax deductions\u00a0<\/h3>\n\n\n\n
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Other things to consider<\/h2>\n\n\n\n
Your tax deduction increases your return on investment (ROI)<\/h3>\n\n\n\n
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Keep clean records and receipts\u00a0<\/h3>\n\n\n\n
Use a CPA<\/h3>\n\n\n\n