Deducting Taxes on Your Taxes!
Keisha is aware that she can deduct taxes, but she is not sure what kinds of taxes are deductible or what the limits are using the cash method of accounting. She is asking these questions so that she can track these expenses properly for her taxes next year.
When Keisha pays her rent of $2,500 a month, a portion of that payment, $500, is put aside for her share of property taxes. During 2017, she has paid $6,000 to the landlord for property taxes and can deduct this amount for 2017.
After the end of the calendar year, the landlord will reconcile the tenant accounts to determine if Keisha has over paid or under paid for property taxes. Keisha’s actual amount that she is responsible for is calculated to be $5,826. She has over paid in 2017 by $174 and will either receive a refund check or a credit on her account from the landlord. She will need to record this $174 as income to the extent of the deduction that was taken in 2017.
Keisha also pays state and local income taxes. She can either take these payments as a deduction on her personal income taxes by using Schedule A, or she can deduct the state tax that is attributed to the gross income of her business as a business expense.
Keisha also has employees in her salon and will need to keep track of payroll taxes. This can seem like quite a lot of work, but if you have the right information and are organized, it won’t be that bad. This will be our topic for tomorrow!
If you have any questions or concerns, please contact us at firstname.lastname@example.org or 407-988-5647.
Categories: Tax Information