The first rule you should be conscious of about deducting expenses is that you cannot deduct expenses you didn’t actually pay during the tax year. One example is hiring someone to repair a broken window pane in December 2019 but didn’t actually pay for the job until January 2020, you would need to wait and deduct the cost of the repair on the 2020 tax return.
Other non-allowable tax deductions include:
- Mortgage payments for your rental properties. This pertains to the payment made toward the loan principal and not your mortgage interest and property taxes. The latter two remain deductibles.
- Entertainment expenses, irrespective of how it’s related to the business. However, there is an exception. Business meals are still deductible, although the limits have changed under the new law.
- Business gifts valued over $25 and given to anyone person during the tax year. Any gift below $25 is fine.
- Club dues, including memberships to gyms, country clubs, or other clubs, even if the goal of making these payments is to help the business.
- Capital improvements, like buying new windows to replace your old ones or building a swimming pool on your rental property. These costs can still be placed in your tax returns in some way. They just must be depreciated, not deducted.
- Other taxes, including state income taxes and local sales tax. You should have these declared in your personal income tax return instead.
- Fines and penalties, such as those levied by the IRS for underpayment of a prior year’s taxes and late payment fines.
- Political contributions. Anything you spend on lobbying costs or campaign events cannot be declared as a deduction.
- Home office space. There is one exception, and that is when you use that space exclusively for business purposes. It must be fully exclusive. That means equipment that is shared— like a family computer— may mean that your home office deduction is disallowed.
In the end, income tax deductions are difficult to understand. They are complicated and are subject to change. While a tax professional is the best person to contact for advice on tax-related issues and questions, there are still many things you can do to maximize both your time and your profit. When you get the services of Real Property Management Washington DC, we will help you make sense of the confusing subject of tax deductions, so that you will never have to second-guess yourself if you’re keeping track of the right items.
Our team of Trinidad property managers can provide you with the support you need to ensure that each potential tax deduction is taken while deleting any disallowed items that might lead to problems with the IRS. With our help, you will know what it’s like to be ready for success both during tax season as well as throughout the year. To know more about what we can do for you, please contact us online or give us a call at 202-813-9993.