Tax tips for individuals & small business owners

Tax law is always changing and can be very complicated! Here’s a list of some of the more common tax and business tips you should consider.

Self-employed & small business owners

Keep track of miles
- Going to and from your normal place of business is considered commuting and not deductible
- Business miles provide deductions at 54.5 cents per mile (2018)
Keep track of expenses
- Easiest to have a separate bank and credit card account
- Excel – this is free and once you set up a template, you can track by month and category of expense
- Quickbooks or Quicken – desktop (one time fee) or online version (monthly) – both have 30 day trials
- Phone apps – some allow you to snap pictures of receipts so you don’t need to save and/or link to your bank or credit card accounts in which you can set up categories of expenses
Office-in-home
- If a portion of your house is a dedicated office space – those are deductions!
- Compare the square footage of your office to your entire home to come up with a business %
- Use that business % and deduct a % of your rent/mortgage, mortgage interest, real estate taxes, utilities (including internet and phone), and depreciation (if you own your home)
Health insurance premiums
- If you are paying for health insurance premiums out-of-pocket then those are deductions on page 1 of your tax return (which also reduces your income for IL purposes)
Retirement plans
- The IRS allows you to contribute up to 20% of your net business income (less deduction for ½ self-employment tax) which directly reduces your taxable income for Federal and IL
- These contributions can be in addition to a separate IRA or Roth plan
- Deadline to contribute is by the tax return due date, including extensions
Quarterly estimates
- If you have a net tax liability of $1,000 for Federal and $500 for IL, you need to be paying quarterly estimates. Unless you earn it all at the end of the year (4th quarter), then you can be penalized for not paying your estimated tax as you are earning the income

Individual taxes

Retirement plans – save for your future!
- Roth/Traditional/401(k)
- Contributions of $5,500 (extra $1,000 over age 50) and up to $18,000 for 401(k)
- Contributions to Roth plans are not deductible, but distributions, including earnings in the future will be tax-free. Great for people who expect to have more income in retirement than they do currently. There are income limits ($120,000 for single and $189,000 for married)
- Contributions to regular IRAs are deductible (up to certain wage limits) and/or reduce your taxable wages, but you pay tax when you take distributions in the future. There are no income limits for nondeductible contributions to traditional IRAs.
- There are “back-door” tax planning strategies in which you can convert your traditional IRAs into a Roth

Health savings account
- Contributing to a health savings account (HSA) reduces your taxable wages/income and the earnings grow tax-free. This is great for younger people who have minimal medical expenses, but want to save for the future.
- Maximum contributions are $3,850 for self-only coverage and $6,850 for family coverage
- If you do not contribute the full amount in one year, you can contribute the remaining amount through April 15th of the following tax year in order to maximize the full benefit
College savings plan
- Contribute up to $10,000 (single) or $20,000 (married) to a college savings plan and receive a deduction for IL (4.95%) – tax savings of up $495 and $990, respectively
- Withdrawals from the account, including earnings, are tax-free when used for higher education expenses
- New law allows you to withdraw, without penalty, to be used for K-12 expenses for FEDERAL purposes. Illinois does not conform with the new tax law and would tax you on the deductions your previously claimed along with any earnings.
Other Federal deductions/credits
- Educators receive a $250 deduction for unreimbursed business expenses
- Student loan interest deduction
- Education expenses (deduction or credit)
- Residential energy credit
- Foreign tax credit (if you have to pay foreign taxes on investments – fairly common in brokerage accounts)
Illinois deductions
- K-12 education expense credit (up to $750)
- Property tax credit
- Investment expenses related to tax-exempt income
- Contributions to college savings (see college savings plan)

Other tips

Charitable givers – if you are losing the benefit due to the higher standard deduction and loss of personal exemptions, consider the following:
- Bundle your charitable deductions – set aside charity that you would normally give in one year and contribute it in the following year. By donating double your normal charity in every other year, this would allow you to receive a tax benefit if your itemized deductions exceeds the standard deduction
- Consider a donor-advised fund – you would receive the deduction at the time you contribute to the fund, but then can choose the timing of the charitable donations
- Donations of goods (clothing, furniture, etc) and stock are charitable donations too
Interest income – You should always be earning at least some interest income. Interest rates still aren’t great, but you can find banks that offer at least 1% with no minimums and higher rates with minimum balances. If you can afford to put aside money for over 12 months (CD), then these rates become even higher. Make your money work for you with no risk!
Brokerage accounts – if you are less risk averse and have money to set aside, talk to an investment advisor. The market has been steadily improving and appreciation on stocks is getting higher and higher!
Timing is everything – unless you absolutely have to, do not make decisions that can affect your taxes without first seeing what the tax effect is!
- Getting divorced – if you can hold off, it might be worth it to push a divorce to the following year since married filing jointly is generally more beneficial
- Selling your home – if you haven’t lived there long enough and are selling it at a gain, then you may not be able to exclude the gain from your taxes. Depending on the gain, it could be worth it to wait a little longer!
- Buying and selling rental properties
  - If you are selling a rental/investment property, but plan to buy another one, there are gain deferral strategies (1031 exchange) that will allow you to not recognize gain currently on the sale if you purchase the new property within 180 days of closing on the old property
- Defer income and accelerate deductions
  - If you can wait on receiving payment from a client until January vs. December, then you don’t have to pay tax on that until a year later
  - If you have purchases you want to make for your business, consider buying them at year-end in order to get the deduction in the current year as opposed to not recognizing them until a year later