Tax Advice Series: Part Three
Updated: Dec 28, 2022
Deductions: Itemized or Standard?
Determining whether you should itemize or claim a standard deduction on your business taxes can be a tricky decision for sole proprietorships and LLC's. To make the best decision for your business, it is important to weigh the pros and cons of both options.
The first step to determine which option is best for you is to calculate the total itemized deductions you can take. This includes expenses such as mortgage interest, property taxes, medical expenses, and charitable donations. If the total of these deductions exceeds the standard deduction, it may be more beneficial to itemize.
Another factor to consider is your tax rate. If your business is taxed at a higher rate than your personal income, then it may be more beneficial to claim the standard deduction. This is because the standard deduction is a fixed rate, while your itemized deductions are based on your total expenses.
Finally, you should consider the additional paperwork associated with itemizing. If you decide to itemize, you must provide the IRS with an itemized list of all your expenses. This can be time consuming and require additional paperwork.
Ultimately, the best way for a business owner to determine whether or not to itemize or claim a standard deduction on their annual taxes is to weigh the pros and cons of each option with a professional. Do the math to calculate what option will save you the most money, while also considering the amount of paperwork you will have to file.
Thank you to Timothy Okeowo, MBA, EA from Victory Tax & Accounting Services for allowing us the opportunity to learn and grow in tax knowledge and education to better serve our clients. We would love to chat with you about making sure your finances are on track for a successful 2023.