What Are Deductions and How to Track Them

Deductions are one of the most effective ways to reduce your taxable income and keep more of your hard-earned money. Simply put, deductions are expenses that the IRS allows your to subtract from your income when calculating your taxes. For business owners, freelancers, and self-employed individuals, tracking deductions is essential for minimizing your tax liability and ensuring compliance with tax laws.

Common deductions include costs directly related to running your business, such as office supplies, software subscriptions, and marketing expenses. You can also deduct a portion of expenses like your home office, vehicle use for business, and utilities if they're tied to your work. Understanding what qualifies as a deduction is key, as not every expense is deductible. For instance, personal or non-business-related costs cannot be claimed as deductions, and some categories, like meals and entertainment, have specific rules.

To effectively track your deductions, organization is everything. Start by keeping details records of all your expenses, including receipts, invoices and bank statements. Many business owners find it helpful to use accounting software or apps that allow you to categorize expenses and store digital copies of receipts. Setting up a dedicated business abnk account or credit card can further simplify this process by keeping your personal business expenses separate.

Regularly reviewing your finances will also help you stay on top of your deductions. Schedule monthly or quarterly check-ins to categorize expenses and ensure you're not missing anything. Consulting with Entacct Accounting can provide additional peace of mind, as they'll help identify deductions you might overlook and ensure you're fully compliant with tax laws. By staying organized and informed, you can maximize your deductions and take control of your tax savings.

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