Maybe I’m just a little more ideological about tax avoidance, but I can’t imagine having a legitimate tax deduction available to me and not take taking advantage of it.
In my view, the tax code is complicated and intimidating. There are probably quite a few deductions that readers aren’t properly utilizing.
So, let’s go through a list.
Crypto losses
If you traded bitcoin or other cryptos last year, there is a good chance you lost money. And if so, you can write it off as a capital loss on Schedule D.
You’ll need to make sure you kept good records. You’ll need your cost basis, the sale proceeds and the dates of sales and purchase.
I’d make sure you print out hard copies or save the statements as PDFs. In the rare chance you get audited, you don’t want to depend on a web-based brokerage or exchange that may very well be out of business by the time the paperwork is useful to you.
Gambling Losses
It’s probably a little snarky of me to include gambling losses, but this is a legitimate tax write off that a lot of people don’t know about.
If you had gambling losses in 2018 – anything from sports betting to online poker – you can potentially write them off. (Of course, the flipside is also true. If you had gambling winnings, you need to report that as income.)
Alimony
If you blew your nest egg trading cryptos or in smoky backroom poker games, your wife might have left you, leaving you with alimony payments to make.
But in all seriousness, if you paid alimony under the terms of a divorce finalized in 2018 or earlier, you can write it off.
This is changing, however. Under the new tax reforms, alimony will no longer be deductible for divorces finalized in 2019 or later.
Retirement Savings
If you had to raid your IRA or 401k early… well, please don’t tell me. That’s the one cardinal rule of investing you just don’t break.
But let’s say that life intervened and you did it. You took cash out of your retirement plan and got zinged with the 10% penalty. You can write that off!
But please, do not make a habit of this. The penalty still represents a net loss for you, and worse, it reduces the capital you have at your disposal for wealth accumulation.
Entertainment
I’m going to go in reverse here and now list something that used to be deductible but is now, regrettably, not: business entertainment.
This is a tricky area, but under the new rules, business meals are still at least partly deductible. But entertainment expenses – such as a football game, golf tournament, concert, etc. – are not.
Here’s where it gets interesting though: Sponsorships are still deductible. So, while you can’t write off the costs of tickets to an event, if you paid to make your company a sponsor you can definitely write off those expenses.
Final Thing
And finally, this wouldn’t be a proper tax article if I didn’t nag you to max out your retirement plans for the year.
It’s too late to contribute to a corporate 401k for 2018, but you can definitely still contribute to an Individual 401k or SEP IRA if you have self-employment income.
And a regular, good old-fashioned IRA or Roth IRA might be an option for you as well. For tax year 2018, you can contribute $5,500 to an IRA or Roth IRA or $6,500 if you’re 50 or older.
I also have to remind you that these are basic suggestions. You’re definitely want to do a little more research or ask your CPA before implementing any of these.
Best of luck this tax season.
Photo Credit: Tax Credits via Flickr Creative Commons
DISCLOSURE: This article has been prepared for informational purposes only and is not intended to provide and should not be relied on for tax or accounting advice. Interactive Brokers Asset Management is not qualified to and cannot provide any tax advice or prepare any tax documents for clients. Readers should consult their own accountant or tax attorney to determine the implications of taking any of the steps or actions discussed in this article.
