Managing multiple income streams, whether from a business, freelance work, rental property, or investments, adds tax complexity that shouldn’t be ignored. At McSwain Hiott, we frequently find missed deductions when reviewing returns for new clients, and sometimes they’re significant amounts, too. However you earn your money, we can help make sure you don’t leave any on the table.
With decades of combined professional experience, we specialize in complex financial setups and helping clients with multiple income streams. Return reviews and deduction recovery are at the heart of our onboarding process, and it’s those instant results that have clients coming back to us year after year.
We serve clients across 15 states, from New York to Oregon, and regularly spot tax savings as standard, ones missed by other accountants. It’s our mission to make sure you take full advantage of them moving forward.
In this blog, we’ll break down some key deductions available to help you reduce your tax bill, stay compliant, and keep more of what you earn.
1. Home Office Tax Deduction
Starting with those who run a business or work freelance from home. You may not realize that you could qualify for a home office deduction. Many clients overlook this, but our team at McSwain Hiott often find deductions that others may miss. So, whether you’re earning income from your primary, side, or home-based business, you could deduct expenses related to maintaining a portion of your home for business use. However, the space must be used exclusively and regularly for work.
There are two deduction methods available – simplified and actual expenses.
Simplified: The simplified method allows you to deduct $5 per square foot of your home office, up to 300 sq ft. This will max out at $1,500.
Actual Expenses: This method allows you to deduct a percentage of your mortgage interest, rent, utilities, and property tax, based on the portion of your home dedicated to business use.
It’s important to note that if you use the same space for multiple income sources, this is clearly documented in your records and your returns.
2. Business Expense Deductions
These are ordinary and necessary expenses related to operating your business, earning self-employed or freelance income. Common deductible costs include marketing and advertising, office supplies and equipment, business-related travel and professional services such as legal, tax, retirement and consulting.
However, people often miss opportunities to maximize their business expense deductions by not fully documenting and optimizing these deductions.
We helped a client recognize $10,270 in tax savings by implementing a health reimbursement account for their employees.
It’s essential to maintain separate records for each income stream, where applicable, especially if your expenses vary by business type.
With retirement plans, you need to be shrewd and plan well, as retirement plans are often under-optimized. Many opt for a traditional Individual Retirement Account (IRA) when, in fact, a Simplified Employee Pension plan (SEP) or Solo 401(k) could yield better tax benefits.
3. The Augusta Rule (14-Day Rule)
Renting your home for 14 days or fewer per year? Many don’t know that income is tax-free. However, related rental expenses are not deductible, so you’ll need to keep accurate records.
You can use your personal residence or vacation home for board meetings or company retreats.
This can be a simple way to generate extra income, tax-free.
4. Vehicle Expense Deduction
If you use your personal car for business to meet clients or make deliveries, then you may be able to deduct vehicle expenses through the following two methods:
Standard mileage: This allows you to deduct a set amount per mile driven for business purposes. Currently, the IRS rate is 70 cents per mile but it’s always something we monitor for potential changes.
Actual expenses: This involves the deduction of the actual costs of vehicle-related costs such as fuel, insurance, depreciation and repairs based on the business-use percentage.
Use a mileage log and separate business trips by income source to claim correctly.
5. Rental Property Deductions
If rental income is part of your portfolio, there are a number of key deductible expenses you may have missed. You likely already account for the mortgage interest and property taxes, but are you deducting expenses such as travel costs, office supplies and all maintenance costs?
However, on top of this, you also need to be aware of three other potential return opportunities.
Depreciation is a significant deduction that allows you to recover the cost of the property over time. Residential properties can be depreciated over 27.5 years and certain items can qualify as personal property. These can be expensed in the year of purchase or over five to seven years.
Costs associated with repairs and maintenance to keep the property in good condition are also deductible, as well as your property and liability insurance.
It’s worth creating a separate ledger or account for each property to make tax reporting easier and more accurate, and to maximize tax deductions.
6. Investment-Related Deductions
If you earn from investments, including dividends, interest and capital gains, you may be eligible for a number of specific deductions to help reduce the tax burden.
With investment interest expense, where you borrow money to invest (for example with a margin loan) you may be able to deduct the interest.
Losses on investments can occur when you sell investments at a loss. However, you can offset those losses against your capital gains, then, if they exceed your gains you can deduct up to $3,000 of excess losses against other income.
Again, like with any other investments or financial decisions, it’s always advised to keep records clean, so that you can be as accurate as possible on your returns.
7. Health Insurance Premiums
If you're self-employed, you can deduct health insurance premiums paid for yourself, your spouse, and your dependents.
This deduction can be applied regardless of whether you itemize your deductions, meaning those who have multiple income streams can lower their total taxable income.
The reason? The deduction is taken ‘above the line’ so it reduces your adjusted gross income (AGI) which is beneficial for other tax credits and deductions.
8. Retirement Contributions
Contributions to retirement accounts not only reduce taxable income, but they also build long-term wealth. There are a number of options for those who are self-employed or have multiple income streams. A Solo 401(k), a SEP IRA, or a SIMPLE IRA not only offers significant tax advantages but with higher contribution limits than standard IRAs it makes them a strong option for tax planning and your future financial security.
Want to know more?
Earning from multiple income sources can make tax planning more complex, but also more rewarding. By leveraging deductions for home offices, business expenses, rental properties and retirement, you can reduce your tax liability while staying compliant. Meaning you get to keep more of your hard-earned money.
Most of the strategies above apply at the federal level, so they remain relevant no matter what state you live in. If you’d like help applying these deductions to your situation, speak to a tax advisor who understands the nuances of multiple income streams.
Are you missing out on deductions that are rightfully yours? McSwain Hiott CPAs are sure they can find them for most new clients – trust us, we’ve seen the proof. So, if you have any questions or if you want to see what your previous accountant might have missed, please do get in touch with us and we’d be more than happy to discuss your options.
Book Your Free Tax Advisory Call Today
If you’re not quite ready to book a call, for whatever reason, then sign up for our newsletter, where you’ll get tailored tax tips for multiple income streams – straight from the McSwain Hiott team. Sign up here today.