Business Expenses -"'Ordinary and necessary' expenses for your business are generally tax-deductible"
As you know every business incurs expenses. Even independent contractors, consultants, and freelancers pay for software, computers, or travel out of their own pocket to make their jobs easier. For incorporated businesses, being able to deduct expenses will reduce their business taxes. For sole proprietors, being able to deduct expenses has an even bigger impact: business expenses will reduce both the regular income tax and the self-employment tax.
To put it bluntly? Keeping track of all your business expenses will go a long way to reducing your tax liabilities.
That's a common question accountants hear all the time from clients. There's no hard and fast rule. The basic definition is that an expense must be "ordinary and necessary" for your trade or profession. this definition comes straight out of the tax law, so don't blame us for being vague. This topic is so huge, the Internal Revenue Service has devoted an entire publication to the topic of business expenses (Pub 535, if you feel like looking it up).
In a nutshell, a business expense has a legitimate business purpose. Like buying a copy of TurboTax so I can review it for taxes is a legitimate expense. Even an IRS auditor can see how having a copy of this tax software directly relates to my job. Taking my friends out for dinner, however, is not a business expense. Even though my friends might ask me tax questions or discuss how my business is going, the dinner really isn't about making a deal or negotiating a contract. IRS auditors are on the look out for personal expenses that are masquerading as business expenses.
KEEP THAT IN MIND!!!
The problems start when an expense may be partly personal as well as partly business related. A common example I encounter are freelance professionals who have a personal project that turns into a published article. A freelance writer, for example, might be repairing her house, and end up writing some tips that gets published in a magazine. Would her home repair expenses be legitimate business expenses? Or would they be entirely disallowed in an IRS audit? Or is this a middle of the road answer? As a general rule, the IRS will allow you to allocate the expense to personal and business use, and deduct the business portion on your tax return.
So here's a useful tip from me to you. Always keep track of all your expenses, even if you have doubts about being able to deduct them. It will be easier for you to ask your accountant about expenses if you keep track of everything
אין תגובות:
הוסף רשומת תגובה