Tax Season is Upon Us

Business Deductions that may--or may not--impact your filing

As we all well know, tax season is upon us. One of the best ways to keep your tax bill low as a business owner is to be aware of all of the business expenses that can be deducted. First, in order for the IRS to allow an expense as a business expense is for that expense to be: (a) ordinary and necessary; (b) paid or incurred during the taxable year; and © connected with the conduct of a trade or business. So what types of expenses can be deducted?

1. Using a home for a business.

This can be interpreted very broadly, and thus the IRS gives us some guidance as to what this means. The IRS states that no deduction for any business expenses associated with an in-home office may be taken unless these expenses are attributable to a portion of the home used “exclusively and on a regular basis” as (a) the principal place of business; or (b) a place of business that is used by patients, clients, or customers in meeting or dealing with you in the normal course of business. What does this mean? This means that if you have your home office in the basement of your home but have only met one client there last year and the rest of the year this basement was used as your man or lady cave, the expense of the basement will most likely not be deductible.

2. Travel – business conventions.

You may deduct the cost of travel to a business convention if such attendance benefits or advances your business. If a business purpose is established, the expenses of your spouse may also be deductible. To be deductible, the convention or seminar must relate to your specific business. For example, if you are going to Costa Rica to a financial planning convention but your business is selling cute mugs on Etsy, such an expense will most likely not be deductible.

3. Clothes.

While we would all love to say that the nice suit or pretty shoes are imperative to our business, unfortunately the IRS does not always agree. The costs of buying and maintaining a uniform are deductible business expenses only if the uniform is (1) specifically required to be worn as a condition of employment and (2) is not adaptable for general or continued use. Thus, uniforms that can be worn as ordinary clothes are not deductible.

The above three categories are simply examples or what can be deducted as a business expense and are by no means an exhaustive list. To prepare for filing your taxes, you should have all of your receipts and books organized so that the process is much smoother and you do not miss something. This post is not meant as legal advice and you should consult your attorney and accountant when it comes to filing your taxes.

Good luck!

Originally published on Republished with permission.