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Expenses

Expenses – Entertainment and Meals, #101 Summary of Tax Brief One of the most common business expenses that you can deduct falls under the entertainment category. Generally, you are able to deduct most of the costs associated with entertaining a client, customer or employee, up to a 50 percent limit. A meal is considered a form of entertainment. To deduct an entertainment expense, it must meet either a “directly-related” test or an “associated test” prescribed by the IRS. …

Expenses – Travel #102 Most expenses associated with normal business travel are tax deductible. These include, costs associated with transportation, baggage and shipping, operating a vehicle, meals (subject to limitations) and lodging, dry cleaning, telephone, and tips...

Expenses – Recordkeeping and Deductions, #103 Summary Tax law requires certain expenses and deductions to be supported by evidence or else they will not be recognized for tax purposes. With the proper forms (e.g., diaries, logs, etc.) and a recordkeeping habit, you can preserve your deductions. Commentary The following types of expenses must be substantiated by adequate records or by sufficient oral or written evidence...

Expenses – Local Transportation, Car #104 Maximizing deductions in the current economic climate is vital. Many small businesses rely on local travel as an important part of day-to-day operations, and expenses associated with local business transportation usually are deductible. Local business transportation includes the cost of going somewhere generally within the same city or area by train, subway, bus, or taxi as...

Expenses – General Corporate Expenses, #105 Business expenses are the costs of carrying on a trade or business. These expenses are deductible if the business is operated to make a profit. What You Can Deduct To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary...

Expenses – Leasing vs. Purchasing a Car, #106 This brief discusses the pros and cons of leasing and buying. If you’re looking to drive a new car or truck, you might want to consider leasing rather than buying. Leases are easy to arrange and because there is a great deal of competition among auto dealers, you may be able to reduce some of your costs. As a rule of thumb, leasing is often cost-effective for items...

Expenses – Self-Employed Health Insurance, #107 Many medical expenses are tax deductible. This brief details what health insurance expenses self-employed individuals can and cannot deduct. Deduction Requirements You can deduct only the part of your medical expenses that is greater than 7.5% of your adjusted gross income. If your medical expenses are less than 7.5% of your adjusted gross income, you cannot claim a deduction. …

Expenses – Deductible Insurance Expenses #108 Generally, you may deduct the ordinary and necessary cost of insurance as a business expense if it is for your trade, business or profession. However, in some circumstances, you might have to capitalize certain insurance costs under the IRS’ uniform capitalization rules...

Expenses – Substantiating Expenses #109 Would you be ready in a tax emergency? Well-organized records are key. Not only do they help in the preparation of your tax return, they also help answer questions and resolve disputes if your return is audited, and help in preparing a response if you are billed for...

Expenses – Interest #110 Business owners can generally deduct as a business expense all interest paid or accrued during the tax year on debts related to the business. Individuals can also deduct certain kinds of interest payments, most notably mortgage interest and interest on loans...

Expenses – Home Office Tax Deductions, #111 This tax brief provides an overview of the home office expenses you may deduct. This is particularly important to the self-employed such as Realtors. Such deductions are available when, among other times, your home office is your “principal place of business.” This tax brief helps explain this phrase as well as who is eligible to file, the different types of deductions that are allowable, and the frequency of tax filing. A brief section on keeping…

Expenses - Charitable Contributions, #112 Contributions made to charitable organizations technically do not qualify as a business expense eligible for a federal tax deduction. Nevertheless, the IRS does allow most corporations – with the notable exception of S corporations – to deduct charitable contributions on their corporate income tax returns, subject to some limitations. Payments made to non-profit or charitable causes can be treated as business expenses only if there is some business benefit associated with the payment, such…

Expenses – Accounting and Legal Fees, #113 This tax brief discusses the deduction of fees paid for professional services under accounting and legal services fees. Whether you decide to do business as an entrepreneur, partnership or corporation, you will in the course of setting up your business or in the course of running your business incur professional services expenses. There are different ways to deduct, expense or capitalize such fees or expenses to your best advantage. …

Expenses – Reasonable Compensation, #114 Are you paying yourself too much or too little? Compensation can be a tricky issue when it comes to a business expense deduction that will survive scrutiny by the IRS. Generally, the IRS applies a reasonableness standard to small business compensation. Is the compensation being deducted an amount that would ordinarily be paid for like services by like enterprises under like circumstances? …

Expenses – Equipment Leases #115 When you need new or replacement equipment, you should make a detailed comparison between the options of leasing and purchasing, including the tax implications. Leasing can be very advantageous in the right situation. The primary objectives of leasing are a lower...

Expenses – Bad Debts #116 If someone owes you money that you cannot collect, then you have a bad debt. Generally, bad debts incurred in your business are fully deductible from your ordinary income. A business deducts its bad debts from gross income when figuring its taxable income. You can...

Expenses – At-Risk Rules #117 At-risk rules limit business losses from most activities to the amount the taxpayer has at risk in the activity. Taxpayers can treat any loss that is disallowed because of the at-risk limits as a deduction from the same activity in the next tax year. If losses...

Expenses – Advertising #118 As a small business owner, the odds are high you are going to incur some expenses associated with promoting your business. Generally speaking, reasonable advertising expenses can be deducted if they relate to your business activities. However...