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February 3, 2010

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This month, Small Business Tax News features additional small business/self-employed questions and answers from the IRS.

Question:  If I pay personal expenses out of my business bank account, should I count the money used as part of my income, or can I write these expenses off?
 
IRS: You would include the money in your business income. You would not write off these expenses because they are not ordinary and necessary costs of carrying on your trade or business. Personal, living, or family expenses which are not specifically provided by law are not deductible. Keep business and personal accounts separate as this makes it easier to keep records.
 
Additional information is available from:

• IRS Publication 535, Business Expenses
• IRS Publication 529, Miscellaneous Deductions

Question: For business travel, are there limits on the amounts deductible for meals?
 
IRS: Meal expenses are deductible only if your travel requires you to be away from home overnight or if the meal is business-related entertainment. You can figure all your travel meals expenses using either of the following methods:
1) Actual cost. If you use this method, you must keep records of your actual cost. 2) The standard meal allowance which is the federal M&IE rate. These rates are listed in Publication 1542.
 
Additional information is available from:

• IRS Tax Topic 511, Business Travel Expenses
• IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses
• IRS Publication 1542, Per Diem Rates
• IRS Tax Topic 512, Business Entertainment Expenses

Question: Are partners considered employees of a partnership or are they self-employed?

IRS: Partners of a partnership are considered to be self-employed. The partnership must furnish copies of Schedule K-1 to the partners by the partnership information return due date or extended due date. If you are a member of a partnership that carries on a trade or business, your distributive share of the income or loss from that trade or business is net earnings from self-employment. 

Additional information is available from:

• IRS Form 1065 Instructions, U.S. Partnership Return of Income
• IRS Publication 334, Tax Guide for Small Business
• IRS Publication 541, Partnerships