James SpillaneDEDUCTIONS: THE RULES OF THE GAME
Rule #1: Don’t Cheat the IRS
Rule #2: Don’t Cheat Yourself
The rules for deductions get a little trickier after that, but don’t let that stop you from taking all the legal deductions you can. The more deductions you take, the lower your taxable profit will be, and that means more money in your pocket. If you’re not sure what you can write off, take the time to ask an expert or check out IRS Publication 535.
ORDINARY AND NECESSARY
Generally speaking, in order for an expense to be deductible it must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field or profession. A necessary expense is one that is helpful and appropriate for your business.
THE DEDUCTIBLE DOZEN
Don’t overlook these common business deductions as you prepare your tax return:
- Advertising and promotion
- Car expenses/mileage
- Employee wages
- Retirement plans
- Office supplies, furniture, equipment, software
- Home office (see IRS Publication 587)
- Rent
- Insurance
- Travel, meals and entertainment (see IRS Publication 463)
- Legal and professional services
- Taxes
- Dues for trade associations and other not-for-profit, business-related organizations
DON’T THROW AWAY THAT RECEIPT!
In the event of an audit, Uncle Sam can require you to explain the deductions on your tax return and show that the expenses were in fact paid. If you do not have adequate records to prove business expenses, the IRS can adjust your tax liability, which means you’ll probably end up owing more in taxes. Use an easy service like Shoeboxed.com if you need help keeping track of and organizing receipts and other documents.
For more information about record keeping, see IRS Publications 334 and 583.
This article was written for Business 2 Community by James Spillane.
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