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Frequently misunderstood deductible business expenses

January 4, 2019 | By More

Business Tax DeductionsFrequently misunderstood deductible business expenses

You have made the big decision to become a business owner, sales have started to come in but just as important are the expenses that have been incurred. All business income is taxable (with few exceptions) but what expenses are tax deductible? Many business-related expenses are straightforward and tax deductible. However, there are some expenses that some believe are deductible that are not or only in certain circumstances. Here are a few of the misunderstood expenses:

Meals and entertainment: effective 1/1/18, entertainment is no longer deductible, and meals are deductible if there is another party present. The other party must be business related such as a potential client, current client or a vendor. Grabbing a bite to eat on your own is not a deductible business expense unless you are traveling and are out of town. Stopping by the local coffee shop on the way to work for your favorite beverage is not deductible. If you purchase coffee for the entire office, that is deductible.

Dry cleaning: is only deductible if you are traveling out of town for business.

Clothing required for work is only deductible if it cannot be worn outside of work. A business suit or a required black polo shirt is not deductible. Clown shoes for your circus job would be deductible.

Auto expense: either actual expenses or a per mileage rate is deductible but only for miles driven for a business purpose. The drive to and from work, the same place each day, is commuting and not deductible. Driving from the office to a client or to pick up office supplies is deductible. Purchasing an auto under the business name does not mean all auto expenses are tax deductible.

The deductibility of the expenses listed above also depends on maintaining correct and accurate records. For example, on the back of your business meal receipt, be sure to list attendees and the business purpose; for mileage have the date, starting and ending location and business purpose.

As a new business owner, much of this can feel very overwhelming, however, it is part of running a business. Once you get used to it, it just becomes second nature.

The above is to provide general information and not all inclusive and should not be solely relied upon in the ongoing operations of a business. Please see your professional for assistance.

Contributed by Michele Sheerahamed – CPA
Michele Koscielniak CPA, LLC is located in Lake Worth, Florida. For more information or to contact Michele Sheerahamed, visit https://www.michelekcpa.com

Article information should not be used exclusively to make legal, financial or tax decisions. Because laws and rules can change frequently, topics may not always be updated to reflect these changes or may not apply to your unique situation. It’s prudent to seek out the advice of a professional for your specific needs.

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Category: General Business

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