One of the hardest parts is what exactly can my small business deduct?
A few things pop into my mind when I think about small business tax deductions. I don’t want to make this just one more article to give you a list of what you can deduct.
Instead here are four tips to help you make the right decision without making the IRS mad!
Yes you read that right this is the un-fun, boring, dreary part of running a business. There is simply no way for me to spice this up, although I will try in one of the topics below!
With that said, it is absolutely 100% necessary for you to have a basic working knowledge of this information. You do not have to become a tax expert.
But you do need to know enough that you can successfully understand your books and taxes. If you don’t you will either hinder your business growth or you run the risk of being embezzled from.
This is definitely one area where it is best to leave the nitty gritty details to the experts. Do not use try and save money in this area of your business be willing to pay for expert tax advice for your business.
Taxes are like the law, many things have nuances that can only be understood by those practicing it as a full time job. A confusing line in the tax code can be cleared up by a tax law case, or the IRS might take to court someone pushing the line. Don’t spend you time tracking these or mess up by not knowing something has happened with law.
Unless you are a CPA this is a waste of your valuable time and will not move your business forward.
Add on to this that there are different rules and ways to process expenses for sole proprietors vs LLC vs Corporations and it is just better to find a CPA and stop stressing about this!
Look, it is actually a good thing if you pay taxes. Why? Because this means that you actually made money. You created a successful business and can now actually use that money for creating wealth so you can retire.
Now, with that said, if you are planning a purchase and can move it forward to get a deduction go for it. Just remember at the end of next year you will be playing the same game – finding new deductions and moving up expenses to pay less.
It is much better to spend and invest in your business because it will help you grow NOT to get a tax deduction. I for one would rather be able to save an extra thousand in my retirement account than buy a new computer I don’t need.
I for one am more conservative on my taxes. I would rather be able to sleep at night and not worry about audits.
How do you know if you are pushing the envelope? First, ask a CPA! Second, the IRS states that your business expenses should be ordinary and necessary. While this can be a bit vague there are some things that are obviously not arguable in an audit or court.
So don’t deduct your dry cleaning unless it is a uniform you cannot wear anywhere else. Be very careful on your home office expenses, work with your CPA to get them right. Don’t pay your family member if they don’t do anything for you!
Now is when I will try and make this a little less boring. Here is a real life example of where the enveloped would have been pushed too far.
When I did my season of taxes (I really could not make it more than a year, and it gave me a new appreciation for CPA’s), I had a client come in that had a sole proprietorship.
She has a “small business” as a phone sex operator. She wanted to deduct the cost of her boob job. If she has been a stripper, this very well may have been a legit expense (you would have to ask a CPA), but since she was on the phone and her customers could not see – this was pushing the envelope. (This was also pre-skype). It was no where even close to necessary for her business.
So before you deduct an item that might be questionable ask yourself if it is necessary for your business if it is then it is probably okay, if not don’t try and get in trouble with the IRS just to save a few bucks.
The stress of an audit does not make it worth it.