15 Dec That’s Deductible, Right?
It’s the end of the year and many business owners have a pretty common question…”That’s deductible, right?” You may be surprised how often the IRS answers, “No!” or maybe, “Just some…”
While you should always have a CPA review your books to make sure you are appropriately and compliantly filing your deductions, we are covering a few more popular categories with some general guidelines.
“Is that deductible?” FAQs:
Meals and Entertainment:
While most assume if they are conducting any sort of business, traveling or even just entertaining a client or colleague, meals or entertainment are a deductible business expense. However, the IRS says you can only deduct 50% of the cost. Of course the list of stipulations is quite detailed so make sure you are using this category for actual business interactions and that you reference the IRS guidelines or your CPA for expenses outside of just meals if you are unsure.
If it is only you OR there is no business affiliated with the meal, there is no valid deduction unless you are giving a gift. (See “Gifts” below for details on this.) It is also only considered a deductible meal for travel if you are gone longer than a business day, you need rest while you are away and you are beyond the general area you work in.
Phones, Computers and Cars:
These items are tricky because it is rarely the case that any one of these will be used solely for business or personal. Most often, the phone you talk to the ten prospects on today is the same one that your husband calls on to coordinate kid pick-up schedules. The overarching rule is that the difference between business and personal must be calculated and reported appropriately. The documented business portion is deductible for all of these. Travel for work — outside of your daily commute — in your own vehicle is deductible at the current IRS deemed rate of 53.5 cents per mile.
For cell phones, the IRS actually deems these as property and deducting the purchase of one can be tricky. Make sure you keep all documentation surrounding the purchase and work closely with your CPA.
Gifts to Clients:
The holidays are upon us and many business owners enjoy giving their clients or customers gifts to thank them for their patronage. The IRS will only allow you to deduct $25 per customer so make sure to keep this in mind as you shop. If your box of chocolates or basket of pears adds up to $65, be prepared to not be able to deduct $40 of the gift.
If you are just giving promotional type items that cost $4 or less however — think key chains, mugs, etc. — that have your business brand permanently printed on the item, these are 100% deductible in unlimited quantity.
Beware if you and your spouse are both business owners and have the same clients. In the eyes of the IRS, you are one household and only $25 total between the both of you would be deductible.
The general rule here is that if you pay any portion of the premium for an employee, it is deductible. Beware of a few things though. If you offer life insurance to your employees and benefit from the policy in any way, this is not deductible. You also need to be careful of small business situations. If you and your spouse pay for insurance through the company but it is not offered to any of your employees, this would not be deductible in the usual way. Make sure that any insurance costs like these are flagged for your CPA to make note of.
If this seems complicated and unclear….well then you are getting a pretty clear picture of tax laws and deductions. The MOST important thing that you can take away from these general guidelines and tips are to keep good records! If you have proper documentation and your expenses are clearly labeled, this will make it much more easy and likely for your CPA to be able to obtain the highest amount of deduction as possible for your business.
Don’t have time to keep up with your expenses and receipts throughout the year? That is what we are here for! We keep up with your receipts, expenses and income throughout the year and have your books ready for your CPA in January. Clean, organized and ready to go.
→ No sweating about where you put that one receipt for a new computer.
→ No panicking about combing through bank statements trying to remember the meals that were for business trips.
→ No worrying you are going to miss a big deduction because it got lost in the weeds.
If saving time, stress and money sound nice to you, consider working with one of our dedicated bookkeepers this year. Click this link to schedule your free strategy session now!