Logical Deductions

All our clients ask us, "What can I deduct on my business tax return?" The short answer is there are 5 main types of expenditures you'll want to keep track of for this purpose:

1.     Ordinary and necessary business expenses – generally tax deductible in the current tax year.

2.     Inventory additions – must be added to cost of goods sold, ending inventory not deductible.

3.     Capital expenditures, including business start-up costs, must be depreciated or amortized.

4.     Personal expenses, including personal tax payments and other withdrawals- generally not tax deductible but if partially used for business, may be allocated.

5.     Transfers between accounts, including credit card payments – generally not tax deductible.

a.      Note:  Individual credit card charges are considered expenditures to be classified 1-4 above.

Examples of business expenses:

1.     Taxes (except Federal income)

2.     Employees’ payroll. Owners of an S-Corp can be an employee.

3.     Retirement plans for you and employees

4.     Rent expense – paid for the use of property you do not own. Must be used in a trade or business. There are special rules for deducting Home office expenses.

5.     Automobile expense – must allocate business use based on mileage.

6.     Interest –amount borrowed for business activities.

7.     Insurance – trade, business or profession only, not life. Health insurance for yourself and your family are deductible as personal expenses.

8.     Charity paid by the business is generally deductible as a personal expense.

9.     Meals and entertainment – special recordkeeping rules apply and generally 50% deductible.

10.  Travel- Out-of-town (overnight) travel should be separated from local travel.

Form 1099 must be filed with the IRS for each individual or unincorporated business if:

The sum of all payments made to a person or unincorporated business for services is $600.00 or more in the calendar year. The expenditure must be made in the course of your trade or business. 

Download IRS Form 1099 Instructions