Frequently, when new business owners meet with me to learn how to set things up for their business, I get this one consistent question. It is, “Can you give me a list of things that are allowed to be deducted for the business?”
The tax code allows businesses to deduct the cost of doing business from the gross income. What is left is the net business profit. This is the amount that gets taxed. So of course, every business owner wants to expense as much as possible to pay the least amount of tax possible.
Unfortunately for them, there is no specific list of deductible business expenses. IRS simply says that you can deduct for your business things that are ordinary and necessary for operating your business. So that leaves the possibilities of what is deductible very broad and wide open.
Of course, some of the standard expenses that we would expect in the business include advertising, insurance, supplies, maybe a computer. These are the normal things that most people incur as expenses when running a business. And of course, they’re all deductible.
Unusual deductions ideas
But IRS is not telling you how to run your business, so there may be some unusual things that you choose to use in your business that would not hit the normal list. For example, I have had several business clients ask about security related expenses in their business. Can the cost of gun training classes, the cost of a handgun, and the cost of ammunition be deducted? These are all acceptable business expenses for security IF that’s necessary for your business. Security of course also covers all of those other things like security cameras, the software, the hardware needed for an alarm system etc. All of these expenses qualify.
When discussing security related expenses, I occasionally get asked if their guard dog can be included. That frequently will lead to another conversation to determine whether this is actually a guard dog or really just the family pet that hangs out at the shop. So again, based on your business, a guard dog may actually qualify as a deductible expense.
The junkyard dog
We ‘ve all heard of the junkyard guard dog and that really is a legitimate expense. A common expense for farmers is cats. That is rodent control! So the food and flea treatment are the type of expenses that would be a deductible expense because that actually makes sense for that type of business.
Basically, if you can show your expense to be a reasonable expense that is used in your business, it qualifies as a business deduction. Understand that frequently, there may be an item that is used for both business and personal. In this case, you can take a percentage of those items instead of taking the full amount. The most common example of this is for the use of your vehicle. In this situation, the deductible amount can be determined by either taking the standard mileage rate or calculating the actual expenses for the vehicle.
Another example would be if you have a fancy type of camera that you use in your business, but then you also use it for family events. Again, you would take a percentage of the value of the camera as a deductible business expense.
While there is no hard and fast rule as to what every business can claim as a legitimate, deductible expense, IRS does have a few items that are NOT deductible. They include:
- Cost of Membership Dues, even if your membership is for business. So your country club membership is not deductible. Taking your client golfing (entertainment expense) is currently not deductible either. But here’s the workaround! If you sponsor a golf tournament, you get advertising and sometimes even a round of golf for 4. Now you can deduct that as advertising expense.
- Federal income tax payments.
- Lobbying expenses.
- Penalties and fines paid for breaking the law. Nope, not even if you are an Uber driver who gets speeding or parking tickets.
- Political contributions.
Knowing what you can deduct and what you cannot deduct truly varies in every business. When in doubt, it’s always best to ask a professional. That’s why we specialize in small businesses. We want to help every small business owner to experience a Less Taxing Life and More Prosperous Solutions. To see how Saunders Tax & Accounting can help you, visit www.SaundersTax.com.