Be Savvy with Your Business Taxes
The tricky part of being savvy with business taxes is knowing what qualifies as an eligible business deduction. You certainly donâ€™t want to mess with IRS in any way so have a solid understanding of what is allowed and what is not is a good start.
How To Determine Deduction Eligibility
Section 162 of the tax code states that an expense must be â€˜ordinary and necessaryâ€™ in order to be a deduction. What the tax code does not state is what â€˜ordinaryâ€™ and â€˜necessaryâ€™ means. Common sense does dictate the legitimacy of many expenses like office supplies and equipment necessary to do business. When it comes to more vague expenses like travel, business owners should seek out the exact guideline from the IRS or their tax advisor. In some cases where the expense included is legitimately a business expense, a court of law will need to make the decision.
Big Deductions/Personal Expenses
The tax code does not make stipulations for large expenses but again, it is essential to each business owner to find out about eligibility before including the deduction. What is considered a â€˜bigâ€™ ineligible expense to one company may be perfectly reasonable to another. When it comes to personal expenses, the IRS takes a serious look at deductions that may be too personal to qualify. Because so many people have included vacations, commuting, and other expenses paid for by the company credit card as business expenses when in fact they were only personal expenses, the IRS pays a lot of attention.
Pushing the Envelope
Because of the vagueness of the IRS tax regulations, there are always the business owners who ‘push the envelope’ and try to test the limits of the IRS when filing their tax returns. Understand that the federal government will push back when an expense doesnâ€™t qualify. This can lead to serious legal issues for the business owner. It is in your best interest to seek the guidance of someone familiar with the regulations if you are unsure as to what qualifies as a deduction.
Depending on the nature of your business, there may be several things you can use as a legitimate business deduction per the IRS. Knowing what is eligible can help you to plan your business purchases better and allow you to benefit from deductible expenses such a company car. Many small business owners are focused on getting through their first few tax seasons without giving much thought as to how all of the purchases come into play with tax deductions.
If the amount of information concerning small business taxes seems overwhelming, it may be in the best interest of your business to consult with a tax professional at the start of the new year to determine what the business needs, what is deductible, and how you can make the business expenses work to your benefit and the benefit of your business.
About the Author
This article is provided for Backtaxeshelp.com, a site designed to help you pay back taxes. Owing back taxes to the IRS is stressful, and negligence will only worsen the situation.
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