The perennial question: Can I deduct this expense?
Navigating deductions is intricate, particularly with the ever-evolving US tax code. Yet, certain guidelines exist to maximize benefits and minimize risks.
The primary consideration is whether an expense chiefly benefits the business. Some expenses are straightforward (office rent, advertising) while others, like travel and meals, prove more nuanced. Ask yourself: “Would I have incurred this expense for personal use?” A “no” opens a clear path for deduction.
However, if the answer is “yes,” complexities arise. For instance, meals—IRS won’t cover your lunch, except when with relevant business associates (colleagues, potential clients). Even then, only 50% is deductible, requiring meticulous recording of attendees and purpose to solidify the deduction.
Now, travel—widely scrutinized by the IRS. Deductible expenses like lodging and transport are defensible as they’re necessary for business travel. The challenge arises when business and personal travel intertwine.
Consider this scenario:
Jim plans a business conference in Austin but wants to combine it with a family vacation. Managing this requires finesse.
Separate business and personal expenses by using business funds for clear business expenses (lodging, solo business transport, business meals) and personal funds for family-related expenses (amusements, family meals).
Complications arise in shared expenses like airfare. Jim must communicate with his accountant to designate his and his family’s portions of the cost clearly. Distinguishing their costs as “shareholder distributions” and submitting an expense report aids in auditing.