Are you a business owner who’s tried doing your own taxes and gotten so frustrated you ended up not claiming anything because the tax laws on what’s deductible or not are…clear as mud?
Let’s dig in and sift through some of the muck to pull out some IRS terminology for clarity.
- Business Expenses. These are defined as many, but not all, costs associated with running an already operating for-profit business.
According to the IRS.gov website:
- “An ordinary expense is one that is common and accepted in your field of trade, business, or profession.
- A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be required to be considered necessary.”
- Ordinary, Necessary and Reasonable. Business expenses must be ordinary, necessary AND “reasonable” to be able to be deducted. Some examples of ordinary and necessary and reasonable businesses expenses could include website development and maintenance, marketing materials and other costs involved with promoting your company and bringing in new business.
While $3,000 worth of fresh flowers every week for your office might seem like a necessary expense to you, the IRS may consider this to be an example of an “unreasonable” expense and not allow it.
- Shared Expenses. If you use your home as your office too, expenses such as utilities, mortgage/rent, insurance, phone and internet are considered shared but are listed on yet another tax form.
If you’re still trudging through the mud while scratching your head wondering what the heck all of this means, the best thing to do is save your receipts and track your expenses (https://jmvfinancialservices.com//budgets-friends-not-foes/), including the “ify” ones you’re not sure about. We’ll help you sort it all out from there. Believe it or not, tax laws actually make sense to us and we love doing this sort of thing! Let us help you stay focused on what you do best while we focus on what helps you keep doing what you do best. It’s a win-win partnership indeed, and there’s no time like right now to get a jump on next year’s taxes.