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Guide to Business Expenses

Business expenses relate to the total costs  involved in carrying on a business or trade, and can be offset against the amount of tax payable on the company's profits. In order to be tax deductible, such business expenses must be deemed by the IRS both 'ordinary and necessary'. 

A 'necessary' expense is an expense deemed appropriate and helpful to your business or trade, although it need not be indispensable. An 'ordinary' expense is one deemed accepted and common in your business or trade.  

It is important to claim your Business Expenses separately from your Capital and Personal Expenses, as you may not be allowed to claim it as a deductible in the same year that you incurred or paid it, or not at all, even if it is deemed 'ordinary and necessary'. 


Expenses


This list is intended to be a comprehensive itemisation of deductible business expenses. However, this area of accountancy is fantastically complicated, and the IRS documentation is extensive, with numerous rulings. This list is therefore not exhaustive, nor can it ever be so.

Accounting fees        

Advertising            

Air fares            

Amortization            

Awards and Prizes        

Bad Debts             

Banking fees            

Board Meetings        

Building Repairs and    

  Maintenance        

Barrier Removal Costs    

Bicycles            

Business gifts            

Business start-up        

Charitable donations*    

Circulation costs        

    (publications)    

Cleaning/Janitorial costs    

Computer consumables    

Computer equipment    

Conference/Trade Show    

   expenses            

Consultancy Fees        

Credit Card            

  Convenience fees         

Customer Discounts        

Customer/Client        

   Entertainment        

Employee Benefits        

Employee Gifts/Bonuses    

Employee Reimbursement

Exploration Costs     

Federal taxes (various)    

Fixtures and Fittings        

Foreign Trading Costs    

Franchise/Trademark fees

Freelancers        

Freight/Shipping        

Fringe Benefits


Fuel/Gas        

Guard Dog                

Hire and rental charges        

Hotels and Motels            

Impairment Expenses        

Insurance Premiums (various)

Intangible Drilling Costs        

Interest on loans            

Internet Costs            

Interview Reimbursements        

Inventory                

Investment Advice/Fees        

Late performance penalties        

Leasing rental            

Legal costs                

Licences and Regulatory fees

Magazines, books & journals

Maintenance/Repairs        

Management Fees            

Marketing costs            

Meals and Lodging            

Mileage                

Mineable Asset Development

Motor vehicle depreciation        

Motor vehicle repairs        

Moving Machinery/Plant        

Office rental                 

Oil and Gas Well Depletion        

On Site Gym                

Outplacement Services        

Parking and Tolls            

Patent costs            

Payroll Processing & Taxes        

Penalties and Fines    

Pension Plans            

Phone calls                

Postage            

Printing

            




Private Road repairs

Professional membership dues    

Profit Sharing             

Publicity Materials

Recovered Damages

Real Estate Costs

Rent on Business Premises

Repayments

Repairs to equipment        

Reforestation Costs        

Research and Experimentation

Retired Asset Removal Costs

Retirement Plans

Royalties

Safe

Safety Deposit Box

Service Fees

Software

Staff Entertainment

State & Local taxes (various)

Storage Rental

Supplies and materials

Subcontractors & Freelancers

Tax Preparation Fees

Taxi Fares

Thefts and Disasters

Timber Depletion

Tips

Tools (with qualifications)

Training/Education costs

Travel and Subsistence

Uniform

Use of home for business

Use of vehicle for business

Utilities    

Wages

Waste Disposal

Website Design




It is crucial to keep accurate and honest records. If you do not, the IRS may seek to reclaim unpaid taxes, even after several years, leading to the prospect of unexpected bills. Such bills could comprise several years’ payments of back taxes, plus interest and penalties. If in doubt, keep everything that you think might possibly required in the event of a tax audit, including bills, receipts, used tickets, etc.


Below are a few of the major items you may not know you can claim. For more information, visit the IRS website.


Using Your Home as as Office


If you use a part of your home as an office for business activities, you may be able to claim deductible expenses for it. These may include depreciation, repairs, insurance, mortgage interest and utilities.


To qualify for deductible expenses related to using your home as a place of business, including rent or mortgage relief, you must comply with both pf the following criteria.


1. You must use the business section of your home regularly and exclusively for your business or trade.

2. The exclusively business part of your home premises must also be:

a. Your principal place of business; or

b. Somewhere you deal with or meet clients, customers or patients in the normal course of your business or trade; or

c. a detached structure separate from your home which you use in connection with your business or trade.

 

These criteria do not generally apply to storage for business purposes, eg samples or inventory, or use as a daycare facility.


If part of your home is used as an office, it qualifies as your 'principal place of business' if it complies with the following criteria.


1. You use your home office regularly and exclusively for management or administrative activities pursuant to your business or trade.

2. You do not conduct substantial management or administrative activities pursuant to your business or trade at any other fixed location.


Vehicular Expenses


If you use your car, bike, van or truck for business as well as personal journeys, then you must keep scrupulous records of business-related expenditure on such items as gas, parking, road tolls, repairs and maintenance, which are all deductible.  Alternatively, you can opt for the more straightforward route of claiming mileage at the IRS standard rate (53.5 cents/mile in 2018).


This may seem an impossible choice, but it pays to do some research. If you spend a lot of time in your vehicle running errands, picking up supplies or making deliveries, you may find that the mileage rate pays off better than the individual deductibles. On the other hand, if you don't do so many miles, but use an older vehicle that lacks fuel efficiency and needs regular maintenance, the itemised deductibles might amount to a greater claim overall. 


Travel Expenses


Tech industry hackathons and blockchain bonanzas are only some of the trade and professional events where you can go to brainstorm with similar business owners and operators.  When you travel to such an event. you can claim a modest business deduction covering all your related expenses. These range in stature from airfares and hotel bills, to mileage, meals in transit and tips, and include some you might not have considered, such as shipping display items ahead, parking and road tolls, and phone/fax costs. 


In order to qualify as tax deductible, your trip must comply with the following criteria:


Your responsibilities and business-related activities during the trip must require  you to be absent from your regular place of work for substantially longer than one normal working day.


You have to sleep or rest in order to meet the demands of the business you are conducting while away from your regular workplace.


In these circumstances, you are entitled to claim deductibles for Meals and Lodging for yourself and any company employees, provided no part of the meal pertains to customer or client entertainment, in which case it goes in a separate category (below). You can also claim airline, train or bus tickets, gas for your car and car hire from the airport, plus your hotel or motel bills. 


Client and Employee Entertainment


The Tax Cuts and Jobs Act (“TCJA” or the “Act”) severely limits the deductibility of business entertainment expenses. Under the new rules, taxpayers will want to track entertainment expenses differently than they do now. 


Under the new rules, client entertainment expenses are a thing of the past, and means if your business incurs expenses for amusement, you can no longer claim a 50% deduction. Further, under the TCJA, expenses for entertainment activities and entertainment facilities are no longer deductible. Activities that include things like golf outings, sporting events, concerts, hunting and fishing trips, and country club dues are now classified as non-deductible “facility” costs.

Generally, business meals for employees are deductible, subject to the 50% limitation, provided they are not lavish or extravagant, and the taxpayer (or an employee of the taxpayer) is present when such food or beverage is furnished.


The new tax law still permits a full 100% deduction for expenses associated with recreational or social activities for employees, including holiday parties, summer outings, team bonding, etc. This would not include an event that is primarily for clients even if employees attend. Basically, this means, you need to be able to prove that the event primarily benefits the employee.


TJCA Cheat Sheet


The following table outlines different activities and expenses, and provides general guidelines on the way the TJCA laws impact meals and entertainment expenses:


Examples of Meals and Entertainment


Guidelines


Business Entertainment Trips or Events (sporting events, concerts, fishing trips, country club dues, movies, etc.)


Nondeductible


Tickets to Charitable Events


Nondeductible


Business Meals (with associates, clients, customers, or prospects)


Nondeductible


Employee Travel Meals


50% Deductible


Meals for Business Leagues (Chambers of Commerce, Boards of Trade, etc.)


50% Deductible


Meals for Meetings (with employees, stockholders, agents, or directors)


50% Deductible


Meals Provided for Convenience Of Employer


50% Deductible


Employee Events (holiday parties, summer outings, and other social/recreation activities)


100% Deductible


Office Snacks & Beverages


100% Deductible




Education expenses.


Education and vocational training are deductible expenses for the costs defrayed in the training and education of your employees as well as yourself. The education must relate directly to your business or trade and will maintain or improve the skills you need for it. You can also claim a deductible if the training or education is required by law or by trade or business regulations, in order to keep your job, job status, or license to practice. 


These few tips are but a drop in the ocean of deductible business expenses, and it is highly recommended that you consult the IRS website and a qualified tax professional.


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