Business Driving Expenses
Deducting business driving expenses for use of your car or a company car for business driving can be complicated and a red flag for auditors. The standard mileage rate changes at least once a year, based on driving costs. You can include these expenses in one of two ways: Using the Internal Revenue Service (IRS) standard mileage rate, or actual expenses. To deduct actual expenses for business use of your car, you must separate out personal and business use. You must be able to show excellent at-the-time records to prove the business purpose for all business driving expenses, whether you take the standard mileage expenses or actual expenses.
Home Business Space Deduction
The IRS looks carefully at attempts to claim a deduction for a home business space and wants to be sure this space is being used only for business purposes. You’ll only want to take this deduction if the space is used regularly and exclusively for running your business. You must also be able to show that your home is your principal place of business, and it is where you usually work on your most important business activities. If you have a small home office, you might want to claim the deduction for a small space. If the space is under 300 square feet, you can use a simplified deduction without having to itemize costs. Just multiply the exact space times $5 a square foot to get the deduction amount for your business tax form.
Gifts, Bonuses, and Awards
Rewarding employees is certainly an allowable business expense, and gifts to customers or clients are a part of doing business. But there are limits on some of these deductions. You can’t deduct more than $25 for business gifts to any one person a year. This limit applies to both employees and individuals outside your business, like a customer, vendor, or advisor. Gifts, bonuses, and awards to employees may also come with tax implications for your employees. You must include bonuses as part of an employee’s regular pay and add them to their taxable income if the bonuses are for their work. If you distribute small gifts or awards to employees in the form of merchandise or small benefits, like a gift of flowers for an employee illness, you don’t have to include these in the employee’s taxable compensation. But cash or credit/debit cards must always be included in the employee’s compensation.
Dues to Clubs and Organizations
Business owners and their employees might join clubs or organizations to network with other professionals. But not all club dues are deductible. For example, your dues to the golf club can’t be deducted,even if you do business while you’re on the course. You can’t deduct membership costs for business, pleasure, recreation or social clubs. You can deduct dues to professional and trade organizations, chambers of commerce, and civic or public service organizations.
Business Travel Expenses
Like expenses for business driving, business travel expenses are both limited in amount and restricted. The IRS defines business travel as travel away from your tax home for business purposes. If you are traveling with a spouse, family member, or other person on a business trip, you can’t deduct their travel expenses unless they are an employee, have a true business purpose for their travel, or could otherwise deduct their travel expenses. If you are on a personal trip, like a vacation, the cost of the trip is a personal expense, but you can deduct business-related expenses while at your destination. Cruises and resort vacations aren’t considered business trips, even if there are incidental business activities, like a lecture or video presentation as part of the vacation.
Meal Expenses
Beginning with the 2018 tax year, business entertainment expenses are no longer deductible. That means no sporting events, concerts, or resorts. Meal expenses are still deductible, and you are still limited to 50% of allowable expenses in most cases. Entertainment for promotional purposes is still deductible. For example, a business can deduct the cost of a community or promotional event. You may also deduct the cost of food and beverages you provide during an entertainment event, if these costs are separate.
Depreciation of Business Assets
Depreciation is the process of taking deductions for capital assets as you use the property over a number of years. It’s arguably the most complicated business tax deduction. There are some cases when you can speed up the deduction into the first year you own and use the asset. For example, you may be able to take a part of the cost of some property in the first year you own the property using what’s called a section 179 deduction.
Donations to Charities
Corporations can deduct donations to charities if the donation is to “a qualified organization” under section 170(c) of the Internal Revenue Code. Other charitable donations are only deductible through your personal tax return and you must be able to itemize deductions to write off more than a few hundred dollars.
Buying a Computer
Computers for business owners and employees are legitimate business purchases but the type of computer and where it is used affects how you can deduct these costs. Computers owned by your business and used exclusively at your business location don’t have to be treated as listed property (used for both business and personal purposes), but laptop computers that can be used at home are still in this category. As listed property, a laptop computer must be used more than 50% for qualified business purposes. The IRS warns that expenses must not be “lavish or extravagant,” and must be reasonable based on the circumstances.
