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Deductions for Small Business Owners

Small business owners are always asking me what expenses they can deduct on their taxes. My first answer is everything related to the operation of your business, but that is not exactly the answer they are looking for. They want specifics, as they should. Obviously, they are aware of the most common deductible expenses, but they want to know about the ones that are not so obvious. The following discussion will address those not so obvious deductions.

Meals and entertainment – Many taxpayers are afraid of this deduction, but if they document the meeting or meal properly there is no reason to worry. They need to maintain a record of the name of the individual or individuals, their phone number, business purpose, and specifically what was talked about at the meeting. You can greater utilize this deduction by making your spouse and family members part of your business.

Casual labor – This is one that business owners should worry about going forward as these expenses paid to non-employee individuals are increasingly scrutinized during an audit and disallowed in many cases. The IRS and State Dept's of Revenue have taken the stance that an individual is either an employee or is in business for themselves. These casual labor expenses fall somewhere in between. At a minimum, an invoice or some documentation should be obtained. A bright spot in this type of expense is that small business owners reporting their income and expense on Schedule C can deduct amounts paid to their children for activities performed for the business up until the age of 18 without having to treat them as wages and the children do not have to report the income unless their total income from all sources exceeds $ 4,100.

Travel – Many small business owners do not take advantage of turning a vacation or get-away into a deductible travel expense. This can be done by attending a seminar of some type while away on travel. The seminar could be anything related to your business or just business in general. This is not hard to do.

I saved my favorite one for last. The question that I love to get, " Can I write my boat off through my business?" Well, let's see. What do you do with your boat in your business? The answer is "I take my clients out fishing." Ok, that sounds good. I would say you can write the expenses of that trip off. That would include fuel, food, accessories and yes, even the beer. But what they really want to write off is the cost of the boat. BAM! That would be a nice write-off, but hold up. There are two problems that come up here. One is that the question of whether or not the purchase of a boat is an ordinary and necessary expense of your particular business. Probably not. Next is the business percentage usage of the boat versus personal usage. It is doubtful that business use would exceed personal. This would preclude the big write-off of the boat but would still allow depreciating a portion of the cost of the boat. Further discussion will be necessary for your particular situation.


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