Monday, November 18, 2013
Deductions, Deductions, Deductions!
There are several common red flags and deductions that should be considered to help you make the best decisions when dealing with the Internal Revenue Service (IRS) to save yourself some money and heartache.
The key to dealing with the IRS is: documentation, documentation, DOCUMENTATION!
If you’re writing off an expense you’ll need to prove where it came from, as well as how it relates to your business! It cannot be repeated enough, receipts, documentation, notes, and sometimes visual references can save you thousands of $$.
Some items can be a common red flag to the IRS and spur an audit. These include large travel and entertainment deductions, business gifts, large “miscellaneous” expenses, deductions for expenses not normally associated with your business, deductions of a personal or recreational nature, and any large deductions out of line from your reported income.
Things to remember about reporting these deductions are: most travel expenses can only be deducted up to 50% with some overseas exceptions, home office and vehicle can be deducted with strict guideline and reporting regulations,and business trips must be the primary reason for a trip.
Don’t miss out on a way to save your business money; when in doubt, take the deduction! What is important is to be honest and document! Open a separate business account, use a specific card for business expenses, keep ALL your records for at least 7 years, and remember to write on the back of your receipts!
There are four basic rules of taking a deduction; all expenses must meet these:
1. The expenses must be incurred in connection with your trade, business, or profession.
2. The expenses must be ‘ordinary’. That is, common or accepted in your type of business.
3. The expenses must be necessary, appropriate and helpful in maintaining your trade or business.
4. The expenses must not be ‘lavish or extravagant under the circumstances.’
Some common deductions include; home office, business vehicle, business phone, office equipment, travel expenses, promotions, health insurance, advertising, web pages, education credit, gifts $25 or under, and MORE!
Taking a deduction with the proper documentation can save a business thousands of dollars with the right know how! Get your information from a trusted source with knowledge in financials and tax services.
Kingman, Marianne K., J.D., LL.M, Winslow, Linda A., J.D. “Real Estate Agents Tax Guide: Deductions, Deductions, Deductions Volume I”. 2009-2010. Kingman Winslow, LLC.