There is a general rule in tax law that says all “ordinary and necessary” business expenses are deductible. We’ll spare you the details about the arguments over this phrase, but suffice it to say that it basically means that in order to be deductible, an expense must be a legitimate expense that pertains to your business.
Here are some common business expenses:
- Fees for tax preparation
- Bookkeeping & Accounting Expense
- Advertising
- Car and truck expenses
- Business Travel
- Office Supplies
- Entertainment
- Insurance Payments
- Professional organization membership dues
- Transportation costs
- Postage
- Business gifts of $25 or less
- Interest
What about your personal expenses? Here are some ways others have turned their personal expenses into business expenses:
| BEFORE | BECOMES | HOW? |
| Computer | Business Equipment | Prove the business use. |
| Internet Services | Utility | Your need for business communication with clients |
| Cell Phone | Business Equipment/Service | Phone usage to call clients |
| Automobile | Auto Allowance | Document how much of your monthly mileage is business related and deduct the IRS-approved standard mileage rate |
| Meals Out | Business Meals | Note the business purpose of meal and who attended |
| Child/Day Care | Provided Child Care | Business adopts plan to furnish child care. |
| Child Allowance | Employment for your Child | Written job description, time sheet, reasonable wage |
| Medical, Vision | Medical Reimbursement | Adopt medical reimbursement plan to pay all medical, vision, dental, orthodontia cost. |
| Magazines | Subscriptions | Prove use for your business or have available to waiting clients |
| Art Work | Office Art | Use in your office, and document as business expense |
| Dry Cleaning | Out-of-town Expenses | This is allowed as part of your out-of-town business expenses |
| Gym Equipment | Physical Fitness Facility | Establish an on-premise house/office gym |
| Vacation | Business Trips | Create business purpose for the trip |
| Tuition | Education | Authorize employee/owner education |
| Seminars | Education | Authorize employee/owner education |
| Furniture | Business Furniture | Where appropriate, prove business need – desk, etc. |
| Home Costs | Home Office or Business Rental | Follow home office guidelines – measure square footage used for business, track all home expenses for reimbursement |
Many IRS publications address the topic of allowable business deductions. You can download them from the web or get them free by calling the IRS Tax Distribution Center at 1-800-829-3676. Some important publications include #334, Tax Guide for Small Business; #463, Travel, Entertainment, Gift, and Car Expenses; and #535, Business Expenses.
So once again, consider a side-business. It could save you hundreds of tax dollars every year.
