Salaries. Goods purchased for resale. Equipment. Entertainment.
It costs money to operate your business. Naturally you’d like to reduce your taxable income by deducting what you spend. Deductible operating expenses — commonplace costs related to your business, like salaries — let you do just that.
But for tax purposes, not everything you purchase is considered an operating expense. For example, goods you buy for resale are included in inventory and become part of your cost of goods sold at a later date, when you find a buyer.
What about that new delivery truck? Depending on the cost and the total dollar amount of assets you bought and began using during the year, a current write-off might be available under the Section 179 expensing rules for certain delivery trucks. Otherwise you’ll take depreciation deductions over the life of the equipment.
Other expenses are subject to special restrictions that may cap the amount you can claim. For instance, say you invite a customer to lunch at a local restaurant. In order to take a deduction, the expense must be directly related to your business or associated with it, such as a discussion concerning your work for the customer. Even if you meet those tests, limits on entertainment expenses mean you can generally deduct only 50% of the check.
In certain cases, an expense may not be deductible at all. Commuting costs and federal income tax are examples of nondeductible expenses.
If you have questions regarding deductibility, please call. We’ll be happy to help you sort through the rules and restrictions.
Home
What's New
Professional Advice
