Is It Really Going to be Tax Time Soon?
For many businesses, the month of September marks the end of the third quarter, which means the fourth quarter is right around the corner. So, what is the significance of that, you ask? It means the end of the year is quickly approaching, and it will be time to start thinking about TAXES, again!
Whether you're an established business owner or in the beginning stages of running your own business, saving as much possible on taxes should be one of your highest priorities, and proper strategic tax planning should be one of your main business goals.
As a business owner, one of the entitlements you have are tax deductions which will oftentimes help you save money by reducing your taxable income. It’s highly important to know which business expenses are tax deductible because failing to take advantage of these tax deductions results in many businesses overpaying on their taxes each year. You don’t want to be one of those business owners.
To determine whether you can deduct a business expense, you first have to identify if the expense is ordinary and necessary to your business. The IRS requires both of these components to be satisfied in order for a business expense to be tax deductible.
So, what exactly is ordinary and necessary?
- An expense is ordinary if it is common and accepted in your industry.
- An expense is necessary if it is helpful and appropriate for your business.
If you can answer ‘true’ to each of these components, then you can deduct your business expense in order to reduce your taxable income and therefore, your overall tax liability.
Here is a short list of common business expenses that are ordinary and necessary for many small business owners and self-employed individuals. Since these are the more common deductions you could take, future blog posts will be written on each of these topics to go into more detail on each one. Be sure to follow the blog posts to ensure you don’t miss this useful information.
- Use of a Home Office
- Personal / Business Use of Automobiles
- Personal / Business Use of Phones
- Travel, meals, entertainment and gifts
- Insurance Premiums
- Retirement Contributions
- General Office Expenses and Miscellaneous Expenses
- Employee Compensation
- Social Security payments
- Legal and Professional Fees
- Software and Subscriptions
- Bad Debts
- Charitable Deductions
As with all good news, however, there is usually bad news to go along with it. Unfortunately, there are several expenses which are never tax deductible:
- The dues you pay to be a member of a social, athletic, airline, hotel, or other clubs are not tax deductible, even if your membership is for business purposes.
- Federal income tax payments
- Penalties and fines as a result of breaking the law
- Lobbying expenses
- Political contributions
Be sure you don’t overlook these important tax deductions when you’re totaling up your business expenses at the end of the year. Keeping track of all your business expenses will ensure you get to take every deduction available to you, and enlisting the help of a professional who understands deductible business expenses can save you countless hours in getting your books prepared.
Let Bodhi Books take care of your bookkeeping needs so you’ll be ready for tax time. Also, remember that we liaise with your tax accountant under the Standard and MAX plans, so you can focus on all other important matters while we handle all the tax questions for you.
For those eager to begin looking at more tax rules and regulations on tax deductible business expenses, the following IRS Publications will give you the information you need in getting your books ready for tax time.
IRS Publication Number