You're doing your taxes, and you want to take advantage of business tax write-offs—or instruct your accountant to do so. But there are a lot of myths surrounding business tax write-offs.
Before you start counting your money, you may want to make sure you haven't fallen for any common business tax write-off misconceptions. Just a handful of them include:
Myth #1: Putting advertising on a vehicle automatically turns it into a company vehicle.
It's easy to see why people fall for this. You would think if your company logo is splashed all over your vehicle, you have a company car. If there was such a thing as the Hall of Fame for Business Tax Write-Offs, you would think this would be in there.
But if your company logo is emblazoned on your car, one that you use to drive to your office, but also the gym, your kids' school, the grocery, your last vacation and the mall, then sorry, it does not count as a business tax write-off.
—John Milikowsky, principle attorney, Milikowsky Tax Law
A lot of business owners end up pushing that concept to weird extremes, says Jared Callister, a tax attorney with the law firm Fishman Larsen & Callister in Fresno, California.
"For example, a dentist who goes out and buys a speedboat and plasters his company logo all over the boat and tries to claim the expense as a marketing expense will not be allowed to deduct or depreciate those boat expenses," Callister says. "While marketing expenses are allowed, it's clear that the boat is for personal purposes and putting a few logos on the side of the boat to advertise your business doesn't make it a non-personal expense."
If the vehicle is truly used for business purposes, like a delivery truck, then it can be written off.
Myth #2: Work-related clothing can be considered business tax write-offs.
Actually, you can't, says Pamela Kornblatt, president of Tax Strategists, LTD, a New York City-based tax accounting firm.
"The IRS states that only clothes that are not suitable for everyday use, like a police officer's uniform, can be written off," Kornblatt says. "When a client buys a special outfit for a TV appearance, they are often very disappointed to learn that they aren't allowed to claim the expense."
Myth #3: It doesn't matter where your corporation's annual meeting is.
Oh, it matters, if you're going to use the expense of the meeting as one of your business tax write-offs, says Craig Smalley, owner of CWSEAPA, Accounting & Financial Services, in Orlando, Florida.
"Some small corporations will take a cruise, and say that they had their 'meeting,' and want to deduct the cost of the cruise or trip, and say that it was 100-percent business related," Smalley says. "Upon further investigation, you will learn that they had their kids with them, and the trip or cruise lasted for seven days."
In a lot of these cases, the meeting was for an hour on one day of the cruise or group vacation, he adds. In those cases, Smalley says, "the most they can write off would be the cost of that one-hour meeting, and only the expenses of corporate officers."
Myth #4: Receipts and good documentation will help you write off questionable business expenses.
If this is truly a questionable business expense and one that ultimately isn't seen as a business expense in the eyes of the Internal Revenue Service, then all the documentation in the world isn't going to change the minds of anyone at the IRS. The auditors may just see you as someone who is throwing a lot of paperwork at them and hoping something sticks.
"I had an IRS appeals case where my client had boxes full of records and receipts substantiating his deductions," Callister says, "but when you actually looked at what he was expensing, there were purchases at jewelry stores and women's clothing boutiques [because] he had charged gifts to his girlfriend to the business."
Documentation can help you if what you're writing off was really related to your business, he says.
Myth #5: You can deduct your meals and entertainment as business expenses without a lot of scrutiny.
It's that last part that can trip up business owners, says John Milikowsky, the principle attorney of Milikowsky Tax Law in San Diego, California.
You can deduct your meals and entertainment as business expenses, but if there's an audit or any question about your filing, there can be a lot of scrutinizing. Milikowsky says that too many owners believe that these expenses are easy business tax write-offs.
"Unless the business owner can prove each meal written off has a business purpose such as conversations relating to the business, IRS will disallow the expense," he says.
Read more articles on tax deductions.
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