As a business owner knowing what you are doing at tax time can have a large outcome on your end of year finances. There are tax regulations that can help lower the amount of taxes your business is required to pay, these deductions can be applied to certain business expenses. The amount of money deducted from your gross income will result in your taxable business income being lower.
By maximizing your deductions you can help lower the amount of business profits that are taxed. Some of the things that can be deducted include items such as, business trips and vacations, a new car and retirement savings plans. You will have to know how to file your deductions with the IRS to avoid any issues with your taxes.
Necessary and Ordinary Expenses
According to the tax code; Section 162, all expenses you seek to deduct for business must be considered ordinary and necessary. Although this tax code does not give any definition for either term of ordinary or necessary, so you have to think logically what can actually be deducted as a business expense. Generally this deduction would cover expenses such as office supplies or equipment used only in that business.
Section 162 of the tax code does not place any limits on the amount that you can deduct for business expenses, although they do imply that any large expenditures must be reasonable. For example; a small business owner can’t fly half way across the world to find a paper manufacturer, but a large company would be able to deduct the cost of travel to visit a supplier.
The IRS does check to see if business owners try to deduct personal expenses as a business expense. Travel to and from work is considered a personal expense so you cannot claim that as a business expense. Likewise you cannot personal use of a company credit card or car as a business expense, the IRS closes watches these types of deduction claims.
There are many legal ways to claim the maximum deduction for business expenses and can help you spend money more wisely along the way.