Small businesses have the option to legally take many tax deductions. Typically, businesses can deduct any necessary and regular cost they have. However, some business costs (like the ones below) might seem like legal deductions but they are actually problematic or even unlawful to write off.
Costs of Exploring Business Opportunities
The IRS won’t allow you to deduct the time and money spent considering which business opportunity you should go into. After you formally begin the business you can assess the expenses that you incur.
Everyday Business Attire
In order to deduct work clothes, they have to be unfit for daily wear and your work has to consider them mandatory. This means that if you wear some pieces of clothing to work and to other events, you can’t deduct the cost. Only things that your employer needs you to purchase like uniforms and equipment are tax deductible.
Commute to Work
Your commute to a physical work location cannot be deducted, but your commute to a client’s location can be deducted. Mileage put on your vehicle for business use can be deducted at 57.5 cents for every mile (the current IRS standard rate).
Gifts to Customers, Vendors, or Company Associates
Business gifts can be deducted, but the IRS doesn’t allow more than $25 to one customer. If your business gives a customer a $200 gift, you’d only be able to write off the first $25 of it. Gifting to multiple customers allows you to give to more people while being able to deduct a greater amount of $250.
Cost of Cell Phone Service
Cell phones are personal property and it’s difficult to write part of the cost off. Phones are similar to cars and computers in the eyes of the IRS and have a dual purpose: personal and business use. You’ll need to calculate how many calls you made for business and that’s the percentage of the total cost you’ll be able to deduct.
Home Office Area
It’s difficult to be able to deduct home office space for business use. The area must only be utilized for business, and it should be used often. Even in-home daycare providers can’t deduct a room or bathroom unless the daycare kids are the only people who use it (and never the provider or their family).
Penalties or Fines
Most penalties and fines can’t be deducted on your taxes. So, even if you are traveling and get a parking ticket, you still can’t deduct it. “Certain fines are tax deductible though, like punitive damages,” comments a spokesperson from the Sobel Tinari Economics Group, who handle these cases and can present thorough analysis for corporations that need it.
Country Club Membership
While it’s nice to network on the golf course or chat with clients after tennis, the IRS frowns upon deducting these dues. They feel the same way about fitness centers and social clubs.
This article is intended for informational intents only. Since every business is different and tax regulations and laws change often, it’s important to speak with a business tax advisor prior to filing taxes.