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W. S. Wray, CPA, PLLC
714 Oakland St
Hendersonville, North Carolina
CPAs: We do what we do so that you can do what you do - better.
This is a great question. I often direct my clients to look at a Schedule C to see the kinds of things that are deductible, but that’s not inclusive as some expenses do fall under the category “Other” - and what is that? Businesses can deduct any expenses ordinary and necessary to run their business. Office expenses, production supplies, a computer, etc. Easy enough, right? Not quite. What is ordinary? What is necessary to me might be extravagant to another business.
You use your cell phone for business (don’t we all?). Your cell phone is on a family plan that you pay $250/month to keep up but your phone line is only $90 of that. $90 is deductible if you reimburse yourself from your company. The $250 is not.
Insurance? Liability, E & O, anything necessary for your profession is deductible. Health insurance - maybe, it depends on your business structure. Life insurance - definitely not UNLESS it has been purchased solely for the benefit of the business (i.e. necessary for a bank loan).
Mileage is reimbursable from your business and deductible. However, the regulations do require that you have records: date/time/place/odometer readings/total miles/who/what was purpose? Honestly, there are so many mileage logs out there in phone-app-form that it’s easy to keep up with these things - but DO keep up with them. You must produce these records if the IRS ever asks for them.
There are some definite “no’s”. For instance, professional attire is not deductible even though it may be necessary. You have to get dressed anyway, right? Per the regulations, if you can wear it anywhere else anyway, it’s not deductible as a business expense. Keep this in mind when looking at attire. A polo with your logo embroidered is attire that can be worn anywhere else and is not deductible as a “uniform”. On the other hand, when my 6’7” son worked at Disney World and had to wear a lederhosen, that was most definitely not appropriate street attire. But it was funny.
Also “no” is any major expenditure (fixed asset) unless it qualifies for special treatment. (How’s that for vague?) Normally, large expenditures (i.e. a $50,000 vehicle or $10,000 machine) must be depreciated over the life of the asset. In some cases it can be expensed immediately but that is a decision that needs to be made when we look at your whole tax situation. Thanks to the new tax law, we do have a lot more room to expense items that would normally be capitalized but there are actually some situations in which it doesn’t make sense to expense immediately. Of course, if together we decide that a big deduction is the right thing to do, we will expense it on the tax return.
There is no blanket, clear-cut answer for these questions. There is no “these always”/”those never” delineation. If you’re not sure, ask. That’s why we’re here.