If you are like most small businesses, you aren’t trying to cheat or cut corners on your taxes. However, it is vital that the rules and regulations regarding when the IRS allows in your tax deductions so that you aren’t finding yourself in trouble with the government. It is one of the reason why accounting is such an essential part of doing business. It helps you avoid these potential problems. Mark Dicus & Company is here to talk about some of the IRS deduction rules that some small business owners may not be aware of.
IRS Deduction Rules That Are Important to Know
The deductions are a huge bonus to owning a business. Many deductions are completely allowed by the IRS. However, there are some deductions that aren’t and can get you in trouble when you try to claim them. Here is what you should know about what the IRS allows as far as deductions are concerned.
– Remember Documentation: There is no way around it, you have to have documentation for every single deduction that you are trying to claim. These records should clearly have information that includes the date, amount, purpose and business relationship to the expense. Whether the deduction is valid or not, it will be tossed out without the documentation it needs.
– Ordinary & Necessary: Another immovable rule is that the expense must be both ordinary and necessary. This means that the expense is widely needed for your line of work and something that you absolutely need to keep your business going.
– Special Limits: There are some deductions that are going to have limits in place. For instance, if you are deducting a food expense, you can only deduct 50% of the cost. If you are deducting vehicles, you have to choose which method of deduction you want to use and stick with it. If you want to use mileage, great. If you choose to use the actual expense method, you have to stick with it.
– Mixed-Use Assets: Sometimes you have things that you use for both personal and business reasons. In these cases, you can only deduct the business portion rather than the whole thing. For instance, if you have a home office in your house, you can’t deduct the expense of your entire house. You can only deduct a portion depending on the square footage solely being used for business.
– Audit Red Flags: It is important to know what will be red flags for an audit. Things like high deductions in relation to your income, deducting perfectly round numbers, and claiming 100% of things for business that clearly aren’t only used for business, will flag you for an audit.
Tax Preparation, Filing, Planning & More in Salt Lake City, St. George, West Valley City, Provo, Orem, West Jordan & Greater Cedar City, Utah
If you are a small business that struggles with the accounting side of doing business, you aren’t alone. You can turn to Mark Dicus & Company to help you keep things straight and ensure your taxes are prepared with exactness. Call us today!