April 26, 2018

Test

[sawarp color=”default”][sawcon title=”Advertising & promotion”]

Overview

Advertising activities include most of the things you do to get the word out about your business or draw attention to a product or sale.

Criteria

  • Ordinary and necessary: An expense is ordinary if it’s common to your profession. A necessary expense is one that’s appropriate or helpful in developing or maintaining your business.
  • Current expense: will benefit your business for less than one year
  • Directly related to your business: not personal
  • Reasonable in amount: reasonableness is dependent on the circumstances and not limited to a specific dollar amount

What is deductible

  • Business cards
  • Mailing lists / mailing list software
  • Brochures
  • Branded giveaway items
  • Posters
  • Web site design, development and maintenance
  • Goodwill advertising: brand building that fosters a positive image for your business
    • Ex: sponsoring a little-league team
    • Case: The tax court allowed a gas station owner to deduct the cost of providing free beer to customers as a good-will advertising expense since it improved business.

What to collect

  • Name of vendor
  • Date
  • Amount of expense
  • What you used to pay for the expense
  • Enter all of this information into your Expense Tracking System

Gotchas

  • Personal expenses, even if they might help your business are not deductible. For example, expenses related to inviting customers to your daughter’s wedding are not deductible.
  • Advertising to influence government legislation is not deductible
  • Do not deduct time and labor

Tip: Make sure you can show a clear connection between the advertising activity and your business.

[/sawcon] [sawcon title=”Bad Debts”]

Overview

You can write off the costs of bad debts, but only if you’ve had an actual economic loss.

 Criteria

  • Bona fide business debt: A legal obligation to pay in the course of doing business
  • The debt must be worthless: A debt becomes worthless when there is no longer any chance that you will be paid back
  • Economic loss:
    • Already reported income for the the amount you were supposed to be paid;
    • You made a cash loan; or
    • You made credit sales of inventory that were not paid for

What is deductible

  • Debts from loaning money for a business purpose
  • Debts from selling inventory on credit, or
  • Debts from guaranteeing business loans

What to collect

  • Documents to support the payment obligation – written notes, guarantees, etc
  • Documents to show the debt is worthless – copies of unpaid invoices, collection letters, bankruptcy notices, etc
  • Enter all of this information into your Expense Tracking System

Gotchas

  • Investments do not count as business debts.
    • Ex: Bill gives his brother Sam $25,000 in return for a 25% equity stake in Sam’s company. This is an investment, not a business debt.
  • If you sell services, you generally can’t claim a bad debt deduction for the time you spent on the project if a customer fails to pay you.

Tip: Even though you can’t write off the value of your time, you can deduct the cost of other expenses incurred in connection with a bad debt. For example, if a service client doesn’t pay, you can deduct the cost of any supplies but not the value of your time invested.

[/sawcon] [sawcon title=”Bank fees & loan interest”]

Overview

You may deduct the interest and fees associated with any business bank accounts, credit cards or loans

Criteria

  • Ordinary and necessary: An expense is ordinary if it’s common to your profession. A necessary expense is one that’s appropriate or helpful in developing or maintaining your business.
  • Current expense: will benefit your business for less than one year
  • Directly related to your business: not personal
  • Reasonable in amount: reasonableness is dependent on the circumstances and not limited to a specific dollar amount

What is deductible

  • Bank account fees
  • Check printing fees
  • Credit card processing fees
  • Interest on mortgages, lines of credit or credit cards
  • Loan origination fees

What to collect

  • Name of vendor
  • Date
  • Amount of expense
  • What you used to pay for the expense
  • Enter all of this information into your Expense Tracking System

Gotchas

  • No interest deduction is available for loans where you keep the money in the bank. Money kept in the bank is considered an investment.
  • If you take out a business loan from a relative or friend, make sure to carefully document the transaction carefully and keep records to prove you actually paid the interest. The IRS closely examines loans between friends and relatives.

Tip: Establish a separate business bank account and credit card to avoid the hassle of trying to separate business and personal interest charges and fees.

[/sawcon] [sawcon title=”Charitable Contributions”]

Contributions by a C corporation to a qualified charity may be deductible as business expenses, but a tax professional should be consulted to calculate the amount of the deduction and the documentation required to substantiate the deduction. Qualified charitiesare those organizations that have been approved by the IRS as tax exempt. To determine if a charity is qualified, you can search for the organization on the IRS website here. Contributions are not business expenses for owners of a sole proprietorship, partnership, LLC or S corporation. Instead, the contributions are personal deductions.

[/sawcon] [sawcon title=”Casualty losses”]

Overview

Casualty losses include damage to property caused by a sudden, unexpected or unusual event.

Criteria

  • Damage to business property by earthquake, storm, floods, or some other sudden, unexpected or unusual event
  • Deduction is limited to amount not covered by insurance
  • Case: The Tax Court disallowed a casualty loss deduction for an engine that was destroyed from a failure to use antifreeze. The Court stated that the taxpayer’s neglect, and not freezing, was the cause of the damage.

What is deductible

  • The adjusted basis of the property minus any insurance proceeds. Adjusted basis is the property’s original cost minus any prior tax depreciation.

What to collect

  • Receipt from original purchase of property
  • Value immediately before and after the casualty
  • Insurance claim, if any
  • Adjusted basis of the property
  • Documentation of loss: police report, etc
  • Enter all of this information into your Expense Tracking System

Gotchas

  • If you simply lose something, you can’t take a casualty deduction.
  • Losses as a result of damage by a pet are not deductible. So, if Fido eats your computer, you are out of luck.
  • If the property is only partially destroyed, the casualty loss deduction is the lesser of the decrease in the property’s value or its adjusted basis minus any insurance proceeds received.

Tip: If a piece of property or equipment has been fully depreciated or expensed, don’t take a casualty deduction.

[/sawcon] [sawcon title=”Casulaty losses”]

Overview

You may deduct the interest and fees associated with any business bank accounts, credit cards or loans

[/sawcon] [sawcon title=”Casulaty losses”]

Overview

You may deduct the interest and fees associated with any business bank accounts, credit cards or loans

[/sawcon] [sawcon title=”Casulaty losses”]

Overview

You may deduct the interest and fees associated with any business bank accounts, credit cards or loans

[/sawcon] [sawcon title=”Casulaty losses”]

Overview

You may deduct the interest and fees associated with any business bank accounts, credit cards or loans

[/sawcon] [sawcon title=”Casulaty losses”]

Overview

You may deduct the interest and fees associated with any business bank accounts, credit cards or loans

[/sawcon] [sawcon title=”Casulaty losses”]

Overview

You may deduct the interest and fees associated with any business bank accounts, credit cards or loans

[/sawcon] [/sawarp]