Hey Entrepreneurs! Don’t Try To Tax Deduct These Business Expenses!

It’s unlikely that anyone wants to pay more income tax than is necessary.  Every small business owner is looking for business expenses that can be deducted to lessen the tax burden.

In order to deduct a business expense you must actually have spent the money for that expense.  Just as important, you must also have documentation proving you paid the expense you are claiming.

There are many legitimate deductions available to the small business owner.  There are other expenses you may think you can deduct, but the Internal Revenue Service will probably say no.

1.  Political contributions – You cannot deduct money you contribute to a politician or political party.  Neither can you deduct expenses paid for the cost of lobbying or attending political events.

2.  Commuting expense – You cannot deduct the cost of commuting back and forth to your normal place of employment.  If you are going on a business  call those expense deductions are allowed.

3.  Hobby expenses – If you really are engaging in a hobby and not an actual business enterprise these expenses and losses are not deductible.  You need to follow the IRS guidelines on whether your activity qualifies as a business or is considered a hobby.

4.  Home office –  If your home office is not used at all times strictly for the purpose of your business you cannot deduct the space costs.  Of course, if this is the only place you conduct your business enterprise and the space is dedicated for that purpose the deduction would be considered legitimate.

5.  Non-business club dues – You cannot deduct dues to a social club or a country club even if you entertain clients there.  Even though it may be beneficial for your health, you cannot deduction the cost of a fitness club from your business tax return either.  You are allowed to deduct the dues for professional organizations related to your business.

6.  Clothing – You are not permitted to deduct your business clothing unless it is a uniform necessary for your employment.

7.  Illegal activities    It should go without saying that you are not permitted to deduct expenses for engaging in illegal activities.

8.  $25+ Business gifts – You may not deduct business gifts over $25 for any one person during one tax year.  You can spend more than the $25 for a gift, but you cannot deduct more than the $25.  You may give as many gifts as you wish to different people and deduct the $25 allowed for each gift. 

9.  Personal expenses – You cannot deduct personal expenses such as housecleaning or gardening services as a business expense just because you work from an office in your home.

10. Capital expenses –  When you purchase large items like equipment which is considered a capital expense you need to depreciate the cost over a period of years and not take the deduction in one year.  An exception may apply if this is a start up cost.

11. Tax penalties and tax fines –  These are not deductible from your federal business taxes.  These are usually incurred for not filing your taxes by the due date and/or either not paying or underpaying estimated taxes.

These are some general guidelines of deductions the IRS is likely to question.  For more detailed information refer to the guidelines published by the Internal Revenue Service.  Consult with your tax professional for expert advice on allowable business deductions.