Expenses that are Not Tax Deductible
I’ve mentioned many times how to know which business expenses are deductible. You can refer to this IRS guide. You can also remember these two words: ordinary and necessary. For an expense to be tax deductible, it must be an expense incurred in the ordinary course of business and necessary to achieve your business goal.
This month, I wanted to mention several expenses that many think are tax deductible but aren’t.
Work Clothes
You just landed a big new corporate client. You’ll do some of your work at their place of business. So the week before you start, you go shopping! You buy fancy slacks, and a pair of chic, yet sensible, shoes. This is great!, you think. I can deduct all this as a business expense as you reach for the Jimmy Choos…..
Not so fast.
Fancy work clothes are not tax deductible. According to the IRS, “the employee must wear the clothing as a condition of employment AND the clothes are not suitable for everyday wear.” So when you think about tax-deductible work clothing, think of uniforms and safety equipment—Hazmat suits, work boots, etc.
The Value of Your Time
Let’s say you are a welder, and your church has a railing that needs repair. Instead of paying someone to fix it, they ask you, as a church member, if you can repair it for free. “You can just write off the amount you would have charged us!” they say.
Nope. Wrong. According to the IRS, the value of your time is not deductible. You can only deduct actual expenses.
Personal Expenses
As a small business owner, you are used to working wherever and whenever you have to so that the job gets done or your business tasks get completed. It’s not unusual to find yourself at your kitchen table, sitting on your living room couch, or reclining in bed while working on your business. You consider your whole house your “home office” and try to deduct your mortgage payments, utility bills, dishes, kitchen appliances, laundry, your kids’ toys, landscaping, etc.
These expenses are tricky. There are legitimate scenarios where some of these items would be tax-deductible business expenses for you. The problem is that those scenarios must be very narrow in scope and specific in order to deduct those expenses. Beware of tax preparers or tax websites that promise you the ability to deduct all these fun, personal expenses from your business. They are likely to get your tax return flagged by the IRS and trigger an audit.
Need help organizing your books so that you keep your business expenses straight? Schedule a consult with me today!