Using Tax Deductible Expenses To Grow a Business
Everyone knows the old adage that you have to “spend money to make money,” but when it comes to tax deductions for your business, it is possible to generate business while saving money. There are a variety of deductions your business can take advantage of if you keep careful expenditure records throughout the year. As with any tax information, it is important to use this article as a general guideline and to consult a tax professional regarding your qualification for any specific deduction.
Advertising and Promotion
Advertising for your business, including print and television ads, business cards and costs for setting up a business website, are deductible business expenses. Additionally, promotion that generates goodwill, such as sponsoring a Little League team, can also qualify as long as the connection between the sponsorship and your business are clear. Note: Lobbying costs are not considered a deductible expense.
Entertainment and Meals
As long as you follow certain guidelines, the cost of entertaining and feeding clients or prospective business contacts can be legally deducted. The general rule is that the entertainment must directly precede or follow a legitimate business discussion to be deductible. If, for example, you take your business contact or client to a football game, the tickets are considered a legitimate expense if you can show that business was discussed before or after the event. However, the IRS has specifically ruled that venues like golf courses and baseball stadiums are not conducive to business discussions due to noise and distractions. If business is discussed over a meal, that meal is also considered a properly-deducted expense. As with all deductions, the expense must be reasonable (not lavish) and proper documentation is key.
Dues for Professional Organizations and Business Publications
Dues and membership fees to social clubs, like a country club or athletic club, are generally not deductible expenses, even if the memberships are primarily bought for business purposes. However, if the fees are for professional organizations, such as the Chamber of Commerce, a bar association or a subscription to a business publication, they may be deductible.
Charitable donations not only promote goodwill in the community and have a positive impact on employees, but they may also be tax deductible. To qualify for a deduction, research the charity to ensure it is eligible. Likewise, only certain types of donations qualify, such as cash, time, sponsorship or donation of goods. Again, keep records and note that the IRS limits the amount of deductible donations.
A business may deduct up to $25 in client gifts per person each tax year. However, an item that is widely distributed, imprinted with the company’s name and costs less than $4 (such as a pen) does not count toward the $25 yearly limit; these items may be deductible as an advertising cost.
Travel can be important to maintain or cultivate business relationships. When a company reimburses employees for business travel, that expense may be wholly or partially deductible. Legitimate expenses include meals, lodging, mileage, tolls, airfare, baggage fees, taxi fares, business calls and dry cleaning or laundry.