To begin with, there are certain threshold issues that apply to all business deductions.
- Appropriateness of the expense - was the expenditure ordinary and necessary for your business?
- Relation to a business activity the IRS is keenly aware that taxpayers may be tempted to write off things as business expenses that are really nondeductible personal expenses. If the expense was only partly for business, you'll need to allocate it between the business and personal portion.
- Do you have adequate records in a tax audit, the IRS agent will ask you to show that the expense was in fact paid. This is where your recordkeeping routines come into play. If you have kept good records, proving your deductions won't be a problem. Remember, on most tax matters, the IRS can require you to prove that your deduction (or other item on your personal or business return) is correct. If you can't do this, the IRS will compute your tax liability based on its view of the question under dispute.
- What are some common deductible expenses - we provide a list of some of the most frequently used deductions, and some that you may have overlooked
- What are some common nondeductible expenses - while no list can be all-inclusive, we point out some items that are generally not deductible for most business owners.
Getting a tax deduction may be nice, but make sure that the deductible expense is justified from a business operations perspective. Particularly if you are in the startup phase of your business, the money you have to spend is limited. You don't want to fall into the trap of justifying the purchase of a gold-plated white elephant by saying: "So what if I really don't need it, it's deductible!"