Weighing business deductions as tax season arrives


As tax season approaches, businesses across various industries are gearing up to minimize their tax liabilities. Amid this pursuit, an essential avenue for potential savings lies in identifying deductible business expenses. However, not every business expense is eligible for deduction.

Here’s a breakdown of what businesses need to know Regarding food and beverage expenses, the temporary 100 percent deduction for these costs expired after 2022, and businesses can now deduct 50 percent of such expenses if they are not considered lavish or extravagant and if the business or an employee is present during the provision of these items. Additionally, there are specific criteria for the deductibility of food and beverages provided at entertainment activities.about claiming, or foregoing, deductible business expenses on their federal income tax returns:

When being ordinary pays off

In accordance with IRS regulations, deductible business expenses must fulfill the criteria of being both ordinary and necessary. An ordinary expense is one that businesses commonly incur and that is widely accepted within a specific industry, such as expenses for paper and ink in a printing company. On the other hand, a necessary expense is one that is helpful and appropriate for conducting business, without necessarily being indispensable. For instance, expenses for television advertising could fall within this category.

It’s important to note that not all ordinary and necessary expenses can be claimed in the year they were incurred, and in some cases, they may not be deductible at all. Taxpayers should distinguish “usual business expenses” from expenses used to calculate the cost of goods sold, capital expenses that are typically recovered over the course of several years through depreciation or amortization, and personal expenses, which aren’t deductible for businesses.

However, expenses that serve both personal and business purposes, such as phone, internet, or vehicle expenses, may be allocated, with the amounts allocated to business purposes potentially being eligible for deduction, provided there is appropriate documentation to support the allocation.

Destination: deduction

When it comes to travel and commuting expenses, costs related to travel away from the tax home or main workplace for business purposes are generally deductible, particularly if substantial labor and overnight stays are involved to meet work demands. However, commuting expenses to and from work are not deductible for employees.

Additionally, the 2017 Tax Cuts and Jobs Act (TCJA) eliminated certain deductions for employee transportation expenses.

Regarding entertainment expenses, the TCJA brought about significant changes, disallowing business deductions for items typically considered as entertainment, amusement, or recreation. This prohibition extends to expenses for facilities used in connection with such activities, as well as club memberships and dues related to entertainment activities organized for members or guests.

Regarding food and beverage expenses, the temporary 100 percent deduction for these costs expired after 2022, and businesses can now deduct 50 percent of such expenses if they are not considered lavish or extravagant and if the business or an employee is present during the When it comes to travel and commuting expenses, costs related to travel away from the tax home or main workplace for business purposes are generally deductible, particularly if substantial labor and overnight stays are involved to meet work demands.provision of these items. Additionally, there are specific criteria for the deductibility of food and beverages provided at entertainment activities.

When it comes to client gifts, businesses can generally deduct up to $25 of the cost of business gifts given to each client or customer during the tax year, with certain limitations and exclusions applying, such as incidental costs that do not substantially add value to the gift.

Vehicle expenses also warrant consideration, with specific rules dictating the treatment of purchase prices for business vehicles and the deductibility of routine maintenance and repair expenses.

Get professional help

Navigating the intricacies of deductible business expenses requires careful attention to detail and an understanding of applicable regulations. The tax professionals at Sol Schwartz & Associates are prepared to assist businesses in optimizing their tax positions and claiming eligible deductions.

With tax season under way, businesses should take a proactive approach to managing their business expenses and should seek professional guidance to make the most of available deductions.

For assistance in navigating business expense deductions, businesses can turn to the tax professionals at Sol Schwartz & Associates, which has been assisting businesses with tax planning and compliance since 1980.

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