In our last post, we began a discussion about business expense deductions. If you're a small business owner, you may have struggled with this issue in the past (or are struggling with it right now). Perhaps the most confusing deductions are those involving expenses and property that are put to both business use and personal use.
On its website, the IRS gives several common examples of crossover expenses. We'll discuss some of those in today's post.
As a small business owner, you may deliver products or travel to meet clients in the same minivan that you use to drive your kids to soccer practice. Thankfully, keeping track of how much you use your car for each purpose is fairly straightforward. Most vehicles these days come with at least one resettable trip odometer (and many cars have two). Whenever you drive your vehicle for business purposes, you should reset the trip odometer and write down mileage when you're done. It helps to keep a notebook in your car or use a smartphone app.
If you operate a business primarily or exclusively out of your home, you may be able to deduct certain expenses (or portions of expenses) as business-related. This is a little too complex to discuss in detail on this blog. So if you're interested in learning more, please read about qualifying for a deduction on the IRS website.
Mixed personal and business assets
Let's say that you took out a loan of $10,000. About $7,000 is earmarked for use in your business while the remaining $3,000 goes toward a personal expense like redoing your living room or taking the family on a vacation. The interest on this loan may be deductible as a business expense, but only 70 percent of the interest (the portion used for business purposes).
Hopefully, this week's posts have given you a clearer (general) understanding of how to deduct business expenses appropriately. Even if you have read all the available IRS literature on tax compliance for business expense deductions, you may still be left with many questions and a lot of uncertainty. For this and other reasons, it's a good idea to seek help from an experienced CPA, a tax law attorney or both.