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Deductions that go beyond 'creative'

With the federal income tax filing deadline bearing down us, many small businesses will review all the expenses they had in 2016 with the mind of finding as many deductions to reduce their taxable income. The math here is simple. The more the deductions one might have, the lower their taxable income may be. The lower their taxable income is, the less they may have to pay (or owe) in taxes.

 While it might be smart to be creative with deductions, the IRS will not accept every conceivable deduction. In essence, business owners should hold true to the old adage “pigs get fat, but hogs get slaughtered.”

As such, businesses should avoid the following deductions.

Sketchy charitable donations – While charitable donations tend to reduce one’s taxable income, making them to entities that do not have proper 501c3 status could be a recipe for disaster.

Cosmetic augmentation – Having plastic surgery is unlikely to count as an allowable business expense, even if you rely on good looks to make an income.

Unrelated vehicles – Vehicles used exclusively for business can incur deductible expenses. But this may not apply to riding mowers, golf carts and even certain enhancements to cars.

Equipment loosely related to a business – Deductions  for golf clubs, piano lessons and even pets that are ostensibly meant for a business may not endear you to the IRS.

Parties as entertainment – Normally a party may suffice as a marketing expense. But throwing parties for family members under the guise of advertising is likely to lead to trouble.

If you have additional questions about deductions, an experienced tax law attorney can help. 

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Friday, November 18, 2016

Chaya Kundra will be a panelist at the New England IRS Representation Conference on Preparer Penalties.

Preparer Penalties: Everything You Need to Know! Over time the IRS has increased its focus from individual taxpayers to tax preparers. When the IRS identifies a pattern of false or fraudulent returns, it does not hesitate to impose penalties on the return preparers. This panel will walk you through the various penalties and what preparers need to know to protect themselves.

Moderator: Amanda Evans, Green & Sklarz LLC, New Haven, CT

Panelists: Chaya Kundra, Kundra & Associates, Rockville, MD, Barbara Kaplan, Greenburg Traurig, New York, NY

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