It's the fourth quarter - which means it's time to tally up potential business expenses for tax savings! But what exactly constitutes a valid write-off?
As your trusted tax specialist, Pennywise Tax Strategies wants to provide clarity around what the IRS considers "ordinary and necessary" when it comes to deducting business expenses.
For an expenditure to qualify as a business expense, it must be:
Ordinary: Common and accepted within your industry
Necessary: Helpful and appropriate for operating your business (but not strictly indispensable)
Even if an expense meets these standards, additional factors determine full or partial deductibility:
- Whether it is used to calculate the cost of goods sold
- If it is a capital expenditure
- What portion relates to personal versus business use
Proper documentation is also key - be sure to keep documents like canceled checks, receipts, invoices, and written records explaining the business's need for expenditures. By understanding the ins and outs of substantiating business expenses, you can maximize write-offs while minimizing audit risk.
Don't leave potential savings on the table - Our team stays on top of the latest IRS rules and precedents to help clients like you retain more of what you earn. Contact us today for your free consultation!