TAX-SAVING STRATEGIES November 13
Is My Morning Coffee Deductible?
Good news, read below
by Dean Ferraro, EA
If you get a cup of coffee on your way to work, can you write it off as a business expense?
A lot of business owners don’t have the time (or interest) to decipher the complicated tax code.
Yet, business expenses are a VITAL part of your financial picture.
A lot of your day-to-day business expenses can be written off.
You can use those business expenses to decrease the amount of taxes you have to pay.
Remember what your parents said: “it takes money to make money…”
The IRS knows this too.
To help you figure out which expenses you can write off, I’ve written this so you get some straight answers.
As an Enrolled Agent, the most popular 5 words I hear are: “Can I write that off?”
So, I created a list of common business situations and the answer as to whether it results in a tax write-off.
Situation #1: A business owner picks up a cup of coffee on the commute to work. Let’s start with the question we posed at the beginning of the article: is that Starbucks run a write-off?
If you run through the drive-thru for your morning caffeine fix, it’s a personal expense and isn’t deductible. The word commute means personal expense and almost everything connected to that is never deductible.
However, there’s an alternative option that can result in a write-off:
As the business owner, purchase a coffee maker and buy the supplies with your business account. Then make the coffee at work because then it is deductible. Cha-ching!
Or if you are away on a business trip, that Starbucks run is deductible.
Situation #2: Two business partners go out for drinks and talk business. Is this considered a business expense?
Yes, but there’s a catch.
The IRS limits the costs of meals and entertainment to 50% of the total cost.
Assuming that the business partners truly did spend a majority of the time talking about true business, the full cost of the drinks would be included as a business expense and then reduced by 50 percent on the tax return.
Snap a picture of the receipt with your smartphone, and take a quick note who you met with and what business was discussed.
A notes example: "Drinks with Wayne Gretzky, needed tax planning help due to wife's gambling, meeting was setup for later in the week."
Writing off adult beverages, Cheers to that!
Situation #3: A business owner takes a client out for dinner to talk about an upcoming project. What if you want to wine and dine a client—is that deductible?
Yes, but again the deduction is limited to 50% on meals and entertainment.
Entertainment tickets are also deductible at full face value.
What was that new restaurant in town called again? How much are tickets to sit front row at the LA Kings game?
Get my point? :)
Situation #4: A business owner buys office supplies for a home office. Deductible?
Provided that the supplies are used for business purposes, they are 100% deductible.
However, if you are buying a ream of paper and only 60% is used for business purposes, only 60% is deductible.
AUDIT ALERT: Need help setting up a home office properly for tax purposes? Give me a call. Do this wrong and you will not enjoy your meeting with the IRS when they ask for more proof.
Situation #5: A business owner takes a 2 day trip, more than 50 miles from his home, and has a 4 hour business meeting while away. Is the whole trip deductible because of your business meeting?
The IRS says that your travel expenses are deductible if the primary purpose is business, even if some portion of the trip is for pleasure.
Since the meeting was only 4 hours, the entire trip isn’t deductible, but you can write off the mileage for your travel and MAYBE a night stay in a hotel and some meal/meeting costs. This is when you would need to give me a call.
Under current tax laws, you get around 53.5¢/mi this year when you drive for business. (this amount changes year to year) or get to deduct the costs of your plane tickets to get to the meeting.
Situation #6: Your monthly cell phone bill is used for both business and personal calls. Your business would be at a standstill without your cell phone, right? So, is it 100% deductible?
AUDIT ALERT! You have to break it into percentages.
If 80% of your phone usage is for business-related calls, then you can write off 80% of the bill.
Unless you have a dedicated business cellphone and service, which I recommend BTW, 100% might not be the truth and the IRS could come asking questions about it later.
The world of writeoffs can get a little complicated, but hopefully these tips give you enough accounting advice to plan ahead and make tax time easier.
If you need more help or guidance with setting up systems to manage expenses and money flow in your business, contact me by email above or text/call me.
I also have some discounts and freebie apps and software that can help automate your business and make your life easier.