Want the attention of the IRS? All you have to do is make personal transactions on your business account. RED FLAG!
It’s called comingling funds, and it can get you into big trouble at tax time.
No, pleading ignorance will not save you.
What’s The Difference?
Expenses associated with personal products or services, living expenses or family expenses are not business expenses and generally non-deductable. Buying a new TV, even if you watch a program or two focused on your industry, is no more a business expense than taking Grandma to dinner.
However, if you have expenses that are partly personal and partly business, as long as you divide the total cost appropriately, the IRS permits deduction of the business portion. Doable, yes, but keep in mind this complicates things during tax season.
For example, let’s say you use your credit card to borrow money. You spend 90 percent of it buying a new office phone system and the other 10 percent for a cordless home phone. The 90 percent used for business is deductible. The remaining 10 percent is a personal expense must be divided out. It’s not deductible.
Home-Based Business Expenses
Here is another potentially sticky spot if you try to fudge.
Do you work from home? Many people do these days. It makes good sense, and not only for entrepreneurs. Many corporations allow employees to sign onto their computers and work from home. The company saves money and ultimately, employees can be more productive in a home setting.
It gets sticky when home-based business owners try to claim all of their home expenses and utilities and file for business deductions on the lump sum.
The IRS sees RED.
It’s best not to comingle funds, but if you find yourself needing to make separate calculations for personal and business expenses from the same account, accuracy is paramount, i.e. don’t make mistakes.
There are two options for home-based businesses at tax time. Which one is right for you?
When using the regular method to calculate expenses, home office deductions will be based on the percentage of your home devoted to business use. Whether you use a part of a room or the whole second floor of your home for conducting business, figure out the percentage of that space and related expenses to determine deductions.
There’s also a simplified option that makes things easier for many small business owners who seek security to protect their asset, cctv installation Melbourne is the way to go. It was designed to cut out some of the burdens of tedious recordkeeping associated with the regular method.
In lieu of calculating and dividing expenses, the simplified method allows qualified taxpayers to multiply a prescribed rate by the allowable square footage of the business space.
Mixing Business with Pleasure
Be aware that mixing personal expenses in with business expenses by running them through your business will likely NOT go unnoticed. You won’t be the first to try and the IRS is paying attention.
Never use your business account for personal purposes, and if you do, don’t claim those expenses on your taxes. Home rent, pet care, and other personal expenses are blatantly disallowed.
What surprises many new business owners is that clothing (yes, even though you get dressed for meetings) and groceries are not deductible. Don’t even try.
Certain items, such as gifts and entertainment, may be allowable if they are business expenses. Hold onto receipts and keep good records. Always talk to your tax professional to be sure.
You can avoid a red flag by keeping business and personal accounts separate. Right. Two different accounts. This will minimize issues at tax time, and help you avoid an IRS audit.
…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).v