As a small business, you are allowed to deduct all “ordinary and necessary” business expenses—and this ambiguity opens a subjective and creative area for business owners to consider.
Schedule C of your tax return indicates a variety of normal expenses for business, such as office supplies, insurance, wages and salaries, travel, meals and entertainment. But because there is a significant variation in the expenses incurred based on the type of industry, there is a section entitled “other expenses” that can be used to deduct the write-offs specific to your business.
Listed below are some uncommon write offs to spark your imagination:
- A few years ago, a tax court deemed a stripper’s breast augmentation surgery as an ordinary and necessary business expense and allowed the deduction on her Schedule C. Of course, this doesn’t mean that you will be allowed this type of deduction if you work in sales, for example, and feel that you will succeed if you have improved your “appearance,” so to speak.
- A wine shop owner deducted the cost of the surgery to repair his sense of smell since his nose played such a large role in the success of his business. His tax pro based this decision on the stripper’s case cited above.
- A business owner once wrote off the care and feeding of a cat as a business expense since it kept vermin, specifically rats, at bay from destroying valuable inventory at a storage facility. The company had tried pest control methods had been attempted with little or no success. But once the cat was brought in, the rats disappeared.
- By the same token, a guard dog is definitely a write off. This includes vet bills, food and toys. But if you bring your blind, deaf and aging poodle, Snickers, to work, don’t try to write her off as a guard dog.
Then there’s the guy convicted of embezzlement who wrote off his legal defense expenses.
Guess what? The IRS allowed it because it was considered an ordinary and necessary business expense. But if you attempt to deduct the cost of a speeding ticket incurred while trying to get to a business meeting, you will find the gavel drop with a sharp ‘disallowed!’ Nothing illegal is deductible – not parking tickets, not bribes, not kickbacks.
You can also treat expenses in a certain way with positive financial results. For example, consider your homeowner’s insurance. How much of your homeowner’s insurance is charged specifically for in-home office? It can be quite a large amount. This amount can be taken as a direct expense on Form 8829.
Rather than prorating your total insurance cost as an indirect expense, you may benefit by taking the actual cost of the business rider. For example, let’s say your homeowner’s insurance costs $1,000 per year and your home office represents 10% of the space in your home. Prorating this expense accordingly would result in a write off of $100. However, take a look at your billing: If the rider for the home office is $300, you may deduct that amount and save yourself a few bucks in taxes.
These are just a few examples of off—yet successful--deductions. In your daily activities, consider the reasons why you spend the money you do. If the reason you are incurring a certain expense is because it is an “ordinary and necessary” business expense, then you likely have a deductible transaction, but when in doubt, run it by your tax professional.
Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all 50 states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, Calif., and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know.” Her new e-book Taxpertise for the Creative Mind Murder, Mayem, Romance, Comedy and Tax Tips for Artists of all Kinds is available at all major booksellers. Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.