Business owners should strive to take advantage of every possible deduction in order to minimize their tax liability.
While the IRS provides a short list of don’ts (for example, you cannot deduct anything illegal such as traffic tickets), it doesn’t offer a definitive list of tax deductions available to businesses.
The tax forms for businesses to use to declare income and expenses list all of the broad categories of accepted deductions. These are all the “ordinary and necessary” business expenses that the IRS states you may deduct. However, it’s that last line, the one entitled “Other deductions,” where creative minds begin to work to come up with often overlooked write offs.
Here are a few that may work for your small business:
1. Pet Food. If you own an animal that serves a useful purpose at your place of business and cannot be construed as a family pet that you simply bring to work every day, you may have a valid write off of food, vet bills, training, toys and any other expenses associated with the care of the animal.
The animal must have a job: a cat who keeps down the rat population, a security dog, a herding dog. You get the idea.
2. Body Oil and Sunscreen. A pro body builder was allowed a deduction for body oil used to make his muscles glisten under the lights. However, the IRS disallowed special dietary foods and supplements, which by the way, would not be deductible as medical expenses either. A tennis pro may write off sunscreen products as they fall under the category of protective gear.
3. Breast Augmentation. A stripper once increased her breast size and attempted to write off the bill as a medical expense and the IRS disallowed the deduction, claiming it falls under the category of cosmetic surgery which is not deductible.
However, the agency allowed the deduction as a bona fide business expense. I imagine the woman also got a refund because this would also reduce her self-employment tax whereas if taken as a medical deduction it would not.
4. Law Suit Settlements. If your business is sued and you lose, you may be able to write off the settlement amount as well as the legal fees you incurred.
Many years ago, an accountant was arrested for embezzlement and was allowed to deduct the legal fees for his defense as business expenses on his tax return.
5. Freebies. Gifts you give to customers are allowed as business deductions. You can spend up to $25 per gift per recipient (including employees).
6. Payments to Family Members. You may be able to hire your children to work in your business without incurring a payroll tax liability if they are under the age of 18.
You may even hire your significant other to help out and take the write off. Don’t forget to issue a W2 or 1099 and conform to the rules for determining whether the worker should be classified as an employee or a contract worker.
7. Landscaping and Housekeeper. If you have a home office, you may deduct the cost of a housekeeper to keep the office area clean. And if you regularly meet clients at your home office, you may deduct a portion of landscaping costs as well. The place has got to look good, right?
Open your mind to all the potential deductions you can enjoy in your business. If the intent is business, the cost is likely deductible by the business.
As with all deductions, make sure you keep receipts and cancelled checks or credit card statements. And for the most unusual deductions or other questionable deductions such as travel, meals, and entertainment, be sure to include plenty of documentation to prove business intent in the event you are audited. And run your ideas by a tax professional first to make sure the deductions will fly.
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 and on Facebook.