As you know, being a business owner, you have over 73,000 lines of code that you can take advantage of for tax write-offs. However, it’s not like going to the store and using several coupons until you don’t have to pay anything.
There are some tax write-offs you may not qualify for, and if you’re not careful, you could get in trouble with the IRS. This blog post will discuss how you can write off your taxes without the IRS agents knocking on your door.
Ask Yourself These Questions Before Writing Off Taxes
I know it can be tempting to write off all your taxing using every tax code in the book.
However, before you start writing off taxes, you want to ensure that your business can take advantage of these tax write-offs to prevent getting in trouble with the IRS.
You need to ask yourself four questions to determine what tax write-offs you can use. If possible, ask your business partners for their input as well.
1. How do you use it in your business?
What purpose does it have in your business? For example, we’ve all heard of people getting their cars painted to make them look more appealing. However, you can also give your car a paint job to promote your business.
2. Is the expense necessary?
In other words, do you need it for your business to operate? If you can’t find why you need it in your business, why should the IRS? It has to be something so important that your business would not be able to run efficiently without it.
3. How does it benefit you?
What benefit does this expense offer your business? Does it bring new leads, provide education, or help you run your business more efficiently? Be as specific as possible.
4. Does it help you make money or not lose money?
One important thing to remember is that as a business owner, you should always be in “the pursuit of income.” As long as you are trying to make money, then you are a business owner in the eyes of the IRS
Every business is trying to make money because they wouldn’t be in business without money! So if you must pay for something to help you make money and stay in business, that’s a valid tax write-off.
The IRS will also allow you to write off services or products you paid for to avoid losing money.
For example, if you hire an accountant to help your business stop losing money, you can write off your accountant’s fees as a business expense.
Note: Try to answer all these four questions and relate them back to you as the business owner, customers, employees, or vendors. These are the groups of people who drive your business.
BONUS: How You Can Write Off Luxury Possessions
Can you buy high-end clothes, cruise ships, planes, and cars and write it off as an expense? The answer is yes if you can somehow relate it to your business.
For example, say you own a house cleaning business. For this business, you will always wear different blue and white dresses. This is your business uniform, and it is part of your brand.
When clients think of you, the first image that will likely come to mind is someone in a blue and white dress.
When an item you buy becomes an integral part of your brand, you always have to have it; therefore, it becomes a valid business expense.
Another Example: How To Write Off Luxury Possessions
Say you’re a tour guide and live somewhere with a huge body of water. Buying a yacht to give clients a tour around town is a valid business expense. Furthermore, that yacht is necessary to make money, so you can rightfully write off the purchase from your tax bill.
One last thing to note is that you always want to link your purchase to a specific part of your business.
Returning to our house cleaning example, say your house cleaning business has more than one service. For example, not only do you clean homes, but you also do window cleaning, car washes, dog cleaning, etc.
Well, now you’ll want to say specifically what activity or service you’re buying the blue and white dress for and why. In our previous example, we purchased the blue and white dress for house cleaning, so when asked by the IRS, we will state that:
“We bought the dress for the house cleaning aspect of our business. As it represents an important part of our brand.”
In conclusion, not all tax write-offs are created equal. As a business owner, you can access thousands of potential tax write-offs, but you won’t be able to use them all. There will be only a select few that you will qualify for based on your business.
The big thing you want to remember is that you want to prove how this expense is integral to your business. Then link that expense to a specific service or activity you do within the company. This gives the IRS a clear picture of why you’re writing off the expense.