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Tax Tip - July 7th, 2008

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Identify all those "other" business expenses

Other business expenses.

The generic term you see on your tax form may leave you scratching your head. Just what "other" expenses can you legitimately deduct?

While there's no hard and fast rule, examples include insurance premiums, legal and professional fees, supplies you use in your business, utilities, auto expenses, and the deduction for certain energy-efficient commercial building property.

Here's a guide for less obvious items.

  • Like all costs you incur in your business, "other" expenses must be ordinary and necessary in order to be deductible.
  • In tax law, ordinary means normal, usual, or customary in the context of your business.

    Illustration: If you're a commercial fisherman, boat insurance is an ordinary expense. Other business owners may have a harder time justifying a deduction for boat expenses.
  • An expense is necessary if it is appropriate and helpful to the operation of your business.
  • Some expenses are only partially deductible. For instance, the cost of meals and entertainment must have a direct business purpose before you can claim a deduction. Even then, your deduction is generally limited to 50% of your cost.
  • Certain expenses are specifically identified as nondeductible. Personal, living, or family expenses fit into this category, as do fines, penalties, political contributions, commuting to and from your job, and most lobbying costs.

Contact us any time you have a question about the deductibility of a business expense. We'll help you get the greatest tax benefit.
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