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Top 20 Tax Questions from Small Business Owners

Oct 4, 2017 / by Ross Sumner

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There isn't a whole lot that's more complicated and confusing than taxes and tax-related issues. I have been working in tax for five years with individuals and business of all sizes and complexities. When I meet someone new and tell them I am a CPA, I instantly get some sort of tax question.

So, I've put together a list of the most common questions and answers I get from small business owners. Some of these situations get more complex depending on the size of the company, but these are the general rule.

Q:  Is my gym membership a personal or business expense?  

A: Personal. You can pay the membership through the business if you want but it will not be deductible on the tax return. An M-1 adjustment would be necessary.

Q:  I have a car note in my personal name. The car is used for business and I’ve been paying the note from the business account.  Can I continue to pay the personal note from the business account? 

A: You either need to change the owner of the car to the company or pay the note yourself. If you pay the note yourself then you can deduct mileage and other auto expenses on your personal return.

Q: Do I need to keep receipts if I pay for things with the business account?  

A: It is good to have documentation in case the IRS decides to come in for an examination. Small things are not a huge deal, like office supplies, but you especially want to keep receipts for meals, fixed assets, materials, things used personally, etc.

Q: Can I write off meals for anyone I take to dinner and we talk about business?

A: Meals for business purposes are 50% deductible.

Q:  Are leasing trucks, cars, materials specifically for jobs tax deductible?

A: Yes, these are tax deductible.

Q: Are public transportation and Lyfts / Ubers / taxis to meetings or events tied to the business tax deductible?

A: Yes, these are tax deductible.

Q: Gifts for clients?  Is there a limit?  Can it be wine or food?  Or only promotional gifts?  

A: There is a $25 limit per gift per person. Whatever the gift may be.

Q: How much "misc" income & expense is allowable?  I'm asking because they are each a category in QuickBooks.

A: There is no dollar amount threshold. Generally speaking, I try not to use misc accounts at all because misc doesn't tell me much when I'm trying to gather business insights. Every type of expense and income should have an associated account.

Q: If I do business while I'm out of town, is the trip up a write off?  How much can I write off?

A: You can deduct all expenses on a trip if the expenses are related to business. For example, if you are on a five-day trip, and you do business on the trip on one day, you can write off one night of the five for lodging. A best practice is to write on the back of each receipt the reason for the expense and who you met with. If you are at a convention or conference, keep related materials. The IRS does check the nature of conventions, seminars, etc.

Q: As far as clothing, is anything a write off short of a uniform?  What constitutes a Uniform?  What’s the max?

A: You can deduct the cost and upkeep of work clothes and uniforms if you must wear them as a condition of the job and are not suitable for everyday wear. If you provide clothes to your employees with your logos and things like that then they are also deductible.

Q: Are my medications a write off?  

A: Only on your personal return. They should not be paid out of the business account.

Q: Can the business pay for my health insurance?   

A: Yes. A general rule is if you offer insurance to one full-time employee, you must provide it for the rest of your full-time employees. The same thing applies with part-time employees. Also, if your entity is an S-Corp and you are a greater than 2% shareholder of the S-Corp then the premiums paid on your behalf will be reported on your W-2 as wages, subject to income tax withholding.

Q: How much "meals & entertainment" is allowable?

A: Meals for business purposes are 50% deductible.

Q: We spend a lot on parking.  Is it a write-off if we get reimbursed for it by billing the client for it on the final invoice?  If it’s not a write off is it worth more as a write off or a loss?  

A: If you pay for parking then you deduct the parking expense. If you pay for parking then add it to the invoice for reimbursement then you need to include that in income. The parking income and expense washes out in the end.

Q:  Can I take loss on equipment that breaks and is unfixable?

A: Equipment should be listed in your fixed assets and get depreciated. If equipment breaks or is unusable then you can “dispose” of the asset and take a loss equal to the amount of depreciation that has not been taken.

Q: Can the business pay for a life insurance policy for me?  

A: Yes, but the premiums are probably not deductible. You may not deduct the cost of premiums for life insurance where you, the business owner, are directly or indirectly the beneficiary.

Q: How much student loan interest is tax deductible?

A: None on the business return. Up to $2,500 on your personal return. Some of that can get phased out depending on your income.

Q: I also have a car that is a total loss. What can we do about that?  What’s the best way to get rid of it as far as the loss goes?  I'm still paying on the note.  

A: Same as the equipment. It will be written off and the amount that has not been depreciated will be a loss. You still deduct interest payments on the note.

Q: Is there a “best practices” way to set up QuickBooks specifically?  

A: It is good to have account numbers associated with each account. Ideally you will have 5-6 digit account numbers.

Assets – 10000 and up
Liabilities – 20000 and up
Equity – 30000 and up
Income – 40000 and up
Cost of Goods Sold – 50000 and up
Expenses – 60000 and up
Misc or Other – 70000 and up

Once you have the proper accounts numbered and in the right area, the rest is personal preference.

Still have more questions? Schedule a 30-minute consultation with one of Paro's finance experts.

Tags: Bookkeeping