2018 Business Expenses
- By Rick Sawyer
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- 10 Dec, 2018
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. . . to Track for Tax Deductions
Working with creative and athletic performance focused small business owners all year, the most frequently asked question Celebrity CPAs hears is: “Can I deduct that?”
Never forget that monetizing your talent is a business and, like running any business, the old adage is true, “It takes money to make money.” Legitimate tax write-offs are critical to growing your business and maximizing your company’s bottom line.
Because they are dealing with a government agency known for its attention to minutiae, it usually comes as a shock to our clients when they learn that the IRS doesn’t offer a standardized check-list of approved business deductions. The principal guideline the IRS uses is: you can deduct any expense incurred in the production of income.
Even if you’ve been in business for years and are conditioned to considering the tax implications of every purchase, it’s always a good idea to discuss your expenditures with your CPA or tax advisor to make sure you’re not overlooking anything.
Especially since 2018 is the first year we’re working with the Tax Cuts and Jobs Act. we urge all our clients to keep track of all their business-related expenses and discuss them with us to make sure everything is handled and reported correctly.
While the following is not an exhaustive list of every imaginable business-related expense, you can use it as a thought-starter to review the money you spent during the year, so your career . . . your business . . . could generate income.
Not every item on the following list will be tax deductible this year—or may be only fractionally deductible—but we urge our clients to give us the details of these expenses (and any others you feel fit the broad criteria) to see whether they qualify to reduce your taxable income.
Possible Deductions for Taxes
- Accounting fees
- Agent fees
- Amortization
- Auto expenses
- Bad debts
- Banking fee
- Business travel
- Charitable deductions (business)
- Computers and tech supplies
- Consulting fees
- Continuing education
- Depreciation
- Dining during business travel
- Employee wages
- Entertainment for customers and clients
- Equipment
- Equipment repairs
- Furniture or fixtures
- Group insurance
- Health insurance
- Home office
- Industry-related membership dues
- Interest
- Internet hosting and services
- Investment advice and fees
- Legal fees
- Losses due to theft
- Management fees
- Maintenance
- Mortgage interest on business property
- Moving
- Newspapers and magazines
- Office supplies and expenses
- Outside services
- Payroll taxes
- Parking and tolls
- Pension plans
- Postage
- Publicity
- Real estate-related expenses
- Rent
- Retirement plans
- Safe-deposit box
- Safe
- Software and online services
- Storage rental
- Subcontractors
- Taxes
- Telephone
- Utilities
- Website design
- Workers' compensation insurance
And, remember: the more documentation you have regarding expenses, the stronger your claims for legitimate deductions.
One area we’ve found challenging to some of our clients over the years is providing the right documentation to substantiate sizable charitable contributions.
The IRS recently published final regulations clarifying several aspects of charitable gift reporting:
Donations of cash
For contributions of $250 to $500
To claim a cash contribution of $250 to $500, you must obtain a contemporaneous (originating at the time as the gift) written acknowledgement from the recipient of the donation.
For contributions of more than $500
To claim a monetary gift of $500 or more, you need either a bank record or a written communication with the recipient showing the name of the recipient, the date of the contribution, and the amount of the contribution.
Donations of property
To claim a donation of property valued under $250, you must receive a receipt from the recipient or keep “reliable records.” (We encourage getting a receipt.)
To claim non-cash contributions valued between $250 and $500, you’re required to obtain a contemporaneous written acknowledgment.
To claim a donation valued between $500 but less than $5,000, you must obtain a contemporaneous written acknowledgment from the recipient and file Form 8283 using Section A, Donated Property of $5,000 or Less and Publicly Traded Securities.
To claim a non-cash donation valued between $5,000 and $500,000, in addition to a contemporaneous written acknowledgment, you must obtain a qualified appraisal and file Form 8283 using Section B, Donated Property Over $5,000 (Except Publicly Traded Securities).
To claim a non-cash contribution of $500,000 or more, you must meet the requirements for a contribution of $5,000 to $500,000 and attach the qualified appraisal to your return.
What’s a "qualified appraisal?"
The IRS regulations define a "qualified appraiser" as an individual with "verifiable education and experience in valuing the relevant type of property for which the appraisal is performed" (Regs. Sec. 1.170A-17(b)(1)).
We get it. Your career demands are too hectic day-to-day for you to worry about the end of your fiscal year . . . until we get to the end of your fiscal year. And since most of our clients operate as small businesses, their fiscal year usually coincides with the calendar year.
That means you’re simultaneously faced with booking and using your talent, dealing with holiday hassles, and getting your paperwork in order so your accountant can prepare your tax returns (personal and business).
Here are a few year-end tax prep tasks every client can do right now to help assure a trouble-free tax preparation and filing experience for 2018.
Get organized
CPAs generally charge by the hour. That means, if you bring us all your receipts in a shoe box, for example, your tax return will be done, but it will take us longer to sort through everything that’s in the shoe box. Just as in your business, time is money.
It’s best if all your invoices and receipts are recorded in the same format in the same software program or spreadsheet.
Get reconciled
Bank reconciliation should be ongoing on a weekly basis throughout the year, but we realize it’s one of those things that gets back-burnered in the pressure and fast-pace of your professional life.
What we’re looking for is documentation of a bank transaction that corresponds with each entry in your accounting system.
Evaluate quarterly payments
If you make estimated tax payments quarterly, check to see how they correspond to the actual end-of-year numbers you achieved. The process will give you a good idea of the amount you’ll get back or how much you’ll owe this year.
And it will give your accountant benchmarks that will come in handy while preparing your tax return.
Review your W-9s
If you hire freelancers, you must issue 1099 forms to every person you paid at least $600 to for contract labor. If you didn’t anticipate paying him or her that threshold amount, you may have overlooked having them complete a W-9 form at the time. You can still have any missing W-9s completed before the end of the calendar year.
Call your CPA today
For a successful CPA practice, every day during tax season is like Black Friday to retailers. We’re deadline driven to get every tax return prepared as accurately and efficiently as possible.
The sooner we can sit down with our clients to review appropriate records and start preparing the return, the more likely this year’s tax filing project will be smooth and stress free.
