As April 18th draws nearer, I’ve been advising several new entrepreneurs and owners and we reviewed their income tax returns together. Here are some uncommon – but entirely legal – tax deductions I’ve listed on their returns that might also be appropriate for yours.
Consultancy and Professional Fees
Would you believe that “the Bobs” from “Office Space” could’ve been considered a corporate write-off? As long as an outside professional is hired to advise or improve your business, the cost can be deducted. This is not limited to corporate auditors who pride themselves on owning the entire Michael Bolton catalog, mind you.
The list includes lawyers and accountants – and this isn’t just shameless self-promotion. Think of how many times in the past year – or since you opened shop – that you didn’t contact your lawyer or accountant for fear of hourly fees. Whether your business is growing, shrinking, relocating or merging, the cost of legal and tax advice can be among your deductions.
Those are obvious examples, though. Hiring outside professionals to manage other aspects of your business, like graphic designers, marketing consultants or social media strategists, also qualify for these deductions.
Promotional Costs
On the subject of marketing, certain marketing and advertising software fees can be deducted. Even if you have an outside professional or firm handle your marketing, the cost of certain software and programs can be written off. Features like LinkedIn Pro and Facebook for Business qualify – if you spend money to promote your business, the costs are likely fully deductible.
As always, show receipts. You can get creative when you itemize, but don’t get too creative. Remember that the Internal Revenue Service will eventually see this list, and its representatives may not be as broad-minded as you.
Certain Business Taxes
You read the header correctly: Specific taxes can be claimed. This statement also applies to fees and licenses. For example, if you own a bar and need to renew a liquor license, that fee can be deducted on your federal return. To be clear, this only applies to state and local fees and taxes, but is reflected on the federal tax return.
Now that we’ve reviewed a good, legitimate example of a corporate write-off of taxes, here are some examples of taxes and fees you cannot and should not try to deduct:
- Penalties and interest.
- Clothing, even if it’s work-related.
- Gambling losses.
Try to avoid running your expenses through your trust and estate plan. This includes your personal rent. This is another example of “creativity” the IRS tends to scrutinize.
Contact Brinen & Associates to discuss how to legitimately deduct these and other costs from your federal income tax return.