What expenses can my business deduct on its taxes? It’s such a simple question, yet the answer is shockingly complex. No tax situation is one-size-fits-all, and the rules are constantly changing. To offer clarity, we found some of the most “Googled” business deduction questions and answer them here.
Can my business deduct charitable contributions?
Yes, but you might be surprised how often those contributions qualify as business expense deductions instead. For a true charitable contribution, the entity you give to must meet the IRS definition of a charitable organization (see that definition here). Also, your business cannot receive value from the contribution, including marketing exposure or tickets to an event or dinner. That means sponsorships for everything from a baseball team to a major nonprofit’s gala are usually business expenses, not charitable contributions. Talk to a tax professional about your giving strategy and how it might be affected by changing tax laws, your own business objectives, and the possibility that it may be more beneficial making this contribution personally rather than through your business.
Can my business deduct life insurance premiums?
You generally cannot deduct life insurance premiums that are in place to directly benefit you or your family. Life insurance on yourself or your employees for the purpose of protecting your business assets, however, may be deductible as a business expense. These company-owned life insurance policies can get confusing in a family business (when you may serve as both the employer and a relative to a beneficiary). The IRS is also quite skeptical of the practice due to years of corporate abuse, so before taking out such a policy for tax purposes, talk to a tax professional.
Can my corporation deduct federal income taxes?
No. Federal income tax payments are not tax deductible for anyone, including corporations and pass-through entities. Other taxes that may be deductible for your corporation are state income taxes (including the Texas Margin Tax), state and local sales taxes, the non-employee portion of payroll taxes, certain real estate and property taxes, and dozens of other taxes from excise to business vehicle registration taxes.
What are capital expenses?
Expenses that the IRS considers investments in your business are classified as capital expenses. These expenses fall into three main categories: business start-up costs, business assets, and improvements. They can include tangible assets like business equipment and vehicles as well as intangible assets like research and experimental costs. Capital expenses can be deducted on your taxes, but not typically all within the first year (some exceptions apply). Usually, the deduction can happen over time through depreciation, amortization, or depletion expenses.
Can I deduct landscaping on my taxes?
If you work from a home office, you may be able to write off a portion of your landscaping expense (including lawn maintenance) as long as you use that office to meet with clients. For business properties, the way landscaping can be deducted depends on several factors. For instance, landscaping that repairs or restores the property is treated differently than landscaping initially installed on the property. One is a capital expense that may be subject to depreciation rules while the other might be a business deduction that can be taken immediately in the same year. Other maintenance costs like pest control can fall under the same definitions.
Can businesses deduct moving expenses?
Yes! A recent change in tax law means moving expenses are no longer tax deductible for most individual employees (including for owners of C corporations and S corporations). However, businesses can still deduct qualified moving expense reimbursements as part of their business deductions. Take a look at our recent coverage of the change.
Since the rules surrounding business deductions aren’t easy to follow, and no two businesses are alike, it’s important to seek the advice of a reputable tax professional to uncover your best strategies. For questions, feel free to contact us.