IT’S TIME TO trim the tax bill.
When it comes to taking deductions, most business owners know pretty well the expenses that the Internal Revenue Service considers “ordinary and necessary” for business. There are specific rules, for instance, on writing off vehicle costs . Ditto with equipment, furniture, inventory, retirement savings, home offices and professional fees paid to accountants, lawyers and consultants.
Not every legitimate business expense falls neatly into one of these categories, however. A growing number of business owners are turning to professionals outside of accounting or law for advice on everything from mediating partner disputes to boosting workplace productivity . Some health-conscious bosses are stocking office kitchens with healthy snacks for the staff or hiring personal trainers for staff fitness sessions . And some weary business owners often tack vacation days onto their business travels .
So how do you determine whether those expenses, especially those that also yield a personal benefit, are fair-and-square business deductions? “These are things that aren’t specifically contained in the law, so you have to navigate and see if they’ve been barred or allowed or not yet talked about,” says Barbara Weltman, a Millwood, N.Y., tax attorney and author of “J.K. Lasser’s Small Business Taxes 2008.”
If court rulings and IRS pronouncements don’t offer much guidance, then it’s time for what tax pros refer to as the “laugh test.” Can you write off an expense without snickering about pulling one over on the IRS? “If there is a concern in the taxpayer’s mind, that probably means it’s not deductible,” says Keith Hall, national tax advisor in Dallas for the National Association of the Self-Employed.
Here are some not-quite-textbook expenses, and how tax experts view them:
Fees paid to nontraditional advisors . Did you hire an efficiency expert for tips on time management? Or a speech expert for help on public speaking? As long as you can argue that the advice was appropriate and helpful for your business, you should be able to deduct the fee, according to Weltman. There are gray areas, however, when it comes to professionals (such as business coaches ) who offer a blend of personal and work-related advice. In those cases, use common sense; if a coach focused on personal matters, then don’t claim it as a business deduction, she says. One exception is when a family business uses a consultant to settle sibling disagreements or other strained family relationships that impair a company’s management. Those fees are typically deductible, she says.
Boondoggles . If you tack a few extra days onto the end of a work trip for personal R&R, you can deduct many of your travel-related expenses, according to Hall. The primary purpose of the trip must be business, however, and the cost shouldn’t be overly extravagant. If that’s the case, you can deduct the costs of airfare, taxis and 50% of your business meals. You can even deduct some out-of-pocket personal expenses if a Saturday night stay makes your business trip cheaper. For more, read this story .