So anything you use the business card for is a business expense, right?
WRONG! I wish that was the case. I would charge all my beauty expenses to the business! I mean, you have to make a great first impression, right?
The IRS classifies business expenses for a small business as “ordinary, or common and acceptable in your trade or business, and necessary, or helpful and appropriate for your trade or business.” In particular, here are some red flags the IRS LOVES to scrutinize: travel (Bora Bora anyone?), meals/groceries, cosmetics/clothes, and you already should know how much they love home office expenses and entertainment.
In researching, I came across this great list compiled by inDinero of generally accepted business deductions, and some they list as “don’t even think about trying to claim these as a small business tax deduction”
Here are ones I see most commonly:
- Meals and groceries. I get office snacks at Costco. That’s a legitimate business deduction. We offer refreshments to clients that come in, and since our office is a fun environment, we have fun with our snacks. But if you’re doing your weekly (or monthly) shopping at Costco, get one snack for the office and expect the entire bill to be a tax deduction, sorry, but you’re sorely mistaken. And remember, the IRS only allows 50% of meals to be tax deductible.
- I used beauty at the outset for a reason. I WISH I could deduct my nails, hair, makeup, etc. I once had a client that charged his denture adhesive to the business, claiming it was a necessary expense as a personal trainer. Sorry folks. These don’t count either. There are certain exemptions from this, such as models, actors/actresses, etc, but that’s for their CPA to advise them on.
- I can’t tell you how many times I see this. “Oh, I needed a suit for a business meeting” or “I needed a tux for a business event” or even as simple as “I needed new Louboutins for work”. The prevailing guideline on this is if it’s BRANDED with your business logo, or the apparel can NOT be worn in any other situation than work (like scrubs), then it’s a business deduction. Otherwise, you just bought yourself a nice present and commingled funds.
- Strip Club. I kid you not, I see this as a business expense several times a year. This is where knowing your client REALLY becomes necessary. Client would treat their staff (all male) to a night at the strip club after particularly difficult or long jobs. Called it employee enrichment. In years past, I was able to do that. New IRS guidelines for 2018 do not allow ANY entertainment deductions, so either my client needs to find another way to reward their staff, or the CPA is going to have to get creative with how he wants that classified in the future.