Tax write-offs can be tempting and confusing, but don’t let them land you in legal trouble with the IRS
Every tax season, millions of Americans debate what they can and cannot write off on their taxes. For most people, tax write-offs can help them save a lot of money by reducing their tax liability, keeping individuals and businesses in good financial health. Expenses like a home office, some transportation, uniform expenses, meeting costs, and more can qualify as tax deductions. While there are some basic rules that apply to all deductions, like requirements for saving and categorizing receipts, others are more complex. Most independent contractors and business owners aren’t experts in tax law, and they can expose themselves to liabilities and large fines if they write off expenses that don’t qualify—even if they do so unwittingly. Working with an experienced attorney can help you avoid these risks come tax time. In the meantime, here are four common write-offs that are often misused. Keep these in mind when preparing your taxes this year to steer clear of trouble with the IRS.
Groceries and Eating Out
This is a confusing one, because sometimes you can write food off, and other times you can’t. If you’re buying food for a client, it qualifies as a write-off. If an employee is working for you more than 10 hours a day, you can write off a meal for them. You cannot write off your own meal or groceries. When it comes to dining out, you can deduct 50% of the bill if business is discussed at the meal. Many people think the entire bill can be deducted, but this is incorrect, and this misunderstanding could quickly become a dangerous habit.
Contrary to popular belief, Bankrate says the cost of going to and from work is not deductible for anyone. Even if you work during your commute, driving and public transportation are considered personal expenses. However, if you are visiting clients or taking out-of-office meetings, you can deduct the mileage from those trips. If you’re an employee, claim the costs as unreimbursed expenses. If you’re self-employed, claim them on your Schedule C or C-EZ. Your car and its maintenance costs is not usually deductible. You can deduct mileage on business travel, but you cannot deduct car payments or repairs.
Wouldn’t it be nice if vacation was a tax write-off? Sadly, it is usually not, although people often try to claim they’re traveling for work. There are exceptions: If you truly are traveling for work, like to a conference, your flight and hotel are deductible, even if your family stays with you. Where people get into trouble is writing off expenses for their family members, like event tickets, meals, additional hotel rooms, and flights. Vacation expenses are a red flag, so do not use them as a write-off unless you can prove you were traveling for business. According to Intuit, you must have at least one business-related appointment set up before you leave for your trip.
Event tickets can be a gray area of qualified business expenses. Work-related events, like attending a basketball game with a client, can be deducted at 50%, just like meals. Often though, people deduct the entire expense, or deduct for tickets for their family and friends as well as their clients. Lavish entertainment deductions are a red flag to auditors, so even though it’s tempting to go to a concert and claim it was a meeting, or visit a museum and claim it was research, it’s not worth the potential ramifications.
According to Investopedia, millions of Americans mess up deductions each year. Taking too many deductions can be considered tax evasion, and could result in a fine or even jail time. To make sure you’re maximizing your deductions without crossing any legal lines, work with an experienced tax attorney. The attorneys at Anselmo Lindberg and Associates are experienced in navigating write-offs for legal entities and can make sure you get it right. Contact us today.