Small Business Tax Deduction

Small Business Tax Deduction

If there was a small business tax deduction that is often used – and sometimes abused – it would be the entertainment expenses. Due to this abuse, the IRS has imposed very strict rules for these types of deductions. It is important for every business owner to understand entertainment expenditures for they are closely scrutinized by the IRS. Typically, business expenses are 100% deductible but the IRS has put a 50% limit to these expenses, and they decide which ones are deductible and which are not.

Business meals and entertainment expenses can be declared as a sb tax deduction if they are considered as ordinary and necessary. To be considered as such, they must meet two criteria. First, it must be directly related which means the activity must have a sole business purpose. Second, it must be associated which means the activity must directly happen before or right after a business meeting or discussion.

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Take note that you cannot entertain or treat just about anyone to a free meal. It is a requirement that there should be at least one person present during the activity that will benefit from your business. These people would typically be your employees, suppliers and contractors, business partners, and customers.

General business expenses can be declared and granted as 100% deductible. Common examples of sb tax deduction would include meals given to employees who are rendering overtime, hotel room expenses during business trips; even food provided to clients to market your food product is deductible since it can be considered as a marketing expense. Business entertainment however is only given 50% deduction. These would include meals at a nice restaurant with a potential client discussing possible business and you shouldered the entire bill; a recreation activity that took place right after a business activity such as watching a baseball game after a long business meeting in the office.

Entertaining clients is part of business. However, it is good to know which expense can be declared as sb tax deduction to save on company money.

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