CPA Mobile Tax Services

Self-employed, small business tax planning for 2023

As the tax year comes to a close, many self-employed individuals and small business owners are considering how to best capture all of the relevant expenses involved with running their business. Here is what to consider:

– Was the expense related to generating business income?  Consider not only wage and inventory expense, but also office expenses and associated overhead (Home Office deduction), traveling to customers, as well as promoting your product or service.

– Can I adequately document this expense?  Is the expense “ordinary and necessary” (Ordinary is defined as common and accepted in the taxpayer’s business, trade, or profession. A necessary expense is one that is helpful and appropriate for generating business income).  Can it be substantiated?  This last criteria is crucial.  i.e. – a recent court case involved IRS disallowance of automobile expenses.  Mileage expenses were disallowed even though mileage logs and receipts were provided, because this support “failed to demonstrate a direct connection between the car and truck expenses and business activities”.  Further, the taxpayer’s auto depreciation expense was removed, as “no support was provided demonstrating the cost of the three vehicles used or the corporation’s ownership of the vehicles”.  Note that this case, finalized this year related to the taxpayer’s 2013 and 2014 tax returns, illustrating how far back the IRS may go in performing their taxpayer audits.

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