If you get a cup of coffee on your way to work, can you write it off as a business expense? Good question.
A lot of business owners don’t have the time (or interest) to decipher tax code. Yet, business expenses are a vital part of your financial picture. A lot of your day-to-day business expenses can be written off. In other words, you can use those business expenses to decrease the amount of taxes you have to pay.
To help you figure out which expenses you can write off, we teamed up with CPA Ryan Raffensperger to get some straight answers.
As an accountant, the most popular four words Raffensperger hears are: “Can I expense this?” So, together we’ve created a list of common business situations and the answer as to whether it results in a tax write-off.
Situation #1: A business owner picks up a cup of coffee on the commute to work.
Let’s start with the question we posed at the beginning of the article: is that Starbucks run a write-off? Raffensperger says no. If you run through the drive-thru for your morning caffeine fix, it’s a personal expense and isn’t deductible. However, there’s an alternative option that can result in a write-off.
“I’d advise the business owner to purchase a coffee maker and buy the supplies and make the coffee at work because then it is deductible,” Raffensperger says.
Situation #2: Two business partners go out for drinks and talk business.
Is this considered a business expense? Yes, but there’s a catch, Raffensperger says.
“The IRS limits the costs of meals and entertainment to 50 percent of the total cost. Assuming that the business partners truly did spend a majority of the time talking about true business, the full cost of the drinks would be included as a business expense and then reduced by 50 percent on the tax return,” he says.
Situation #3: A business owner takes a client out for dinner to talk about an upcoming project.
What if you want to wine and dine a client—is that deductible? Raffensperger says yes, but again the deduction is limited to 50 percent on meals and entertainment.
Situation #4: A business owner buys office supplies for a home office.
Deductible? Yes. Provided that the supplies are used for business purposes, they are 100 percent deductible. However, if you are buying a ream of paper and only 60 percent is used for business purposes, only 60 percent is deductible, Raffensperger says.
Situation #5: A business owner takes a trip for pleasure but has a 30-minute business meeting while away.
Is the whole trip deductible because of your business meeting? No. The IRS says that your travel expenses are deductible if the primary purpose is business, even if some portion of the trip is for pleasure, Raffensperger says. Since the meeting was only 30 minutes, and not the sole purpose of the trip, the entire trip isn’t deductible, but Raffensperger says you can write off the mileage for your travel. Under current tax laws, you get 56 cents per mile.
Situation #6: Your monthly cell phone bill used for both business and personal calls.
Your business would be at a standstill without your cell phone, right? So, is it 100 percent deductible?
Raffensperger says you have to break it into percentages. If 80 percent of your phone usage is for business-related calls, then you can write off 80 percent of the bill.
The world of write offs can get a little complicated, but hopefully these tips give you enough accounting advice to plan ahead. Of course, a skilled accountant can help you figure out what you can and can’t write off. Check out our previous story on how to find an accountant that’s right for your business.