6 MIN READ
Once upon a time, someone told me you can claim everything through your business and never have to pay taxes again. It sounded too good to be true!
Well guess what? It was.
As a business owner, you do get to claim your business expenses on your taxes. But those business expenses have to be legitimate. That trip to Bora Bora to celebrate your 10th wedding anniversary does not count.
In this blog, we’ll lay out some guidelines so you can appropriately post your transactions and be sure you receive the tax deductions for which you're eligible as a business owner.
Example Chart of Accounts Expense Accounts
Your Chart of Accounts is your road map for posting your income and expenses. It will also give your tax preparer the information they need to post those items correctly on your tax return, allowing them to maximize your deductions and exclude any expenses that are not qualified for a business deduction.
Let’s take a closer look at the different expense accounts—and descriptions of what those accounts include—you’d find on a typical Chart of Accounts for a financial advisor.
Advertising/Marketing. This could include: Your website, Facebook ads, newspaper ads, pens and other small items with your business name, and digital marketing and software expenses such as Advisorology, Canva, and Constant Contact.
Auto Expenses. If you use your vehicle for your business, you can deduct the costs associated with business-related usage. We recommend keeping a detailed vehicle expense log, where you’ll record things like business miles. A mileage log that documents the date of each tax-deductible trip you make, how many miles you drove, and for what purpose will allow you to prove you’re eligible to deduct your auto expenses if need be.
Business Meals. Meals with clients or prospects over which substantial business discussion takes place and employee meals while traveling on business are taken with a 50% deduction on your tax return. But that sandwich you grabbed from the deli while working from home? That doesn’t count. To qualify for the meals deduction, you need to keep the following records: the amount of each expense, date and place of the meal, and the business relationship of the person with whom you dined.
Conferences & Networking. This expense account includes things like client meet-ups, networking events, and tickets for business conferences like #XYPNLIVE and FinCon. (Any transportation and lodging expenses associated with a work conference should be posted in Travel, while associated meals should be posted in Business Meals.)
Client Gifts. This deduction is limited to $25 in value per client per year. (Shipping costs for client gifts can be deducted under postage and shipping.) To qualify for this deduction, you will need the name or names of the person(s) receiving the gift and their business relationship along with an itemized receipt. Client “entertainment” gifts, such as taking a client out to a concert or for a round of golf, are not deductible.
Dues & Subscriptions. This includes subscriptions for research materials and trade journals, magazines and music subscriptions for your office, and costs for business-related clubs such as your local Chamber of Commerce dues. Dues paid to professional organizations that are related to your field of business (e.g. XY Planning Network fees) can be deducted under Membership Fees.
Education & Training. These expenses are fully deductible when they add value to your business and help you gain expertise. Online courses, books, and seminars are just a few examples of the Education & Training expenses you can claim. Your child’s tuition, no matter how personally valuable to you, is not a tax-deductible business expense.
Entertainment. With the Tax Cuts and Jobs Act, as of 2018, expenses associated with employee group events constitute the only tax-deductible entertainment expenses.
Insurance. Errors & Omissions and Liability are the two most common for the financial planning industry.
Legal & Professional Fees. Fees for your attorney, bookkeeper, accountant, business coach, paraplanner, and virtual assistant all fall into this category.
Merchant Account Fees. This account includes fees you incur through your payment processing system (e.g. AdvicePay fees).
Office Expenses. This includes supplies such as toilet paper, cleaning products, candies for your clients, computer paper, ink, and other supplies for your office. Small equipment that costs less than $2,500 per item such as your laptop, monitor, desk, and chair are also tax-deductible under this account.
Payroll Processing Fees. This includes fees charged by payroll services such as Gusto, ADP, and Justworks.
Postage & Shipping. This includes expenses such as stamps and UPS or FedEx costs.
Software/Technology. This includes costs for software related to office and business administration and operations, such as Adobe, Google Apps, Microsoft, Riskalyze, eMoney, and Wealthbox.
Stationery & Printing. Costs for copies, brochures, business cards, and stationary all fall under this category.
Travel. This includes: airfare, taxi, or Uber costs, parking and tolls, lodging, tips, luggage fees, and other ordinary and necessary expenses related to any business trip. Keep receipts and good records to prove these expenses are indeed business related and therefore eligible for a tax deduction.
As a business owner, you want to claim as many of your eligible business expenses as possible. The key word here is “eligible.” If you are planning to deduct a business expense on your taxes, you must be sure you can prove that it is in fact a legitimate business expense.
While that trip home to visit your in-laws might feel like work, it unfortunately doesn’t count as a tax-deductible business expense.
Need help? Contact FA Bean Counters to learn more about our bookkeeping services.