1. Advertising expenses. Generally, you may deduct reasonable advertising expenses if they are directly related to your business activities. While most vendors should have a proper invoice system to show your advertising expenses with them, this is not always the case. Having an advertising contract with your vendor is important not only to document the obligations each party is to perform but also to show your expenditures so you can claim tax deductions. Especially when it comes to periodic advertisements, a proper contract should be in place as this is a recurring business expense and should always be properly documented when such a relationship with a vendor exists.
2. Education expenses. Ordinary and necessary expenses paid for the cost of the education and training of your employees are deductible. It is crucial to have contractual arrangement between the company and the employees for the payment of educational expenses with a detailed description on how such education will maintain or improve skills of the employee in connection with your business, or how it is required by law or regulations for maintaining a license to practice, status, or job.
3. Franchise, trade name, trademark expenses. If you buy a franchise, trademark, or trade name, you can deduct the amount you incur as a business expense. The requirement, however, is that your payment needs to be part of a series of payments that are payable at least annually for the entire term of the transfer agreement, contingent on productivity, disposition or use of the item, and substantially equal in amount or payable under a fixed formula. Therefore, a thorough transfer agreement that provides details of how the payments are made and the nature of the transfer of the intellectual property should be drafted by an attorney that should maintained to support such a deduction.
4. Legal and professional fees. While legal fees paid to acquire business assets are usually not deductible, fees charged by attorneys and accountants that are directly related to running your business and that are ordinary and necessary are deductible as business expenses. Therefore it is important to request detailed invoices with descriptions of the services that were rendered by professionals or preferably request a written contract for such professional services.
5. Repair expenses. When repairing or improving your property for your trade or business, it is generally considered a deductible or capital expense. If the routine maintenance keeps your property in normal operating condition, but does not substantially prolong the useful life of the property or materially increase the value of it, then it is deductible in the year that it is incurred. For such repairs or improvements, written contracts are important that detail the cost of repairs including the costs of labor and supplies. Such a contract cannot include the cost of your own labor, as it is not deductible.
6. Penalties and fines. Many business owners fail to realize that penalties paid for late performance or nonperformance of a contract are usually deductible. A good example is if you own and operate a construction company. Usually within a construction contract, you are to supposed finish construction by a certain date or deadline. If for some reason the construction is not completed on or by the date written in the contract, you may be required to pay an additional amount for each day that completion is delayed beyond the completion date provided in the contract. The additional costs or penalties may be deductible business expenses. It is consequently very important and beneficial to have a well drafted and detailed contract so as not to have any misunderstandings with the other party as to the obligations of both parties and specified deadlines.
These are just a few of the many other tax deductions that are available for businesses. It is extremely important to have everything well documented and thorough to prevent any confusion between what is a business and personal expense as well as to prepare you for any IRS audit that may arise in the future. An experienced attorney can assist in preparing requisite agreements so that you may have all the necessary documents to support the business tax deductions for which your business may qualify. It is imperative to plan and prepare for such supporting documentation in advance at the beginning of the tax year and not when your business is ready to file its tax return.
Disclaimer: This article is not intended to be legal advice. Legal advice depends on each and every person's particular circumstance. This article is for informational purposes only and must not be used for avoiding any penalties that may be imposed under the Internal Revenue Code. Arora Law Firm and Radhika Arora, Esq. specifically disclaim any responsibility for positions taken by readers in their individual cases or for any misunderstanding on the part of readers of this article or publication.
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