South Pine Lakes, FL—A business “write-off” is not an expense that just gets wiped away or one that a business owner gets reimbursed for by the government. Instead, it is an expense that can be deducted from a business’s annual income. For example, if a business owner is required to purchase insurance to legally operate in Florida, the IRS will usually allow them to deduct the amount they spend on it from their annual income.
Therefore, if a business owner generated $100,000 in income and spent $3,000 on insurance coverage, they could deduct this amount from the $100,000. Therefore, instead of them being taxed on the $100,000, they would only be taxed on $97,000. And if a business owner had more expenses that qualified to be written off, then those could also be used to lower their taxable income.
What types of expenses qualify as a business tax write-off?
In order for an expense to be deducted or “written off,” it “must be both ordinary and necessary,” according to the Internal Revenue Service (IRS). An ordinary expense is “one that is common and accepted in [a person’s] trade or business.” A necessary expense “is one that is helpful and appropriate for [a person’s] trade or business.”
Some examples of the types of expenses that can be written off include:
- Home expenses. If an individual uses a portion of their home to run their business out of, they can usually use this as a tax write-off. Some of the expenses that can be written off include “mortgage interest, insurance, utilities, repairs, and depreciation.”
- Car expenses. Business owners who use their personal vehicles to conduct business or have other vehicles they use to run their business can usually write off the expenses they incur as a result of this.
- Rent expenses
- Interest. Any interest a business owner pays on money borrowed for “business activities” can write the amount off come tax time.
- Retirement plans
- Employees’ pay
Any expense that is considered personal cannot be used as a business tax write-off. For example, lunches with friends or family vacations would not qualify as a deductible expense. It is very important for business owners to understand the difference between personal expenses and business expenses so they can avoid making a mistake by writing off the wrong type of expense.
If a business owner were to be audited by the IRS and the agency found they were writing off expenses that did not qualify as a deduction, they could face serious repercussions for doing so. If a new or established business owner in Florida has tax-related questions or has run into a tax issue with their business, they can contact a South Pine Lakes, FL business law attorney for help.
Legal Counsel P.A. is a business law firm in Florida that not only helps business owners understand their legal rights and obligations while conducting business, but also helps business owners settle certain types of business-related issues.
Legal Counsel P.A. is located at:
189 S. Orange Avenue, Ste. 1800
Orlando, FL 32801
Email: [email protected]
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