Vlad Rusz, a CPA at Centaur Digital Corp, assists busy business owners in effectively managing their accounting systems. Business owners often struggle with deducting expenses, with some being overly conservative and others trying to deduct personal expenses. The ideal approach lies in deducting all expenses that are necessary for running a business, while avoiding personal expenses that are not tax deductible. In this article, six common nondeductible expenses for small-business owners are explored.
Personal grooming expenses, including haircuts, manicures, and pedicures, are generally not deductible for business owners. Similarly, gym memberships provided as a perk to employees are not tax deductible for business owners. The IRS does not allow deductions for personal vehicle expenses used for personal reasons, as this falls under the category of fringe benefits that are not tax-free for business owners. Payments to household employees, such as babysitters and house cleaners, are also not tax deductible for business owners, although they may qualify for the child care tax credit.
Expenses for clothes that are worn in public are typically not deductible, even if they have a small logo for branding purposes. While there are exceptions for clothes that serve as advertising, such as those with prominently displayed logos, everyday business attire is not tax deductible. Groceries are another common expense that is not tax deductible for business owners, unless they are purchased pre-prepared for meal expenses. The administrative burden of accounting for personal expenses can be costly, so it is recommended to pay personal expenses from a separate bank account to avoid commingling funds and risking loss of limited liability.
It is important for business owners to understand what expenses are deductible and what are not in order to avoid potential legal and financial consequences. Consulting with a licensed professional for specific advice concerning individual situations is recommended. The information provided in the article is not financial, investment, or tax advice. Forbes Finance Council, an invitation-only organization for executives in accounting, financial planning, and wealth management firms, provides valuable insights and resources for professionals in the industry.
