How to Write-off Business Expenses You Pay For

By BarbaraWeltman As an owner, your company may not pay for every expense you incur on its behalf. Your out-of-pocket costs may be legitimate business expenses that you’ll want to deduct. How you do this depends on your business’ entity type … and more. Deducting your out-of-pocket costs The legal entity for your business dictates how you deduct the expenses not covered by your company. Sole proprietors. Independent contractors and other sole proprietors and their businesses are one and the same; in effect there are no unreimbursed expenses. All deductible items are reported on Schedule C. Limited liability companies (LLCs) with a single owner (member) are treated the same as sole proprietors; they too report business expenses on Schedule C (unless they make a special election to be treated differently for tax purposes, which most don’t). Corporations. Shareholders can only deduct their out-of-pocket expenses as unreimbursed employee business expenses on Schedule A. This means only amounts in excess of 2% of adjusted gross income become deductible and, if they are high-income taxpayers, a portion of the deductible amount is lost. What’s more, if they are subject to the alternative minimum tax, then none of the unreimbursed expenses are deductible. The […]

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