Types of Records You Need to Keep for Federal Tax Purposes

The IRS requires businesses to be able to clearly show income and expenses.To be deductible a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. Business expenses should be separated from the following expenses:

  • Expenses used to figure the cost of goods sold
  • Capitol Expenses – Including business start-up costs, improvements and business assets
  • Personal Expenses

IRS approved business expenses can be varied and can include going out to dinner with a spouse or taking a client to lunch! The IRS allows 50% of your meals expense to be deductible if you are having a meal with someone with whom you discuss business matters. Holiday parties and meals while traveling are 100% deductible. Restaurant receipts must have the following to prove it is a business expense:fotolia_6526672_XS

  • The name and location of the restaurant
  • The number of people served
  • The date and amount of the expense

The cost of gifts may be deducted in the course of your business with a $25.00 limit per person during each tax year.

To prove your expenses to the IRS you need documentary evidence. Including receipts, cancelled checks, bills, etc. Documents must show the amount, date, place and a description of the expense. A cancelled check alone does not necessarily prove an expense. It must be backed up with a bill or receipt from the payee.

For more information on Business Expenses visit: www.IRS.gov

 

-Kari Lemelin, Bookkeeper/Marketing Manager

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