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Perfectly Legitimate Business Expenses You Can’t Deduct

 

Non-Deductible Business Expenses

You may incur certain costs for your company that make good business sense. Unfortunately, the tax law [1] doesn’t view them all as write-offs.

Check out this list of business expenses that remain non-deductible (in whole or in part) these expenses on your 2019 tax return.

NOTE: This article has been specially updated for the 2019/2020 tax season.

Non-Deductible Business Expenses

Impact of Non-Deductible Business Expenses

Your “book income,” makes up the net amount on your books and records. It may not match up with your taxable income. You use this number for tax reporting purposes. In other words, your net profits from a financial standpoint may not equal the net profits on your tax return.

Reconcile the discrepancy on Schedule M-1 of Form 1120 for C corporations, Form 1120S for S corporations, and Form 1065 for partnerships. Do total gross receipts equal less than $250,000? Do total assets at the end of the year make up less than $250,000 (for an S corporation) or $1 million for a partnership? Then you don’t need to complete the M-1 for the 1120S or 1065. However, you still may wish do so. Because it may answer questions that could be on an IRS examiner’s mind. Large entities — those with $50 million or more in assets — must use Schedule M-3 for this purpose. Those with $10 million to $50 million may use Schedule M-1 instead of Schedule M-3.

Sole proprietors and independent contractors file Schedule C of Form 1040 or 1040-SR. This happens regardless of the amount of gross receipts or assets. So they need not have to do any reconciliation. But they should recognize that their financial statement is not necessarily identical to their tax return.



Conclusion

Work with a CPA or other tax advisor [2] to optimize your deductions and to understand how nondeductible items impact your taxes and financial statements.

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