Small Business Taxes FAQ
Answers to common tax questions on tax deductions for small businesses.
What is -- and isn't -- a tax deductible business expense?
If I use my car for business, how much of that expense can I write off?
» Can I claim a deduction for business-related entertainment?
What is the difference between current and capital expenses?
If I buy a new computer system this year, do I have to deduct the cost over a five-year period?
I am planning a trip to a trade show. Can I take my family along for a vacation and still deduct the expenses?
I work in my home part time. Can I take the home office tax deduction?
I want to start my own small business. What do I have to do to keep out of trouble with the IRS?
Does incorporating a small business start-up offer tax breaks?
Is it safe and sensible for me to keep my own books and file my own tax returns?
I am hiring people to help out with a big job coming up. Are they considered independent contractors or new employees?
Can I claim a deduction for business-related entertainment?
You may deduct only 50% of expenses for entertaining clients or customers for business purposes, no matter how many martinis or Perriers you swigged. (Yes, this is a change. In the old days you could write off 100% of every entertainment expense, and, until a few years ago, 80%.) Qualified business entertainment includes taking a client to a ball game, a concert, or dinner at a fancy restaurant, or just inviting a few of your customers over for a Sunday barbecue at your home.
Keep in mind that if you are audited, you must be able to show some proof that the entertainment expense was either directly related to, or associated with, business. So, keep a guest list and note the business (or potential) relationship of each person entertained.
Parties, picnics, and other social events that you put on for your employees and their families are an exception to the 50% rule -- such events are 100% deductible, and you need not prove it was directly related to a business goal.
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