Archive for Business Deductions

Tax Court In Brief: Disallowance Of Taxpayer’s Deductions

Jason Freeman - Business Deductions

Spencer v Commissioner, T.C. Memo. 2022-8 | June 7, 2022 | Marshall, J.| Dkt. No. 17106-19S

Opinion

Short Summary: This case involves the disallowance of taxpayer’s deductions regarding (1) contract labor expenses, (2) car and truck expenses, and (3) repairs, and maintenance expenses for not meeting substantiation requirements. In tax years 2016 and 2017, Brandon Spencer (Spencer) operated Home Comfort Transportation LLC (Home Comfort), a business that offered non-emergency transportation services to medical patients. As part of its business, Home Comfort purchased and maintained vehicles and had full-time and part-time drivers who were paid by check and cash, respectively. Cash compensation payments were not documented. Additionally, Spencer retained receipts for vehicle rentals, purchases and tolls, invoices from repairs, an insurance statement, and vehicle registration records. On his tax returns for years 2016 and 2017, Spencer claimed Schedule C itemized deductions for Home Comfort’s expenses, including contract labor and vehicle-related expenses. The IRS selected Spencer’s returns for examination and IRS issued a notice of deficiency (IRS CP3219A Notice) to him. Spencer filed a petition with the Tax Court and, after concessions by the IRS, the issue remaining for trial regarded deductions for expenses for contract labor and vehicle-related expenses.

Key Issues:

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Written by | Posted in Business Deductions • Business Expenses

Ill and Illiterate – Torres v. Commissioner

Ill and Illiterate - Torres v. Commissioner

Distinguished physicist, Albert Einstein, once said, “The hardest thing in the world to understand is the income tax.” Likewise, the constantly growing Internal Revenue Code is difficult to understand. But perhaps it is even more difficult to understand when one cannot read, or one is suffering from a debilitating illness. In a recent memorandum opinion, the Tax Court dealt with a taxpayer who (1) argued that a deduction qualified under either Section 162 or 165, and (2) argued that he should not be subject to the addition to tax under Section 6651(a)(1). While the taxpayer’s inability to read and illness excused the assessment under Section 6651(a)(1), the taxpayer’s arguments to claim a tax deduction ultimately failed.

Sections 162 and 165

As a general rule, a trade or business shall be allowed a deduction for all of the ordinary and necessary expenses paid or incurred during the taxable year.[1] Expenses are “ordinary” if they are ordinary, usual, or customary or is related to a transaction of common or frequent occurrence for a given type of business.[2] Additionally, expenses are “necessary” if they are helpful and appropriate to the taxpayer’s business, though the expenses need not be essential.[3]

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Written by | Posted in Business Deductions • Section 162 • Section 165

IRS Updates Guidance On Business Expense Deductions For Meals And Entertainment

IRS On Business Expense Deductions

The Internal Revenue Service issued proposed regulations on the business expense deduction for meals and entertainment following changes made by the Tax Cuts and Jobs Act (TCJA).

The 2017 TCJA eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation. It also limited the deduction for expenses related to food and beverages provided by employers to their employees.

These proposed regulations address the elimination of the deduction for expenditures related to entertainment, amusement or recreation activities and provide guidance to determine whether an activity is considered to be entertainment. The proposed regulations also address the limitation on the deduction of food and beverage expenses.

The proposed regulations affect taxpayers who pay or incur expenses for meals or entertainment. These proposed regulations generally follow Notice 2018-76 (PDF), issued on October 15, 2018, which provided transitional guidance on the deductibility of expenses for certain business meals.

Taxpayers affected by this change and other interested parties may submit comments on the proposed regulations. The IRS will hold a public hearing on these proposed regulations on April 7, 2020.

IR-2020-39

Written by | Posted in Business Deductions • IRS

IRS Updates Guidance For Deductible Business, Charitable, Medical And Moving Expenses

IRS

The Internal Revenue Service issued guidance for taxpayers with certain deductible expenses to reflect changes resulting from the Tax Cuts and Jobs Act (TCJA).

Revenue Procedure 2019-46, posted today on IRS.gov, updates the rules for using the optional standard mileage rates in computing the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes.

The guidance also provides rules to substantiate the amount of an employee’s ordinary and necessary travel expenses reimbursed by an employer using the optional standard mileage rates. Taxpayers are not required to use a method described in this revenue procedure and may instead substantiate actual allowable expenses provided they maintain adequate records.

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Written by | Posted in Business Deductions • Charitable Expenses • Moving Expense Deduction

What Qualifies As A Business Deduction?

Kazim Qasim- What Qualifies As A Business Deduction

You had a great idea and now you’ve put it in motion as a business.  And while income recognition is easy to determine, qualified business deductions can be a bit harder.  So… what are the most common tax deductions for small businesses?

Any materials you utilize for marketing your business and the cost of developing these can be deductible.  This can be advertisements in print or media, brochures, branded promo items, events or trade shows. Non-branded gift cannot be deducted.

Business insurance that is intended to protect your business as well as medical insurance that is paid by the business for its employees.  Auto related insurance falls under a different set of guidelines.  A portion of your vehicle expense can be taken related to the business use of the vehicle, unless standard mileage is taken instead.

Depreciation and Section 179 expenses on capitalized business assets such as computers, office furniture, tools and equipment, and the like.  Leasehold improvements and other real estate related capital expenses cannot be taken under Section 179.  Special depreciation rules have been approved by the IRS in certain years that speed up depreciation life in qualified assets.

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