Business Expenses

Business-expense means the cost incurred for running a business or trade. Business expenses usually are deductible only in those cases if businesses are operated for making profit. Business-expenses are of many types:

• Entertainment – If this sort of expense is incurred by business then according to common rules of tax. All the entertainment expense is deducted if related directly with business. Such expenses can be deducted if following is fulfilled:
  • Activity supplied recreation or amusement including the meals for client or customer.
  • Expense is common as well as admitted in the fields of trade, profession or business.
  • Expense has been appropriate and helpful.
• Auto – If a car is used by us for the purpose of business either in the form of business-owner or employee, we have the right to deduct expenses of auto from taxes.
• Travel – This expense is incurred or paid related with temporary assignments of work which is not in home place is deductible. But the expense which is incurred for indefinite assignment (more than a year) of work is not at all deductible.
• Gift – Gifts given to customers and clients, according to general rules of tax, be deducted if value is not more than $25 / person / year. Also we have the right to deduct cost incurred for wrapping, engraving or mailing gift. If the gift contains name of business then the maximum limit for the cost is $400.
• Education expense – Section162 of IRC allows employees for deducting expenses which are incurred only for education considered as necessary and ordinary business-expense only if expenses incurred are:
  • For improving or maintaining his ability for his present occupation.
  • For meeting employer’s express demand.

• Employee’s compensation – Compensations given to workers like vacation-allowance, commissions, bonuses as well as fringe gains are all subject to deduction.
• Bad debts – Bad-debts arisen out of credit-sales and business reasons are there for it are subject to tax-deductible. Bad-debt arising out of fixed-asset’s sales to debtor is not subject to tax-deductible.

Questions:

• Define business expenses.
• What are the types of business expense?