Deductible vs Non-Deductible Business Expenses

Lesson:

Businesses spend a lot of money. Some of it is deductible, some of it isn't.

Getting a feel for which is deductible is crucial to understanding the tax responsibility of a firm.

You're a tax preparer, helping with a tax return. A company owner came to you with the following expenses:

You've been provided with the following information:

  • $205 for legal services
  • $298 for automobile expenses
  • $211 for salaries paid to the sole proprietor
How much of the expenses is considered deductible?

Answer:

  • The total for deductible expenses is $503.00.

Explanation:

  1. Salaries paid to the sole proprietor are not deductible at all.
    TOTAL DEDUCTIBLE EXPENSES = $211 * 0%
  2. Legal services are fully deductible. Let's increase our deductible by the full amount ($205).
    TOTAL DEDUCTIBLE EXPENSES = $211 * 0% + $205 * 100%
  3. Automobile expenses are fully deductible. Let's increase our deductible by the full amount ($298).
    TOTAL DEDUCTIBLE EXPENSES = $211 * 0% + $205 * 100% + $298 * 100%
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