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:

The only relevant information you've discovered is as follows:

  • $249 for entertainment expenses
  • $121 for business meal expenses
  • $249 for salary paid to non-others
How much of the expenses is considered deductible?

Answer:

  • The total for deductible expenses is $309.50.

Explanation:

  1. Business meal expenses are partially deductible (50%). Let's increase our deductible by 50% of $121.
    TOTAL DEDUCTIBLE EXPENSES = $121 * 50%
  2. Entertainment expenses are not deductible at all.
    TOTAL DEDUCTIBLE EXPENSES = $121 * 50% + $249 * 0%
  3. Salary paid to non-others are fully deductible. Let's increase our deductible by the full amount ($249).
    TOTAL DEDUCTIBLE EXPENSES = $121 * 50% + $249 * 0% + $249 * 100%
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