What is tax deductible for small business?
– Stephanie Rabiner is a contributor to FindLaw’s Free Enterprise blog. FindLaw is a Thomson Reuters publication. This article originally appeared here. –
There is no definite answer for those of you who wish to know just what is tax deductible for a small business.
According to the painfully dry tax code, a business may deduct all expenses that are ordinary, necessary and reasonable.
Just what does that mean? Think about expenses that are helpful, appropriate and common in your line of work. Oh, and they can’t make you laugh.
Internal Revenue Service Code section 162 provides a list of what is tax deductible — including travel, meal and entertainment expenses — under the ordinary and necessary clause. It, however, is not exhaustive, leaving many expenses to your interpretation.
If you have a business expense not covered, you need to ask yourself whether it’s ordinary and necessary. Consider whether it’s directly related to your business or an expense common in your trade. Also think about whether it helps your business make a profit and continue operating.
If you’re unsure, try what is known as the “laugh test” — can you put the expense down without laughing at yourself?
Common budget mistakes for tech startups
– Ed Buchholz is the co-founder and CEO of 60mo, a cloud-based financial services company catering to small business owners. The views expressed are his own. –
Most everyone is familiar with the cliché: more money, more problems. But what if the problem is money?
Keeping your tech startup solvent requires the avoidance of several common budget mistakes. A budget or lack thereof can make or break a startup. Keep your overhead intact by doing the following:
Have a budget. Money should not disappear from your bank account into a fiscal black hole. At my last company, we were spending money but didn’t have an accurate view of where it was going. This experience is actually the primary reason my new company’s product, 60mo, exists. Organize expenses and revenue in whatever way works for your company. Make a cash flow plan. Keep current and accurate financial statements and analyze where you can trim the fat. Having a good budget is the beginning to avoiding common problems because it’s the common sense barrier between you and wasteful overspending. Avoid the first common budget mistake and actually create a budget.
Negotiate with vendors. If you are purchasing goods or services from others regularly, make contact and drive down the price. Negotiating will build important relations and reduce costs that are otherwise eating through your overhead. Vendors want your business and will offer discounts to get you to become a recurring customer. Remember even if you are purchasing online, someone somewhere is operating the site and might be willing to cut you a break if you take the time to contact them. At 60mo, we make the effort to reach out to all of our major vendors and establish a friendly relationship. It won’t always work, but its good business to at least try. Sixty percent of the time it works every time.
Minimize discretionary spending. In 60mo’s earliest days, we had a tendency to splurge on dinners out with the team whenever we had something to celebrate. When we started using our own product, we began to understand exactly how much those “team-building” meals were adding up. New businesses hemorrhage funds for unnecessary dinners, travel, and swag when they don’t have a clear budget and insight into their spending. The point of having a budget is to avoid waste. Be mindful of an expense’s worth, and your company will be worth more.
Plan for the future. Only focusing on the past and present gives companies a narrow image of what is going on inside of their finances. Think of accounting and dashboard tools as rear-view mirrors, they only show what’s behind you. Financial forecasting tools act as a GPS to get you where you want to go. By planning six months to five years ahead a company can strategically spend and save. With these tools one can manage liquidity, net present value, and project cash flow. For my business, I have a full five-year forecast with projected employee hires and “what if?” scenarios that allows me to be prepared for any situation. By thinking to the future you improve your present.
