When building your office, every penny counts. All business owners know that one can claim expenses on their taxes, which help to boost net profits and lower your tax bill.
The way this works is through tax deductions. Essentially, you take the price of a deductible expense from your gross profits – what happens is you are taxed on what is left over after deductions.
The creation of your office opens up many opportunities for tax deductions. Many expenses that are required for the running and open of your business are deductible, such as rent, supplies, and more. Office furniture is also one of those expenses.
But, it’s crucial to understand what makes a deductible expense and what is considered non-deductible. Deductible expenses are those that are crucial to the business, and deducting items that are not considered crucial to the operation of your business – and thus are not tax deductible – could land you in the purview of IRS auditors.
Items such as chairs, desks, printers, and meeting room tables can be considered crucial depending on the type of business. For instance, a desk in your office can be deductible if having a desk is an important tool for conducting business.
But, that expensive fine art painting hanging in your waiting room might catch the eye of auditors. Auditors are always looking for those expenses that can be considered personal as opposed to business expenses, so you need to be careful about what you’re claiming as deductible on your taxes.
It’s also important to understand the risks involved with IRS audits. These are often lengthy processes that can cost you money in terms of lost time, additional accounting expenses, and more. Audits also almost always open up the floodgates for further review of your deductible expenses, which means even more work for you and your accountant to make the case for various business expenses.
Before you decide to claim anything on your taxes, take the following considerations and precautions to help ensure you don’t catch the eye IRS auditors:
Is It Necessary?
Ask yourself for all purchases of office furniture if your business could or could not reasonable survive without it. If your business requires a space to meet with clients, a meeting room table might be tax deductible. If you can live without that gold-plated swan statue, you might want to avoid claiming that expense as a deduction.
Keep Impeccable Records
It’s well understood that keeping receipts is a good practice for tracking expenses. You’ll want to save all your receipts for potentially deductible expenses because there are strict limits on how much your deductible expenses can take away from your taxable income.
When in Doubt, Consult Your Accountant
Accountants are in a privileged position to intimately understand your business and how your expenses may become deductible. With their extensive training on federal and state tax regulations, your accountant could either save you from deducting an expense that will catch the eyes of auditors or find more opportunities to deduct more from your taxes.
When it comes to taxes, consulting your accountant is always recommended, and the information in this post should not be seen as a substitute for legal or CPA consultation. It’s also important that your accountant is able to analyze all business purchases and keep records so you can keep all your expenses in line.