10 Frequently Asked Questions About Business Expenses
- If I used my business account to pay for my yearly Amazon Prime subscription would that qualify as a business expense? I use Amazon to order things for my business. But use it more for household purchases.
A: You can run the subscription through the business as a deduction; I would counsel to make sure you don’t use the business accounts for your personal Amazon purchases still.
- How do I categorize “closing gifts”, things like flowers, cleaning services, gift cards, etc.?
A: All these are a form of advertising and that’s where we’d put them.
- How would I categorize a property inspection I paid for as a realtor?
A: We usually call those Staging Expenses, but they fit under Professional Services as well.
- Does coffee qualify as a business meal if it was for meeting a client
A: Yes; it’s only your lunch the IRS won’t buy. As long as you’re with a client, colleague or prospect 50% of that meal is deductible.
- Does dry cleaning qualify as an expense? What category if it does?
A: Good question and a common issue; it’s actually not deductible unless the cleaning is for professional equipment/uniforms. Usually the only things that qualify here are like scrubs for medical workers, equipment and specialized clothing for construction workers, etc.
- How do I categorize the Economic Impact Disaster Grant I received from the SBA?
A: Initially it’s considered an EIDL Liability; until we know if you’ve been approved for the loan or not it should be treated as an advance on a future loan. If the loan is denied we can move it to Other Income at that time.
- How do I categorize the economic stimulus payment from the IRS?
A: This is for your personal finances so should not be accounted for on the business at all.
- How would I categorize business expenses for listing properties? Things like pre-listing cleaning, sign installs, and photos? Would this all be “advertising”
A: They are a form of Advertising and we would put them there by default. If you’d like to see more detail on your financials for these kinds of expenses we can make some sub-accounts for Listing Expenses under Advertising.
- I drive a lot for my business; are my fuel/maintenance costs deductible to the business for my vehicle?
A: This is a common question for Real Estate Brokers especially but the answer depends on whether the vehicle is owned by the LLC or by the individual. If the vehicle is owned by the company itself then the costs of fuel and maintenance are deductible to the business, with any personal miles removed at year’s end. If owned by the individual then you can’t deduct the expenses directly on the business but rather get to take the IRS mileage deduction each year on the number of business miles driven. You can read more about tracking your business or personal miles on our blog post.
- I pay rent to my brokerage on each commission received but I also use my home quite a bit as my office: can I deduct any home expenses on the business?
A: Yes, IF it is your primary workspace; you would have to spend the majority of your office time at your home office to consider it as “primary” with your fees to the brokerage house becoming sort of akin to renting a WeWork space as your remote office location. For more details on how to account for the business use of home deduction head to our blog.
At Formations, we are here to help you maximize your deduction, while staying compliant.
You can download our list of expenses here, and you can always reach out to your client success manager with further questions!