Business or Personal Expenses? Milwaukee WI

It is easy to get caught up in the minutia of the business world, especially if you are an owner of a printing company that runs multiple shifts. Mix in the long hours, hands-on activities, management styles, and leadership efforts. Now combine these with running a family-owned business. There are only 24 hours in a day. It is inevitable that something has to give. This is a breeding ground for business life impeding on personal life, where there is no longer that separation of these two distinct bodies. Business becomes personal, and vice versa.

If this sounds like you, listen up. This may save you a lot grief down the road. Just because you are a work-aholic owner of a company does not mean everything you do is business related. Although it may feel like it at times, reality is that your personal life goes on. This article is designed to make you aware of how the IRS views business and personal activities of business owners and their family members.

For years, Uncle Sam's hot button has been meals and entertainment. The burden of proof is on the taxpayer to demonstrate business purpose and reasonableness. Owners and their family members that frequently eat-out and pass the cost onto the business should be careful. It is one thing to eat-out for the convenience of accommodating your work schedule, but if it lacks business purpose, it is not deductible. The tax regulations require specific requirements to document "who, what, where, when, and why."

Another area that tends to get distorted is travel and lodging. If you are too busy to take a vacation, but find time to take business trips to exotic locations, you may catch the eye of the tax man. To maintain adequate travel records you may benefit from keeping a log. Was the trip done in the ordinary course of business, and was it a necessary expense? It may be hard to explain why you had not taken a vacation day in the past five years, yet traveled to half of the states on business trips, accompanied by your spouse.

A big "No-No" is using a personal credit card in addition to the corporate card. This gets magnified when you code every item as a business expense. This may provide the IRS an angle into your personal checkbook.

If the company does not have a corporate card, it is imperative that you designate only one personal credit card to use for business purposes. This could prevent the IRS from scrutinizing your personal records. Finally, if it is determined under audit that personal items were being absorbed by the company, then deductions are denied, and the individual may be assessed additional income on their personal tax return, not to mention back-tax penalties and interest.

The moral of the story is that closely held, and family-owned businesses are susceptible to IRS intervention if they do not keep business and personal activities separate for tax accounting purposes. It is important to recognize the difference between business and personal activities. In the end, the IRS weighs your evidence against the concept of "Ordinary and Necessary Business Expenses."

You can reach Stuart Margolis or Brian Enverso at (610) 667-4310 or (888) 577-1717, or smargolis@margolisbecker.com or benverso@margolisbecker.com.