9 'Business Expense' Write-Off Myths That Could Cost You at Tax Time
Recently on TikTok, Chad Cummings, an attorney and certified public accountant (CPA) at Cummings & Cummings Law, said he heard a so-called “tax professional” claim everything is automatically deductible as a business expense. Then, in a later clip, Cummings said the same person added that everything is deductible until you are audited.
“Nothing could be further from the truth,” he noted. “And that’s great advice to ‘win’ a federal prison sentence.”
Learn More: If You Underpay Your Taxes, Here's How the IRS Will Penalize You
Good To Know: 14 Subtly Genius Things All Wealthy People Do With Their Money — That You Should Do, Too
To help make it easier to understand what is actually deductible, read on to see what pros had to say about nine business expense myths that may lead to more harm than good.
Myth No. 1: Wrapping Your Car in Advertising Makes Every Mile Deductible
Putting a sign or a wrap on your vehicle does not convert personal driving into business driving, per Phillip Zagotti, CPA and attorney at North Star Law Firm. “You may deduct the advertising cost as a business advertising expense, but the wrap does not turn personal miles into business miles,” he added.
Myth No. 2: Owning a Business Makes Your Commute Deductible
According to Zagotti, running your own business doesn't mean you can deduct mileage from home to the office.
“Commuting is personal, whether you work for someone else or for yourself,” he noted. “A qualifying home office can change the result. If your home is your principal place of business, trips from home to another work location in the same business can be deductible.”
Myth No. 3: Everything I Buy for My Business Is Something I Can Write-Off
Brandon Gregg, CFP and advisor with BBK Wealth Management, said consumers need to know that tax rules apply, and not every purchase is considered ordinary and necessary for the business. “Know the rules and understand what can be deducted before getting ahead of yourself and overspending,” he added.
Myth No. 4: Business Use Items Are 100% Deductible
According to Gregg, it may be incorrectly believed that business use items are 100% deductible.
“This is not necessarily true,” he noted. “Items must be allocated based on personal or business use, and deductions are calculated from there.”
Myth No. 5: Receipts Are Optional as Long as I Know What I Spent the Money On
Experts agreed it’s important for taxpayers and business owners to keep receipts.
“In some cases, it may be true that receipts are optional, but keeping adequate receipts for expenses will be helpful,” he said. “Many large write-offs may require documentation to be valid.”
Myth No. 6: Tracking Small Expenses Isn’t Worth Your Time
According to Melanie Musson, a finance expert with Quote.com, it’s worth your time to track small expenses because you can deduct eligible expenses. “Even if something doesn’t seem like a big purchase, many small purchases add up to significant deductions,” she added.
Myth No. 7: Phone and Internet Expenses Are All or Nothing
“Many people believe that if they use their cell phone and internet service for business and personal use, they can’t deduct it,” Musson said. “You can deduct a portion of those expenses if you use them for business.”
Myth No. 8: Claiming Every Eligible Expense Can Trigger an Audit
Musson said to ignore this myth and claim every possible deduction.
If it’s legit, there’s nothing to worry about, even if you are audited,” she explained. “Don’t overpay the government because you’re worried. Trust the rules and follow them.”
Myth No. 9: There Is a Statute of Limitations for Tax Fraud
Per Cummings, “There is a lot more I can say on this, but let me sum it up this way: Contrary to popular belief, there is no statute of limitations for tax fraud. That should be enough to keep some small business owners awake at night.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion: