In a previous article, we explained how to write something off as a small business expense. While many expenses are deductible, there are some expenses that cannot be written off. Here’s a guide to help you understand what small business expenses can’t be written off:
*Please keep in mind that every business is unique and will have its own definition on what is ordinary and necessary for their operations. Therefore, it is important to go over your expenses with an accountant and tax professional to understand what exactly can and can’t be written off for your business.
You cannot write off personal expenses as business expenses. This includes things like personal meals, rent, car expenses, vacations, and clothing. Even if you use these items for business purposes, you cannot write them off as business expenses.
Personal expenses are not deductible because they are not directly related to the operation of a business. That’s why we recommend you keep them separate from your business expenses.
Fines and Penalties
You cannot write off fines and penalties as business expenses. This includes fines related to regulatory violations, parking tickets, and other penalties.
Fines and penalties are not deductible because they are considered a punishment for breaking the law.
You cannot write off commuting expenses as business expenses as they are considered personal. This includes expenses related to traveling between your home and your place of business, i.e. gas, car maintenance, etc. However, if you were to travel from your home to visit clients and/or different job sites, then you can write off this commuting expense.
On the other hand, commuting benefits such as free parking, transit passes, or vanpool expenses are subject to certain limitations and are only partially deductible.
Gifts over $25
You cannot write off gifts over $25 as business expenses. This includes gifts given to clients or employees.
Under the IRS tax code, gifts to clients, vendors, or employees are generally deductible as a business expense, but there are limits to what can be claimed as a deduction. The general rule is that businesses can only deduct up to $25 per person per year for gifts.
There are some exceptions to the $25 limit. For example, items that are not considered gifts, such as advertising specialties/merchandise that have the business name on them (e.g., pens, key chains, mugs), do not have the $25 limit. In addition, gifts given to employees as part of an employee recognition program may be fully deductible if the program meets certain criteria.
Meals & Entertainment Expenses
You cannot write off entertainment expenses as business expenses. This includes expenses related to sporting events, concerts, and other forms of entertainment.
Meals and entertainment expenses are subject to strict IRS rules and limitations. Generally, only 50% of the cost of meals and entertainment expenses can be deducted, and they must be directly related to the business, such as taking a client out to dinner to discuss a business deal.
You cannot write off any membership fees to any club or organization as business expenses. Dues paid to social clubs, country clubs, and other similar organizations are not deductible. These organizations are generally considered to be for personal, recreational, or social purposes, not for business purposes.
While charitable contributions are deductible, they are not considered business expenses. You can only deduct charitable contributions as personal deductions.
Capital expenses are not deductible in the year they are incurred. Instead, they must be depreciated over several years. Capital expenses are typically large expenses that are expected to last for several years, such as the purchase of a building, equipment, or vehicles.
You cannot write off political contributions as business expenses. This includes donations to political campaigns or lobbying efforts.
Political contributions are not deductible because they are considered a personal expense, not a business expense, regardless if they affect your business or not.
Wrapping it up
In summary, there are several expenses that business owners cannot write off on their taxes. These include personal expenses, fines and penalties, commuting expenses, gifts over $25, meals and entertainment expenses, country club memberships, charitable contributions, capital expenses and political contributions as business expenses. Make sure you understand what expenses are deductible and what expenses are not so you can accurately report your expenses on your taxes.