We all want to mnimize our tax burden as much as possible, but there are some expenses that, while you think they might be for the business, they are absolute no-go's from an IRS perspective. Make sure you remember these TOP 10 NON--DEDUCTIBLE expenses.
1. Automobile Expenses for Personal Vehicle Use
You may use your personal vehicle for work purposes or work vehicle for personal purposes, but when deducting expenses for gas, repairs, etc., be sure that you can easily show they were necessary parts of your work. For more information, see the "standard mileage rule" on our common tax deductions page.
2. Generic Clothing Expenses
This applies to everyday wear or anything you can wear outside of work. However, you can deduct uniforms or specialized gear (such as company polos). Essentially, the clothing must be specifically required by your employer or parent company to be deductible.
3. Club Membership Dues
Just because your golf club membership is a great way to network and your hotel club membership might come with some great travel rewards for sales "on the road," the cost of joining and maintaining these memberships are not something you can deduct.
So what can you deduct?
4. Federal Tax Payments
This should go without saying, but you can’t deduct the money you owe as your tax liability on your taxes. For most of you, this should be reflected in your Owners Draw account from the business.
5. Political Contributions
While this may seem "charitable" in nature, money given to political groups or candidates running for public office are not deductible. The same goes for donations made to groups who lobby for law changes.
6. Fines and Penalties from the Government
No, your parking ticket is not a tax deductible expense. Neither are late fees paid on federal or state taxes owed for your tax return.
7. Groceries (for your home)
While you can deduct the snacks and meals you buy for your team to enjoy at the office, the IRS will be interested in any groceries you claim as deductible business expenses if you’re working from a home office. This also applies to the drinks, meals, or snacks you buy while working from a coffee shop or restaurant.
Tax minimization has its limits! Don't go overboard!
8. Life and Disability Insurance
If these are personal plans, they are not deductible. Generally, businesses can deduct the amount they cover of employee health insurance premiums, but certain life or disability insurance premiums are not deductible. For example, life insurance premiums that cover the life of an officer of the company aren’t deductible if the company is the beneficiary of the policy.
9. Home Telephone Expenses
If you have one landline in your home, even if you use your home phone line for business purposes—including a home office—you can’t deduct the costs, charges, or taxes on your phone bill. There are exceptions for long-distance calls and second phone lines.
Cell phones are a different story. You can deduct your cell phone bill if you can provide call logs and records that show the calls and overall usage were necessary for doing business.
10. Travel Expenses for your GUEST
You can certainly deduct what your business spends on business related travel, but you cannot deduct the travel expenses for any personal travel companions that you bring along. This includes spouses, children, or other dependents (that do not work for your company or are not necessary for the business related travel).
DISCLAIMER: For questions or "what/ifs" when it comes to determining what to deduct on your business taxes, always speak with your CPA or tax accountant for what makes sense for your agency.
Our team has a wealth of knowledge of tax law and are always looking for ways help agents maximize their tax benefit and minimize tax burden. For more information on what you CAN deduct, check out our Common Expense Deduction for Agents page.