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Can I Expense This? An Accountant Explains the World of Write-Offs

November 19, 2021
By James Gussie

With tax season upon us, there are plenty of questions about how businesses can deduct their expenses. CPA Elisabeth Racki takes a deep dive into the most common write-offs to help you understand what they are and how much your business may be able to claim as an expense.

The “is coffee an allowable business expense” is a question that many people have. An accountant explains the world of write-offs in this blog post.

Is it possible to deduct a cup of coffee purchased on your way to work as a business expense? That is an excellent question.

Many company owners don’t have the time (or desire) to learn about the tax law. Business expenditures, on the other hand, are an important component of your overall financial picture. Many of your day-to-day company expenditures are deductible. To put it another way, you may deduct those company expenditures from your tax liability.

We joined up with CPA Ryan Raffensperger to obtain some clear answers to help you figure out which expenditures you may deduct.

The most often four phrases Raffensperger hears as an accountant are, “Can I expense this?” As a consequence, we’ve come up with a list of typical company scenarios and the answer to whether or not they qualify for a tax deduction.

Table of Contents

Situation #1: On his way to work, a company owner stops for a cup of coffee.

Let’s start with the question we asked at the outset: is that Starbucks run a loss? Raffensperger declines. It’s a personal expenditure and not deductible if you go through the drive-thru for your morning coffee fix. There is, however, another possibility that may result in a write-off.

“I would encourage the company owner to buy a coffee machine, buy the ingredients, and brew the coffee at work since it is then deductible,” explains Raffensperger.

Situation #2: Two business partners go out for drinks and discuss their plans for the future.

Is this a legitimate business expense? Yes, but there’s a catch, according to Raffensperger.

“The IRS sets a limit of 50% of the total expenditure for meals and entertainment. Assuming that the bulk of the time was spent talking about real business, the entire cost of the beverages would be recorded as a business expenditure and subsequently reduced by half on the tax return,” he adds.

Situation #3: A company owner invites a customer to dinner to discuss a future project.

Is it deductible if you want to wine and dine a client? Yes, according to Raffensperger, however the deduction is restricted to 50% on meals and entertainment.

Situation #4: A company owner purchases office materials for his or her home office.

Deductible? Yes. The materials are fully deductible as long as they are utilized for company purposes. However, if you purchase a ream of paper and only utilize 60% of it for business reasons, only 60% of the cost is deductible, according to Raffensperger.

Situation #5: A company owner goes on vacation but also has a 30-minute business meeting.

Is your whole trip tax deductible due to your business meeting? No. According to Raffensperger, travel expenditures are deductible if the main objective is business, even if a part of the trip is for pleasure. The whole trip isn’t deductible since the meeting was just 30 minutes long and not the primary reason of the trip, but Raffensperger believes you may deduct the mileage for your journey. You earn 56 cents per mile under existing tax rules.

Situation #6: Your mobile phone bill, which includes both business and personal calls.

Isn’t it true that your business would come to a halt if you didn’t have your mobile phone? Is it, therefore, fully deductible?

According to Raffensperger, you must divide it into percentages. If business-related calls account for 80% of your phone use, you may deduct 80% of your cost.

The world of write-offs may be complex, but perhaps these suggestions will provide you with enough accounting knowledge to prepare ahead. Of course, a knowledgeable accountant can assist you in determining what you may and cannot deduct. Check read our earlier article on how to select the appropriate accountant for your company.

The “2020 tax write offs” is a topic that has been in the news recently. It is important to know what you can and cannot write-off, so that you are not caught unaware when filing your taxes.

Frequently Asked Questions

Can you deduct the cost of an accountant?

Are write-offs an expense?

A: A write-off is an expense.

What can you legally write off as a business expense?

A: This is a very broad question that can have many answers. For example, if you are running an online store on Amazon and the majority of your sales come from there, then it would be possible to deduct this cost as a business expense. However, if the company only sells their products in-person at events or through other retail outlets such as brick-and-mortar stores where they pay taxes for both themselves and their employees wages – then no deduction can be made because they do not fit into any definition of business.