Article Posted on 11/21/2019
What happens when an auditor shows up and you’ve been running personal expenses through the salon? I know you want to make sure you’re deducting everything you can that is valid but do you step over the line sometimes? The reality is a lot of people do. I see it all the time when looking at prospective business. Make a reasonable allocation of the expenses between personal and business. If you don’t the IRS will. If you make a good faith effort you have a leg to stand on. Here are some common expenses that would require an allocation:
- Combined personal and business travel expenses – Staying an extra few days for personal is not deductible. You can’t deduct your children’s travel just because you think they’ll work for the salon someday.
- Legal fees – Fees for personal matters are not deductible.
- Cell phone – The portion of the bill for family members that do not work in the salon are not deductible.
- Vehicle expenses – Personal use of vehicles is not deductible. A mileage log should be kept documenting personal and business mileage use. No log. The entire amount can be reclassified as a distribution and taxable.
The goal is to be able to deduct as much as allowable however deducting expenses that are personal is not allowed. Having good documentation could save you from costly penalties.