If you check the Internal Revenue Code, you may be surprised to find that most business deductions aren’t specifically listed there. For example, the tax law doesn’t explicitly state that you can deduct office supplies and certain other expenses. Some expenses are detailed in the tax code, but the general rule is contained in the first sentence of Section 162, which states you can write off “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.”

Basic Definitions

In general, an expense is ordinary if it’s considered common or customary in the particular trade or business. For example, insurance premiums to protect a store would be an ordinary business expense in the retail industry.

A necessary expense is one that’s helpful or appropriate. For example, a car dealership may purchase an automatic defibrillator. It may not be necessary for the business operation, but it might be helpful if an employee or customer suffers a heart attack. It’s possible for an ordinary expense to be unnecessary. But to be deductible, an expense must be ordinary and necessary.

A deductible amount must be reasonable in relation to the benefit expected. For example, if you’re attempting to land a $3,000 deal, a $65 lunch with the potential client should be OK with the IRS. (The Tax Cuts and Jobs Act eliminated most deductions for entertainment expenses but retained a 50% deduction for business meals.)

How the Courts May View Expenses

The deductibility of some expenses is clear, while others are more complicated. Not surprisingly, the IRS and courts don’t always agree with taxpayers about what is ordinary and necessary. To illustrate, here are three recent U.S. Tax Court cases in which specific taxpayer deductions were disallowed:

• 1. A married couple owned an engineering firm. For two tax years, they claimed depreciation of $76,264 on three vehicles, but didn’t provide required details, including each vehicle’s ownership, cost and useful life. They claimed $34,197 in mileage deductions and provided receipts and mileage logs, but the court found they didn’t show related business purposes. The court also found the mileage claimed included commuting costs, which can’t be written off. The court disallowed these deductions and assessed taxes and penalties. (TC Memo 2023-39)
• 2. The court ruled that a married couple wasn’t entitled to business tax deductions because the husband’s consulting company failed to show that it was engaged in a trade or business. In fact, invoices produced by the consulting company predated its incorporation. And the court ruled that even if the expenses were legitimate, they weren’t properly substantiated. (TC Memo 2023-80)
• 3. A physician specializing in gene therapy deducted legal expenses of $360,295 for two years on Schedule C of his joint tax returns. The court found that most of the legal fees were to defend the husband against personal conduct issues. The court denied the deduction for personal legal expenses but allowed a deduction for $13,000 for business-related legal expenses. (TC Memo 2023-42)

These cases and others should show the importance of maintaining careful, detailed records. Make sure that only business costs are claimed.

Proceed with Caution!

If an expense seems like it’s not normal in your industry or could be considered personal or extravagant, proceed with caution. Contact the office with questions about deductibility and proper documentation.

Among the many challenges of parenthood is childcare for kids when school lets out. Babysitters are one option, or you might consider sending them to a day camp. There’s no one-size-fits-all answer, but if you do choose a day camp, you could be eligible for a tax break. (Unfortunately, overnight camps don’t qualify.)

Dollar-for-dollar Savings

Day camp can be a qualified expense under the child and dependent care tax credit. The credit is worth 20% to 35% of the qualifying costs, subject to an income cap. The maximum amount of expenses that can be claimed is $3,000 for one qualifying child or $6,000 for two or more children, multiplied by the percentage that applies to your income level.

For those qualifying for the 35% rate with maximum expenses of $3,000, the credit equals $1,050, or $2,100 for two children with expenses of at least $6,000. The applicable credit percentage drops as adjusted gross income (AGI) rises. When AGI exceeds $43,000, the percentage is 20% of qualified expenses, subject to the $3,000 or $6,000 limit.

Tax credits are particularly valuable because they reduce your tax liability dollar-for-dollar, that is, $1 of tax credit saves $1 of taxes. This is compared to deductions, which simply reduce the amount of income subject to tax. So, if you’re in the 24% tax bracket, a $1 deduction saves you only $0.24 of taxes.

Qualifying for the Credit

Only dependents under age 13 generally qualify. However, the credit may also be claimed for expenses paid to care for a dependent relative, such as an in-law or parent, who is incapable of self-care. Eligible care costs are those incurred while you work or look for wor

Expenses paid from, or reimbursed by, an employer-sponsored Flexible Spending Account can’t be used to claim the credit. The same is true for a dependent care assistance program.

Determining Eligibility

Additional rules apply to this credit. Contact the office if you have questions about your eligibility for the credit and the exceptions.

Among the many challenges of parenthood is childcare for kids when school lets out. Babysitters are one option, or you might consider sending them to a day camp. There’s no one-size-fits-all answer, but if you do choose a day camp, you could be eligible for a tax break. (Unfortunately, overnight camps don’t qualify.)

Dollar-for-dollar Savings

Day camp can be a qualified expense under the child and dependent care tax credit. The credit is worth 20% to 35% of the qualifying costs, subject to an income cap. The maximum amount of expenses that can be claimed is $3,000 for one qualifying child or $6,000 for two or more children, multiplied by the percentage that applies to your income level.

For those qualifying for the 35% rate with maximum expenses of $3,000, the credit equals $1,050, or $2,100 for two children with expenses of at least $6,000. The applicable credit percentage drops as adjusted gross income (AGI) rises. When AGI exceeds $43,000, the percentage is 20% of qualified expenses, subject to the $3,000 or $6,000 limit.

Tax credits are particularly valuable because they reduce your tax liability dollar-for-dollar, that is, $1 of tax credit saves $1 of taxes. This is compared to deductions, which simply reduce the amount of income subject to tax. So, if you’re in the 24% tax bracket, a $1 deduction saves you only $0.24 of taxes.

Qualifying for the Credit

Only dependents under age 13 generally qualify. However, the credit may also be claimed for expenses paid to care for a dependent relative, such as an in-law or parent, who is incapable of self-care. Eligible care costs are those incurred while you work or look for work.

Expenses paid from, or reimbursed by, an employer-sponsored Flexible Spending Account can’t be used to claim the credit. The same is true for a dependent care assistance program.

Determining Eligibility

Additional rules apply to this credit. Contact the office if you have questions about your eligibility for the credit and the exceptions

In any season, scam artists are seeking new ways to steal financial data and money from vulnerable people. Such fraudulent activities often target older adults. Here are three ways to help prevent elder financial abuse and fraud, whether you’re in this age bracket or you share them with senior loved ones:

• 1. Exercise caution when making financial decisions. If someone exerts pressure or promises unreasonably high or guaranteed returns, walk away.
• 2. Be alert for phony phone calls. The IRS doesn’t collect money this way. Another scam involves someone pretending to be a grandchild who’s in trouble and needs money. Don’t provide confidential information or send money until you can verify the caller’s identity.
• 3. Beware of emails requesting personal data, even if they appear to be from a real financial institution. Remember, your banker or financial professional already has your personal information. Ignore contact information provided in emails. Instead, contact financial institutions through phone numbers you look up yourself.

For many homeowners, summer means it’s time to tackle home improvement projects. By investing in certain energy-efficient updates, taxpayers not only can lower their power bills but also can score some tax breaks.

The Energy Efficient Home Improvement Credit equals 30% of qualified expenses (up to $3,200) incurred to improve a home after Jan. 1, 2023. Examples include insulation and exterior doors or windows.

The Residential Clean Energy Credit is equal to 30% of qualified property installed in a U.S. home from 2022 through 2032. Examples include solar electric panels, solar water heaters and wind turbines.

Additional rules and limits apply to these credits. Here’s more:

Certain small business owners may qualify for tax breaks by making their premises accessible to people with disabilities. The CDC reports that 61 million people in the United States are affected by disabilities.

The Disabled Access Credit is a nonrefundable credit for up to 50% of eligible access expenditures made by qualifying small businesses in each year the costs are incurred. Also available is a barrier removal tax deduction when a business removes an architectural barrier and the removal improves access for persons with disabilities and the elderly.

Both tax benefits can be used in the same year if the requirements are met. To learn more:

Thirty years ago, we didn’t have a choice: We either mailed off checks immediately or put the paper bills in a folder or on a stack. Maybe we marked their due dates on a calendar or clipped them to calendar pages a few days before the due date so we wouldn’t forget.

But we sometimes forgot anyway, especially if we didn’t have a system for organizing our accounts payable. When this happened, it could lead to late fees and uncomfortable relationships with the people and companies to whom we owed money.

These days, of course, you may pay your bills directly on the website of your biller or your bank. You still need to keep track of when they’re due (for example, by making a notation in Google Calendar or Outlook) and you must remember that you paid them.

QuickBooks can prevent problems associated with fulfilling your accounts payable obligations. You can enter bills when they come in, get reminders of upcoming due dates, and either mark the bills as paid or pay them online, directly from the software. There’s really no downside. Here’s how it works

Set Reminders First

The first reason you should be using QuickBooks to manage your AP is because it won’t let you miss a bill payment (as long as you follow through the process). It does this by allowing you to set up Reminders. You can use these for all kinds of actions that you want to schedule, like printing checks and reordering inventory. Open the Edit menu and select Preferences, then Reminders. Click the My Preferences tab and check the box in front of Show Reminders List when opening a Company file. Then click the Company Preferences tab.

Bills to Pay is near the bottom of the list. You can click in the columns to request a Summary or List of upcoming bills and enter a number in front of days before due date. Click OK when you’re done with this window.

Enter Bills Second

The second reason you should be using QuickBooks’ to manage AP is because you’ll have records of the bills themselves and of their payments, all of them, in one place.

Before you can pay bills, you’ll have to record them. Open the Vendors menu and click Enter Bills. In the window that opens, you’ll need to select a Vendor from the drop-down list and complete the fields in the top half of the window to match your bill. These include Date, Terms, and Amount. The other fields are optional or will fill in automatically. Check the box in front of Bill Received if applicable. If you want a scanned copy of the bill available, click Attach File in the toolbar and select it from your PC’s directory.

The bottom half of the window displays a table with two tabs. If your bill is for an expense, such as a utility bill, make sure the Expenses tab is highlighted. If it’s for products, click the Items tab. The Amount field will be filled in, but you’ll need to select an Account. If the bill is for products or services you’ve purchased on behalf of a customer, select the correct one from the drop-down list under Customer: Job and put a checkmark in the Billable field. When you’ve finished, save the bill.

Accessible and Organized

How do you find the bill you just entered? Open the Vendors menu and select Vendor Center. With the Vendors tab highlighted, click on the correct name to open their information window. The bill you just paid should be at the top of the list, along with all of that vendor’s other transactions.

If you’ve never explored a vendor record, take some time to look around and see what you can see and do there. Vendor records give you a comprehensive look at your history with each vendor. Right-click on a name to see what your options are there, as pictured below.

If a particular vendor is very active and this list grows too unwieldy, click the down arrow in the Show field in the upper left. You’ll be able to view individual transactions by type.

Convenient and Quick

What is the third reason you should be using QuickBooks for your bill-paying tasks? When it’s time to pay a bill, there’s no scrambling around, trying to find a piece of paper or an email. It’s a couple clicks away in the software.

If you’re using QuickBooks 2021, you’ve probably noticed that some of your financial services have stopped working. As of May 31, Intuit stopped supporting that version, which means you also won’t get security updates or have access to technical support. If you’re in this position, contact the office as soon as possible to talk about your next moves.

June 17

file for a four-month extension (Form 4868) if you live outside the United States and Puerto Rico or you serve in the military outside those two locations. Pay any tax, interest and penalties due.

paying income tax through withholding or not paying sufficient income tax through withholding.

taxes, completing Form 1120-W for the corporation’s records.

the monthly deposit rule applies.

rule applies.

July 10