How to Write off Business Deductions
If you are a small business owner, entrepreneur or someone who has a side hustle, you can write off expenses or purchases incurred to conduct your business or side hustle. There are many deductions you can take to minimize your tax liabilities and maximize your refund but did you know that if you were audited the burden of proof would be on you, as the taxpayer?
Today, I'll be share sharing the records necessary to support your business deduction, when evidence is necessary to substantiate a deduction and proof requirements to ensure you have the tools you need to run your business or side hustle without a hassle.
According to the Internal Revenue Service, there are 4 key elements that constitutes a business expenses, theses elements include:
1) Paid (if using the cash method) or incurred (if using the accrual method) during the taxable year.
2) Paid or incurred for carrying on a trade or business.
3) Ordinary - Normal, usual or customary to the trade or business.
4) Necessary - Appropriate and helpful to the operation of your business or trade
An addition to these elements you must also have adequate record to constitute the business expense. An example of an adequate record includes an account book, diary, log, statement of expense, trip sheets or similar record and documentation or a combination of these items.
The IRS does not require a specific form but the evidence must written and accompanied by third party receipts, invoice or a similar form of documentation. The documentation must have a date, amount and purpose and it is crucial that you pay attention to this.