5 Non-Deductible Business Expenses

5 Non-Deductible Business Expenses

Every single business has different types of policies in place. However, what is considered deductible and non-deductible business expenses solely depends on the country’s laws in which your company is registered.

A deductible expense is subtracted from the gross income, which helps reduce the company’s tax liability. Contrary to this, non-deductible business expenses do not impact the taxes in any way.

For example, traveling to and from work each day is not a deductible expense. On the other hand, the money spent on a business trip is. You can get reimbursed for your hotel accommodation, travel expenses, and even meals here.

Knowing the difference between deductible and non-deductible expenses can really help you keep track of your personal and business spending.

Here is more of a breakdown of 5 common non-deductible business expenses:

Work Clothes

Work clothes can only be considered deductible if the job requires specific clothing like uniforms, hard hats, etc. However, you will have to pay for any office attire like suits or formal dresses independently, making these non-deductible expenses.

Food and Entertainment Expense

Food and entertainment are usually deductible if it is related to work. Imagine if you have to entertain a potential client. You go out for lunch with them because you have to give them details of your products and the future proposal. This expense is deductible.

However, if you are going out on a trip with your co-workers to build your team bonding outside your office space, this is a non-deductible expense. Thus, it is absolutely important to know the difference. All your personal expenses are non-deductible, even if it is food and entertainment. There are a few exceptions though. For example, half of your meal expenses are tax-deductible.

Travel Expense

Some industries require you to travel to different locations. Most expenses are deductible when you travel for your job or business. This includes fuel cost, food cost, and even hotel accommodation.

Contrary to this, if you are on a business trip and bring your spouse with you. The business trip will not cover her expenses. So as your spouse is not working in the same firm, any incidental expenses they incur will have to get paid out of your pocket.

Anything Illegal

It goes without saying that illegal business expenses are not considered for expense deduction. Examples of payment made related to unlawful activity includes bribes and kickbacks. You can seek legal advice if more information is required, but it cannot be included in your tax return.

Gifts

Gifting something to a client or business partner is a common courtesy, showing your appreciation towards them. Not only that, but it also paves the way for a stronger relationship in the future. However, there needs to be a set budget for how much you can spend on certain gifts.

In a nutshell, it can be challenging to understand the differences between deductible and non-deductible expenses. You might have a different list of non-deductible expenses; this list completely depends on your business type, industry, and country. The key to finding the difference between the two expenses is to see if the expense is a personal expense or a business expense.

Usually, personal activities are non-deductible expenses, while business expenses are deductible expenses. But, not all expenses are business-related. Some are personal, and they are categorized as non-deductible expenses. The best way to differentiate amongst these in times of doubt is to refer to the company’s policy. It will clearly highlight which expenses are deductible and non-deductible and hence, which expenses an employee can claim.

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