| Aug. 21 2008 at 3:33 PM |
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Just to be clear to everyone in cyberspace, what people write on these message boards or in the email pdf that Monica kindly posted, is not considered "adequate authority" and cannot be used to defend your position in audit.
Having said that, my reading of Monica's email confirms what I previously stated. IRC 162 (which can be found here: http://www4.law.cornell.edu/uscode/uscode26/usc_sec_26_00000162----000-.html)
states that in order for any expense to be a deductible business expense it must meet the guidelines of "ordinary and necessary" - it does not mention "business purpose".
I believe that the concept of "business purpose" came into play with the Tax Court Memo 1983-667, the case of Harold L. Jenkins (a/k/a Howard Twitty) v. Commissioner. As stated in this memo "business purpose" is useful to help determine if an expense is "ordinary or necessary", but it doesn't necessarily make it "ordinary and necessary" and therefore is not enough to determine it's deductibility.
Gina L. Gwozdz, CPA
http://GLGcpa.com
http://TaxTreasures.com
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| Aug. 22 2008 at 1:02 AM |
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glgcpa wrote:
As stated in this memo "business purpose" is useful to help determine if an expense is "ordinary or necessary", but it doesn't necessarily make it "ordinary and necessary" and therefore is not enough to determine it's deductibility.
I'm getting dizzy. No wonder my EA gets the big bucks every year.
Steve Mann
Internet Videographer
MannMade Digital Video
My Email
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| Aug. 22 2008 at 6:06 AM |
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Gina,
I am inclined to agree with Steve this is making be dizzy too!
From Publication 535 "You can deduct the cost of a business expense if it meets the criteria
of ordinary and necessary and it is not a capital expense." Who and what determines "ordinary and necessary"?
It is ordinary and necessary for one to go to the PO to mail bills, to go to the bank to make deposits, to meet a client, etc. counting the mileage as a business expense to run the business.
If I worked a job and ran errands for the employer going to the bank, PO etc I would receive mileage reimbursement from the employer for the mileage.
So where does one find what the IRS feels is ordinary and necessary to run a business?
Light Bookkeeping
Keeping Your Books In Shape
Monica A. Cohee
128 CME
Newville, PA 17241
717.448.7131 leave a message
lightbookkeeper@gmail.com
http://www.virtualbookkeeper.vze.com
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| Aug. 22 2008 at 8:49 AM |
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When items become law they are written as part of the Internal Revenue Code or IRC. "Ordinary and Necessary" is defined in IRC 162. Since that time, for many expenses it has been fought in audits and in Tax Court cases and Tax Court "memos" have been written. If the IRS finds that a number of taxpayers are still "confused" as to certain items of deduction they "clarify" through various Revenue Rulings.
The IRS isn't looking to second-guess your
business decisions, based on my experience they have been very flexible when applying this standard. Almost any expense that's
fairly common for your type of business will be considered alright, eventually (they love to probe, especially if you're a home based business). Due to various abuses the IRS is trying to make sure, among other things, that the expense is actually spent, and it pertains to the business instead of personal or family needs.
Thus, as indicated in the article, if someone has a home based business and gets a PO Box "so they can write off their miles", the IRS will most likely rule against that. If their business purposes it to "get their mail" the IRS will ask them if a postmaster comes to their residence. Once you answer yes, you have to come up with another business purpose. Most businesses display their street address so customers can find them. If you're using a PO Box because you don't want your customers to know you work from your home or some other reason, that can be easily argued to be a personal reason, not a business purpose.
Yes, if you work in a brick and mortar building and you need to run to the post office the miles are usually deductible. The rest of the story is that mail is usually delivered and picked up from these brick and mortar buildings, so your trip(s) to the post office is not a daily activity, like it would be in the example in the article, but a special trip for a special reason. Once you make it a daily activity, the IRS wants to know if everyone (or most) in your type of business handles their mail in the same fashion. If that is satisfied then they will see if it's necessary that you do this, or are you doing it for personal reasons?
Do you remember when every realtor put a sign on their car and then tried to claim that all the miles they drove anywhere were deductible because they were "advertising" their business? That was their "business purpose" and it makes logical sense. But the tax code is not logical. Just because you can come up with a "business purpose" does not make it deductible. The IRS has ruled many times and won in court that by putting a sign on your car you cannot convert personal miles to business miles. They didn't change the IRC, but Tax Court Memos were issued and Revenue Rulings were made. The sad part is that some taxpayers are still doing it, so it's still on the list of tax abuses.
The tax code does not spell out every possible situation - it's long enough as it is. The IRS publications, state right on them that they are not authoritative and not all inclusive; thus you're not allowed to rely on that information either.
And no tax preparer that I have ever had the pleasure of knowing, knows all the rules either - they need to look things up and see if, for your specific particular situation, your deduction is more likely than not going to be allowed if you were ever audited. The best thing taxpayers can do is find a tax preparer who will take the necessary time to research the specific situations on your particular return, instead of doing a drive through tax return.
Gina L. Gwozdz, CPA
http://GLGcpa.com
http://TaxTreasures.com
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| Oct. 01 2008 at 3:30 PM |
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I understand the deduction rules for home based businesses, but do the same rules apply if you are using a second home primarily for business purposes and secondarily for vacation purposes (<14 days on a yearly basis)? I'm interested in your thoughts.
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