1099 is no longer being updated, but please enjoy our archives.

Columns by June Walker: IPs Face Unique Tax Challenges Tax Deductions Are There For The Taking You Say You're Self-Employed -- Will the IRS? Criteria for Self-Employment Do You Have a Business or a Hobby? Proving That You're a Business Keeping Records -- It's Not Just for Taxes Three Ways to Expand Your Business Deductions Can I Deduct Disneyland and Other Questions Mixing Business with Pleasure and Other Gray Areas Quicken for IPs Courses That Qualify Training You Can't Deduct Getting There is Half the Battle Taking Deductions on the Road Getting Credit and Taking Allowances Advertising: Do It, Then Deduct It The Subtle Art of Advertising Deductions Billy Bridesnapper's Start-up Saga Starting Up and Shutting Down Start-Up Wrap-Up Giving Gifts, Taking Deductions

Three Ways to Expand Your Business Deductions How-to books and IRS manuals on recordkeeping generally start with instructions about recording income. Yet anyone who has ever been in business knows that expenses come first. A landscaper doesn't get paid before he buys the equipment; he's paid after he cuts the grass. It makes more sense to understand expenses before seriously tackling income. So let's start with the pleasures of taking deductions. What makes an item or event a business expense? Common sense (you know, that's the commodity your mother wished you had) would tell you that business expenses are the costs you incur to run your business -- the money you must spend to make money. The IRS explains it this way: To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is appropriate and helpful for your business. An expense does not have to be indispensable to be considered necessary. Okay, but what is "ordinary" to an astrologer? What is "necessary" to a computer games inventor? The answer: anything you do that relates to your work, that stimulates or enhances your business, nurtures your professional creativity, improves your skills, wins you recognition, or increases your chances of making a sale is a business expense and therefore deductible. When Anouk Astrologer goes to another astrologer for a reading, that isn't a personal expense; that's a business expense, and it's deductible. It's just as legitimate a deduction as the cost of a "Learn to Motivate Employees by Role-Playing" seminar attended by a middle management executive. Ivan Inventor -- of computer games, that is -- shouldn't assume that buying someone else's computer game couldn't be a business expense. Even if he stayed up half the night fighting invaders from another galaxy, he was researching the competition. The purchase of the game is a business deduction. You are self-employed -- so from this moment on, whenever you reach into your pocket for money, write a check, or slip out your credit card, be aware that you may be engaging in a business transaction. Consider it. Change your brain circuits. Cross over to a new mindset. And after you cross over, here are three things to consider with your brand-new mindset: First, define your business as broadly as you honestly can. The more multi-faceted and inclusive your field of endeavor is, the more wide-ranging your expenses can be and therefore the less taxes you'll end up paying! A photojournalist can deduct a more extensive variety of expenses than can a wedding photographer. A technological consultant's expenses will be more diverse than those of a computer repair person. A generalist writer -- someone who might write about anything -- has more assorted expenses than a sports writer. The business lives of self-employed people are intertwined with their personal lives. Second, look at your activities. Don't be so sure that there is a well-marked difference between work and family, between play and chores. The business life of an employee is rather sharply defined, but the business life of a self-employed person like yourself is intertwined with your personal life. If your business is broadly defined and your life is richly complicated, they can get pretty tangled. If you're caring for your parents while running a day-care business, or you're dropping off several of your children at different locations while delivering products to clients, or you're struggling to find time for your new independent venture while holding down a full-time job, the interplay of your business and other interests can be intricate. On the other hand, if you live the life of a beach bum, without commitments or obligations, the boundary between business life and personal life might be remarkably simple. A musician who is single and without children may do very little that is not considered ordinary and necessary to his business -- travel, purchase entertainment system equipment and CDs, attend concerts. An alarm-system installer who spends all his free time going fishing, by himself, is going to have limited business expenses. A visual artist attends a Broadway performance and scrutinizes the sets and costumes. She deducts the cost of the ticket as a business study expense. A structural engineer drives through Millionaire's Mile looking at the period architecture of the houses. Because this is research for him, the drive is a business event and the mileage there and back is a business expense. The proprietor of a shop that sells hand-made clothes for children deducts as a publication expense every magazine she purchases that has any clothing, kids, or fabric industry trends in it. Last, and perhaps most important, review your relationships with the people with whom you spend your time. Your new mindset expands the way you think about the link between what you do and the people you do it with. Anyone who has a connection with your business may be primarily a business associate, even though in some cases he or she may also happen to be a college classmate, friend, parent, child, or spouse. Friendship with a business associate does not necessarily rule out a deduction. You'll just have to show that the predominant motive for the activity that warranted the expense was business-related. A dance instructor calls his friend to invite her to lunch. He asks her to bring her workbook from the marketing workshop she attended so that he may borrow it for ideas for promoting his business. He deducts the business meal. A carpenter deducts not only the tools that she buys, but also the expense of dining out. Why? Because during the meal with her husband she talks about her new business, gets his advice on questions of scheduling, picks his brain about various proposals, and tests his reaction to her brochure. She could not have had this business discussion at the family dinner table with her three children in attendance, so the gift given to her brother as thanks for baby-sitting while she was at this dinner is also a business expense. To sum up, in looking for the best possible advantage regarding business expenses: Define your business as broadly as possible. Remember your business expenses may be expanded or limited by the scope of your business, the money available to spend on your business, and the time available due to other commitments. Whatever you do, and whomever you do it with, consider the possibility of a business connection.   (c) 2000 June Walker. All rights reserved. We'd love to hear your feedback about this column, or put you in touch with June Walker if you like. You may also like to see her biography.