Someone gave me a great tip on business expenses when I asked him jokingly whether I could deduct my pet food. He said, “Sam, everything is a business expense so long as you can justify it.” Interesting!
I’m no accountant, but I have read hundreds of financial statements and understand the basics of maximizing revenue, minimizing costs, and thereby maximizing profits after tax. A company’s expenses are different, depending on industry. The Cost of Goods Sold (COGS) for an individual blogger might be $0, since the individual is writing all his or her own content. COGS is very straight forward.
It’s the operating expenses which gets a little gray. Operating expenses are essentially all expenses that are necessary for you to make profits happen. There are a whole set of rules of what you can and cannot deduct. What I’d like to do is have a open discussion using an example to understand more.
AN INCOME STATEMENT SNAPSHOT
Hero Media is a small media company set up as an S-Corp owned by Pat. The main source of income is advertising and the main product is written content. What are the line-items that stand out the most? What can you say about this company from just looking at the income statement?
| MONTHLY INCOME STATEMENT | |
| GROSS AD REVENUE | $10,000 |
| Cost of Goods Sold | $250 |
| Net Ad Revenue | $9,750 |
| EXPENSES | |
| Internet | $100 |
| Cell Phone | $100 |
| Marketing | $200 |
| Server | $250 |
| Freelance | $250 |
| Travel & Accommodation | $2,000 |
| Pet Bunny | $50 |
| Business Meals | $500 |
| Miscellaneous | $500 |
| Salary | $2,000 |
| TOTAL OPERATING EXPENSES | $5,950 |
| OPERATING PROFIT | $3,800 |
| Taxes at 30% | $1,140.00 |
| NET PROFIT | $2,660.00 |
| Operating Profit Margin | 38% |
| Net Profit Margin | 27% |
The first thing you notice is how small Cost of Goods Sold is. Pat basically does all of his own writing and pays just $250 for acquisition of content.
The second thing you see is a relatively large Travel & Accommodation expense of $2,000. Clearly, Hero Media must write a lot of travel-rich content, at least for this month.
Finally, you an see that Pat draws a $2,000 salary for all the writing, marketing, and coordinating he does for the company. Pat has to pay normal taxes + all payroll taxes on the $2,000. Meanwhile, Hero Media makes a net profit of $2,660 after paying 20% Federal Tax and 10% state tax. The amount is called “retained earnings” that accrues on the company’s balance sheet.
LET’S DISCUSS BUSINESS EXPENSES AND CURVE BALLS
Hopefully the way I’ve laid out the income statement and the description that follows makes things sound perfectly legitimate and straightforward.
An operating profit margin of 38% and a net profit margin of 27% is relatively healthy and doesn’t raise any red flags in my opinion. Meanwhile, if you are in the media/internet/blogging business and have only a 10% operating margin because you have tons of expenses, that might raise some eyebrows. And if you actually have mega expenses that surpass your $10,000 in monthly revenue, then you might really have a problem.
Travel & Accommodation
The $2,000 Travel & Accommodation expense is a round-trip ticket to Hawaii with three nights stay at the Kahala Resort in Oahu. Pat lives in freezing Michigan and decided to take a trip in January to write about how it would be like to live a location independent lifestyle in Oahu. He entitles the article, “The Best Place For An Online Entrepreneur To Live And Work“.
Some of you may raise your eyebrows and wonder whether this is a legitimate expense, since Hawaii is a vacation destination. Well, how else is Pat going to gain credibility in his article above if he doesn’t go visit the place! That’s like a blogger teaching you how to be a millionaire without being a millionaire himself! Or a relationship guru who still lives at home with his parents. No credibility means poor content, no traffic, and no ad revenue.
Does visiting Des Moines, Iowa for only $300 sound like a more legitimate? If so, why do you think this is more OK? How nice of a place should be irrelevant, so Hawaii is in!
Every year, I have one board meeting up at my vacation rental in Squaw Creek, Lake Tahoe. This is a legitimate business expense as annual board meetings are required.
Pet Bunny
Somehow, I feel this business expense is harder to justify even if it’s just $50. Pat claims that his pet bunny provides him relaxation during his 5 hours a day writing marathons. Without his pet bunny, he would be more stressed and would therefore write worse content, leading to lower revenue.
At $50 a month, Mr. Rabbit’s expense is minimal, and only 0.5% of gross revenue. Is this a business expense? Maybe, as I’ve seen people/companies expense hundreds of dollars worth of massages to maintain the health of the owner. Is this a red-flag? Maybe if you wrote it as “Pet Bunny” above. But, if you put the $50 into the Miscellaneous category, it would likely go undetected.
As a professional writer, can you write without your right hand? Well, Mr. Bunny is Pat’s right hand fur ball.
Business Meals
This is one of my favorites. Eating great food is heavenly. We all have to eat anyway, so we might as well take clients out for meals on the company to help subsidize our foodie tendencies, and potentially do some business as well.
There’s no IRS law that says you have to say more than once sentence about business during the meal. A simple, “How’s business doing?” can suffice! No matter how wealthy a client they are, everybody loves a free meal. At $500 a month, it looks like Pat is spending a healthy amount of time wining and dining. I believe there is some stipulation that you can only expense the portion of the bill which the client accounts for e.g. $100 bill for two, you can only expense roughly $50. That said, what if all you had was free bread and water?
Miscellaneous
Relatively speaking, $500 is a large Miscellaneous expense. This line item is a catch-all expense for everything he’s missed. This can include parking tickets, coffees he bought at the airport, magazines and books about travel and Oahu he needed to read for his writing, tips to the valet, and so forth.
Pat has most of the receipts. He’s just too lazy to categorize every single $5 expense, so he puts in Miscellaneous. Is $500 really a business expense? Probably. Is Miscellaneous as a category a red-flag? Hard to say, because even $500 is only 5% of total revenue. There’s a big category called “General & Administration” in the Selling, General & Administration vernacular of operating expenses, which is also a catch-all phrase.
Perhaps all the owner has to do is change the word Miscellaneous to General & Administration!
THE POWER OF JUSTIFICATION
The reason why I no longer have 4-pack abs is because I spend too much time in front of the computer writing. Who has time for exercise? The reason why I’m poor is because of the evil 1% top income earners and marketing companies who peddle consumption. Spending less than I earn is hard, and I have bills to pay.
We can use the power of justification to justify practically anything we want. As we return to the post title’s question of, “What Is A Business Expense?”, share with us whether you think the above examples are indeed business expenses, and bring up several more examples of your own. Accountants and financial gurus, please also feel free to blow holes in my article as well.
Note: Think about categorization, expenses as a percentage of revenue, margins, industry standard, cash flow and profitability. If the industry standard is a 25% operating margin, and you somehow year in and year out show only a 5% operating margin because you load tons of non standard expenses into your income statement, it will seem fishy. As a business, you are also ALLOWED to lose money too once in a while, therefore paying no taxes. We can’t all be winners.
Photo: Drinking a Mythos Beer at the top of Santorini, 2011. I’ve written three posts about my cruise and generated more income than the cost of the trip.
Disclaimer: I am not an accountant, although sometimes I feel like one after staying at the Holiday Inn Express. Please seek a professional accountant for business expense advice. Updated on 2/10/2015.
Regards,
Sam
Haha! I like the pet bunny write-off. Maybe it’s time to write off my $400 Christmas puppy? ;) This is a very timely post though, since I need to put together all of my tax information very soon. I now have more ideas for business expenses.
A while back, our accountant got ‘furniture for office’ on the tax claim as a business expense. The furniture was a very nice sofa and armchairs and the office is at home. All very legit and justified but we still have a joke about it.
Pet Bunny is the best. I agree he is an expense that could be written off. Why? Because it saves you a lot of money by keeping you at peace and in a zen like mode while working in turn saving on medical expenses. Good call.
I think the IRS would disagree with many of the expenses listed.
Like which ones and why please?
Like the others, I love the pet bunny. I have a kitty who’s sleeping at my side that I think about claiming as a business expense. He’s cute, he’s fuzzy, he keeps me flexing my arms when he’s clawing me. I think that I’m going to claim video games and put it under expenses… that definitely keeps me sane. :)
The pet bunny is a total crock. Anything related to “medical issues” is a personal expense, unless there is a medical plan in place for the business as whole. Being “relaxed” is no excuse for it whatsoever. Justification can only go so far, and to be quite honest, that one is very lame. Actually, the justification is meant for the IRS, not the business-owner. Of course, if the bunny was the company mascot and used in advertising and was showcased prominently at events and meetings, then it would be a different story.
Regarding the entertainment deduction, there are specific rules that have to be followed. In order for the event to be considered business-related:
“The taxpayer must show that the main purpose of the event was business, engage in business with a person or persons during a meal or entertainment activity and have more than a general expectation of receiving income or some other specific business benefit in the future”.
Not only that, there are certain venues that will be disallowed based on the conducive nature toward business activities. Nightclubs, theaters, sporting events, meetings that are essentially social gatherings (like cocktail parties), and others are generally not acceptable deductions because of the distractions provided at each which causes the IRS to consider them not directly related to business. Essentially anything that is not a clear business setting has a strong chance of being disallowed.
I’m glad you threw your voice in Eric. side note: A mascot might not be a bad idea… I know a few blogs that could take advantage of it – maybe not squirrelers though. That could get ugly.
Party poopa Eric! The pet bunny is totally therapeutic! If the bunny dies, Pat cannot go on and his writing will suffer, and therefore his revenue will go down.
Any restaurant is conducive for business discussions. I’m surprised a 3 hour baseball game isn’t conducive either.
Thoughts on the $2,000 in travel expenses, given it’s much greater than the rabbit and power lunches.
Sorry Sam, just trying to keep Pat out of trouble!
As far as the trip to Hawaii is concerned, if Pat has a decent-sized portfolio of articles on Untemplater, then I would be totally fine with taking the deduction with a caveat. First, let me say that the site itself deals significantly with living a mobile lifestyle so doing research on working from all sorts of different locales makes the travel very relevant to the topic. The cautions I would point out are:
1. The trip should be completely for research purposes (no kids/significant others)
2. The place where Pat stayed should not be on the high side in terms of cost relative to other options on the Island. Unless the theme of of the site shifts to luxury living.
3. The costs were not reimbursed by the site or through any kind of rewards program in any way. That is double dipping and just wrong.
Thanks for your thoughts. I use Untemplater.com as an example b/c of my article, the site’s theme, and b/c Sydney is a close friend of mine.
The point is to focus on THE BIG STUFF eg. $2,000 in this case, and not the $50 bunny rabbit therapy.
On point #2, if it’s about living the high life traveling, that I don’t see why the $400/night Kahala resort can’t be deducted either. Might not be a good net profit financial move, but it is what it is.
I hear you on double dipping.
Can I deduct the cost of daycare, diapers, formula, and etc…? Baby RB40 is our mascot and he is featured prominently on the blog quite often. :)
You cracked me up! My 14 month old is my mascot and I cannot do ANYTHING without his support! :)
“Of course, if the bunny was the company mascot and used in advertising and was showcased prominently at events and meetings, then it would be a different story.” — That’s a GREAT idea! Step One: Buy a pet bunny. Step Two: Start a Finance Bunny Blog! Step Three: Write off bunny on taxes. Hey, I like it! ….
Even if the bunny could be justified as a legitimate business expense, I probably wouldn’t try to write it off. The $15 you save in taxes isn’t worth it if it triggers an audit.
Good article addressing a very important question. If I have a hard time convincing myself that it’s a business expense, I won’t bother claiming it as one. It’s not worth the risk of being audited, a hassle I’d rather not go through.
Business expenses scare me almost as much as an audit. I’d be worried even about the computer. If they can show you did anything personal on it, that could be trouble. I think you have to have a separate computer for personal use if you want to deduct all the cost. But, I’m not a tax guy so I’ll let my accountant handle it when I get there.
How does that pet bunny fit into the business? Is it the mascot? If so, then maybe it could be justified as a business expense. :)
In terms of taxes, I like to stay just under the radar. I take every leitimate business expense I can. As far as the bunny, did you buy the “Bunny Ranch”? Then maybe you could write off the “bunny” expense!
It’s been awhile since I have been working with income taxes. However, blowing the dust off my knowledge, I think there’s a legitimate case to be made for most of these expenses. Well, except for the bunny. That’s out. Not to mention, it just looks blatantly fraudulent and beauty is in the eye of the agent if you get audited. The travel is the diciest one for me. This person best have a very good trail showing the post(s) this travel inspired, AND the revenue it helped generate. You can’t do that, it’s not worth the hassle. Pay the taxes. The salary also stood out, but you mention payroll taxes were paid, so I am assuming this isn’t a sole propriortiship set-up, but instead a LLC or corporation.
This is an S-corp and there’s only one owner, Pat. He pays himself $2,000/month to operate everything, or 20% of revenue. That $2,000/month is subject to normal taxation + payroll taxes of 12%. The rest of his income isn’t.
How does Pat write his travel related content if he does not travel?
Imagine if Pat was a contractor for National Geographic, or Rick Steve’s. Are you saying he can’t deduct his plane tickets around the world? Doesn’t seem right no?
I’m all for the travel deduction. But, if I were advising him, I’d strongly show a link between the trip and revenue. It’s such an unconventional business model, at least for an IRS agent to understand. So, you really would want to have some good back-up. A blog, to the uneducated, reeks of a “hobby”. And hobby expenses only deductible to the extent of income. More is better when it comes to evidence of a business tie in.
Well, if the average income in America is $50,000, and Pat is rocking $120,000… that’s quite a hobby and the IRS agent should understand this is a legit business.
The bunny write-off is too good :) I heard someone charged the cost of buying an expensive suit as a expense, since he needs to wear it at client meetings. Not sure about this one.
Technically speaking, clothing is never an allowable deduction if it isn’t specialized gear, and is used solely for work purposes. A doctor’s monogrammed smock, construction workers’ specially made steel-reinforced shoes, security uniforms and the like are good but “comfortable shoes” or suits will be thrown out in a heartbeat.
Your comparison to working out is one that I usually make when talking about people making money. You can’t very easily take muscle from someone else – or redistribute extra weight to others, can you? (Within reason, I know medical science is advanced!)
I wouldn’t write off the bunny unless you were using it in advertising or something. Too many variables, and you’d invite unwelcome scrutiny. That said, $10,000 a month for Pat? That’s a decent sum!
Pat may be missing out on some potentially big expenses. Mortgage/rent, insurance, utilities and real estate taxes. He’s definitely not doing his due diligence.
You deduct your mortgage, insurance, utilities, and real estate taxes from your online business? Tell me more! Thx
If you have a dedicated room where only business-related activities take place and isn’t a pass-through to other areas you can take a % of the household expenses (power, phone, internet, insurance). Only the interest portion of the mortgage can be used as a business deduction, but I don’t know why anyone would choose to take the interest or RE taxes as business expenses unless they are too low to qualify for a Schedule A deduction.
Looks like Eric beat me to it. The IRS has a 33 page pdf on all things home business. Great fall asleep reading.
Eric, why don’t you recommend using interest and RE taxes as business expenses? Not a home owner, I deduct a % of rent, so just curious.
It’s simply a way of eliminating any potential issues. The best way to file a return is to be as straightforward as possible. The more you try to blur lines, the more you leave yourself open to questioning. By claiming the entire mortgage interest and RE taxes on the personal return, you would be using those deductions in the manner they were originally intended. Plus, it keeps the record keeping much more streamlined and easier to both follow and substantiate.
With the current tanking of the market, that will happen more often than people think. We bought a house this year and all of our combined mortgage related deductions barely meet half the standard deduction. Using my home office is a great way to still get a home deduction.
I’ve been trying to figure out how charitable contributions and businesses go together. We made cash donations this year — do I HAVE to claim it in that section, or can I deduct it as a business expense? Obviously if I can count it as a business expense that’s more money in my pocket, but I can’t find anything in the tax code on it. I’ll probably need to talk to a tax professional.
All charitable donations have to be reported as such. They cannot be claimed as a business expense unless that is the business you are in. In the case of a sole-prop or S-corp the deduction will flow through to the owner/shareholder(s), and in a C-Corp the deduction will be taken by the company–assuming that in all situations the deduction can be claimed, otherwise it is carried forward.
Wow, this has been an informative thread so far. Thanks Sam and Eric!
Appreciate Eric for the additional color on the topic. I’m putting together my taxes now and although I save all of my reciepts, I think if the expense is under a certain amount that you don’t have to? I do anyway because for a while my deductions were eating all taxable profits. This year was definitely profitable tax wise. I’m still looking for deductions to bring down the tax burden.
Technically, you are supposed to keep all receipts in order to substantiate any deductions that may come into question. However, if you have those expenses documented on a bank account or credit card statement, then you could get away without having the actual receipts. This is the reason why I love using a program like quickbooks so much, particularly now that you can scan receipts and attach the images to a specific transaction in a register. Of course, if you have a scanner you can simply scan the receipts into a singular file for easy access rather than storing piles of paper receipts.
Not so sure the bunny would count, but you bring up an interesting issue – there are lots of things to deduct and the IRS goes on word alone, esp with donations like clothing. How much exactly are your old clothes worth?
As for business expenses, I’ve heard they get really sticky with that, and will only let you write off work from home stuff if you have an actual home office.
Anytime you are able to find an excuse for a tax write-off, kuddos to you! I’ve never known any one to write an animal down as an expense, that is just awesome. Maybe I’ll be able to have my television as tax expense because I write a lot of things I learn from CNN and such.
My husband and I own a rental property and a small business and we are very careful about what we classify as business expenses. The reason is simple… we don’t want to face an audit! While you can certainly justify things if you need to we don’t want to risk sitting face-to-face with the dreaded IRS.
My kittens keep me sane. I think I’ll include them as a mental health deduction. Oops, don’t have enough medical deductions to write them off. Well… maybe another year.
Nice post Sam! I liked the Bunny deduction the best!!
When it comes to business receipts, honesty is the best policy. I’ve always kept my business dedcutions reasonable. Should the tax-man ever want to view your records, and everything looks reasonable, then you’re probably OK. But once they start seeing a few anomolies, even one or two, then they will go through everything – and just not that year either.
The question is are the beer and bunny deductions, small change in the scheme of things, worth the added risk?
Cheers
Dividend Ninja
As mentioned in the article, “businesses” can lose money. Where do we draw the line between a blog being considered a business or a hobby? If you make only an attempt at earning income from your blog by throwing up one Adsense block, is it then considered a business? By this line of thinking, couldn’t you blog about anything and justifiably write off any related expense?
Say a beer enthusiast starts a simple free blog about beer. He buys and drinks one six-pack of expensive micro-brew beer every day and then writes about it. He doesn’t promote his blog and has virtually no site visitors and no revenue from the Adsense. Could he justifiably claim all of his beer expense as a business loss?
Yep, where do we draw the line? It’s a judgement call. Not every business can make money. In fact, don’t most business lose money at some point in their operational career? Furthermore, don’t most businesses just shutdown in the first 5 years b/c they lose money?
I think it is RARE that a business can start making solid operating margins the first 1-3 years out. Hence, folks should think about this regarding their tax deductions.
Sam
[…] Yakezie “Is This A Business […]
To get your 4 pack abs back Gym membership could also be a biz expense. Why do you think private clubs are so costly?
Here is a tax tip for all when owning a business. Pay your children to work for you (legitimately not pretending they work for you), $5k and you contribute to their Roth IRA to the same amount. One way currently to transfer your wealth to your children legally.
Pat can invest up to $49,000 or 25% of the net income, whichever is smaller into SEP IRA to avoid paying taxes. In this example, he can deduct $7980 from taxable income.
This is definitely one good tax avoidance strategy. In Pat’s case though, he’s only making around $45,000 pre-tax, hence Pat’s effective tax is only around 15%.
Would you still suggest Pat defer the 25% of net income (you mean pre-tax operating income since this is a pre-tax contribution) if PAt believes he will be making much more money in the future? Better to pay tax now right?
Can you clarify the 25% of net income as opposed to operating income, since 25% of net income defeats the purpose of tax avoidance? thx
Sam, Good question. I did research and found that it is 25% of the salary that Pat draws. So, in his case, it will be 25% of $24,000 = $6,000(deduction) that he receives in wages from the S-corp for SEP contribution. Hope that makes sense.
Yep, that makes better sense. Thanks for clarifying. Excellent highlight of another business expense. The issue is, with such a low net profit before tax, why not just pay the taxes now if Pat expects his profits to grow over time and therefore pay a higher tax rate?
Sam, I agree with you.
Pet bunny therapy, that’s a good one. I’ve heard of salon visits, laptops, and clothing for marketing but never a bunny. Creativity at its best!
Sam, thanks for a great thought provoking article. I am not running my own business (my blog is only an increasingly serious hobby at this point), but I have friends who do, and you break down how to maximize expenses well.
On a blogger note, your writing style is excellent. You took a serious topic, presented it with depth while keeping it interesting the entire way. Thanks for setting the writing bar high. Quality drives repeat traffic.
Not at all Thad! The article was fun to write and I do think we all need to think about business expenses/tax deductions as an important part of our business.
Thanks for stopping by!
Great article, Sam. Your photo caption at the end is actually the part that really hit me between the eyes: “Drinking a Mythos Beer on the top of Santorini, 2011. I’ve written three posts about my cruise and generated more income than the cost of the trip. My favorite is, “Dream Big And Execute Your Goals With Purpose!” $5,000 business expense no problem right?”
WOW! I definitely want to dream bigger, and your photo and article have provided some great inspiration. Thanks.
The trip was fantastic! I can’t stop thinking about sitting at that bar for 3 hours, soaking in the rays, typing, contemplating and just being happy. I actually did several advertisement deals as well at the bar, which further made me appreciate the ability of working online.
It’s fun! After just putting in the work, knock on wood things don’t implode, online endeavors just continue to grow!
The pet bunny comment made me LOL. The boy has a business, and he’s pretty cut and dry – his gas, vehicle maintenance, and tools get written off. His personal life doesn’t.
I like to do a income statement for my own personal finances every month, because it shows me where I’m going and how I’m getting there.
Great post Sam. Let’s just hope the IRS isn’t reading while reviewing your tax returns. Ditto on Eric’s comments, so I won’t bother rehashing what he’s already said.
Law violations are never tax deductible, so the parking tickets are out.
Your own justification doesn’t mean you’ll successfully win a tax argument. Much of tax law goes by what the industry is using as reasonable deductions. Are other media companies going to vacation destinations to get credibility, or just you? It helps the justification side of things if you are just a lemming jumping off the cliff after the lemming in front of you.
Couple questions:
1) Why would I go to a non vacation destination to write about? There’s a reason people don’t decide to vacation in North Dakota. Do you think my readers would be as interested?
2) Did you just call me a lemming? If so, why?
I’ll handle 2 first.
Nope. But it helps in the justification area if you are just following what others in your industry do. If all bloggers head out to HI once a year and deduct the expenses, your justification of it being for business is easier. “Of course its a business expenses Mr. IRS, 40,000 bloggers go to HI for business, I have remain competitive you know.”
Number one depends on your business. Is your content all about oil drilling? Then a trip to North Dakota is more convincing than HI where there is no oil drilling going on.
If I get stressed by seeing some rude reader comments and decide to visit a gentleman’s club to get de-stressed. I should claim it as business expense right? Question is should it go to Miscellaneous or a direct mention?
When I used to do taxes I remember expenses had to be reasonable and necessary to conduct business. The pet bunny doesn’t cut the mustard but if he was a mascot for the business maybe? Could you take Ralphy Rabbit on tour to promote your business and write it off as marketing expense?
sounds a bit aggressive, but then again as your friend said anything can be a deduction if justified. it comes down to how well you tie the expense back to a “business purpose” as well as the IRS rep you are dealing with (some will pursue you till the end – it’s a matter of personal pride while others will cut you loose) if and when audited. the risk of being over aggressive is of course that if you manage to raise a red flag, the IRS will likely look into your previous tax returns as well and sniff around…
Note to self: I can write off my birds and fish this year.
Haha, I don’t think that bunny belongs in there. Sunil had a good point about being over-agressive. One good thing for us online people is that once you start making a bit of money you can deduct a lot of expenses — computers, office equipment, all pretty standard stuff that can add up to a lot of savings on taxes. Well, that is what I’m hoping. ;)
Bunny? Hilarious! I’ve got plenty of cats and dogs I need to write off! I guess anything can be justified.
Sam, can you elaborate on how paying someone for writing content is Cost of Goods Sold? Is the $250 you list for freelance also this purchased content? I’ve read about Cost of Goods Sold at irs.gov and I am not seeing how one would consider purchased content to be COGS. If the purchased content was being resold, then I believe it could be considered COGS. Also, the IRS says if you include an expense in the COGS, you cannot deduct it again as a business expense. The IRS page I’m looking at is here: http://www.irs.gov/businesses/small/article/0,,id=109807,00.html
Sure. Let’s say you sell pizza. Your COGS are: cheese, dough, tomato, onions, etc.
Let’s say your product is content, and you don’t write the content. The COGS are what you pay the person to write. I guess you can put it in operating expense. Either way, of course you can deduct the cost as a COG or as income. Content for a media company is their bread and butter!
[…] For a more in-depth discussion on business expenses, please read, “Is This A Business Expense?” […]
[…] Is This A Business Expense? – An example of a list of potential business expenses bloggers may be able to deduct. Given […]
Re: Eric’s comments on double dipping. I hear what your saying but what in this scenario – I claim medical expenses as a deduction because my expenses ratio is higher than my income thus my question is this:
If I go to walgreens, use my reward card, get points aka cash/credit and if I claim my med expenses, is this double dipping? Would The IRS come after me for this if I was audited?
I doubt the IRS would bother auditing such a small expense. And if they do, you’ll just have to pay the difference. The IRS isn’t evil. They just want their money.