Starting Your Business/Keeping Tax Records

What are Business Expenses

Contributions

Charitable contributions. Cash payments to charitable, religious, educational, scientific, or similar organizations may be deductible as business expenses if the payments are not charitable contributions or gifts. If the payments are charitable contributions or gifts, you cannot deduct them as business expenses. However, corporations can deduct charitable contributions on their income tax returns. See Charitable Contributions in Publication 542 for more information. Individuals, partners in a partnership, or shareholders in an S corporation may be able to deduct charitable contributions made by their business on their individual income tax returns.

Inventory. You can take a charitable contribution deduction for inventory items donated to a qualified charitable organization. Your deduction is limited to the fair market value of the property on the date of the contribution less any gain you would have realized if you had sold the property at its fair market value. You must remove from opening inventory for the year you make the contribution any costs for the donated property included from prior years. These costs are not part of the cost of goods sold for determining gross income for the year of the contribution. Use them in figuring the basis of the donated property. However, you can include (as part of the cost of goods sold) costs in the year of the contribution if you treat them as part of the cost of goods sold under your accounting method. Do not use these costs to increase the basis of the donated property.

Inventory

Political Contributions

Important References:

Publication 535                  Business Expenses
Publication 542                  Corporations
Form 1040 Schedule C     Profit or Loss From Business