What to know when deducting business expenses
Q. I train dogs on the side and I have some unusual expenses related to clean-up of the area where we train. I also want to install a compost machine for what the dogs leave behind. Can I deduct all that?
— Looking for savings
A. You just might be able to take a deduction, or at least a partial one.
We’re going to assume you earn money for the dog training.
“A business expense is deductible if it is ordinary and necessary,” said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton. “Based on that definition I think installing a compost machine to help get rid of the waste the dogs leave behind not only would be deductible but environmentally friendly!”
But there are two caveats.
First, if the compost machine is also used for personal use, then you must allocate the cost between business and personal use and only deduct the portion that relates to business expense, Hook said.
Second, if the compost machine has a useful life beyond one year, you cannot deduct the cost of the machine in the current year but instead must depreciate (deduct) the cost of the machine over a period of years as defined by the tax code and dependent upon what category the item falls into, Hook said.
“Depreciation can be a complicated calculation since under certain circumstances the item you are depreciating may be eligible for bonus depreciation which can restore much of the first year expense (sometimes 100 percent) where you end up right where you originally started,” Hook said. “Welcome to the wild world of taxes!”