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Frequently Asked Tax Questions

Small Business, Self-Employed, Other Business - Income & Expenses

  1. How do you distinguish between a business and a hobby?
  2. If I, a sole proprietor, pay personal expenses out of my business bank account, should I count the money used as part of my income? Can I write these expenses off?
  3. For business travel, are there limits on the amounts deductible for meals?
  4. Where can I find the per diem rates for foreign countries?
  5. I use my home for business. Can I deduct the expenses?
  6. If you lease a vehicle, can you deduct the cost of the lease payments plus the standard mileage rate?
  7. Are excise taxes for a vehicle deductible?
  8. If you lease-purchase a piece of equipment, like a forklift or truck, do you deduct the lease payments or do you depreciate the cost of the equipment?
  9. Are business gifts deductible?

Rev. date: 07/23/2014

How do you distinguish between a business and a hobby?

In making the distinction between a hobby or business activity, all facts and circumstances with respect to the activity are taken into account.  No one factor alone is decisive.  The most common factors which should normally be considered to establish that the activity is a business engaged in making a profit are the following:
Additional information on this topic is available in section 1.183-2 (b) of the Federal Tax Regulations.

Rev. date: 12/16/2013

If I, a sole proprietor, pay personal expenses out of my business bank account, should I count the money used as part of my income? Can I write these expenses off?


Rev. date: 12/16/2013

For business travel, are there limits on the amounts deductible for meals?


Rev. date: 12/16/2013

Where can I find the per diem rates for foreign countries?

Per diem rates are on the Internet: 

Rev. date: 12/16/2013

I use my home for business. Can I deduct the expenses?

To deduct expenses related to the part of your home used for business, you must meet specific requirements. Even then, your deduction may be limited.
You must use part of your home:

Note: You do not have to meet the exclusive use test if you satisfy the rules that apply to storage, rental, or daycare use.
Beginning in 2013, a safe harbor method (Revenue Procedure 2013-13) is available to qualifying taxpayers. A prescribed rate of $5 per square foot (up to a maximum of 300 square feet) can be claimed directly on Schedule C (Form 1040) (PDF), Profit or Loss From Business (Sole Proprietorship), by entering the square footage of the home and square footage of the office in the applicable boxes to indicate their election to use the safe harbor option.
Note:  You may not use the safe harbor method for rental use of your home.
If the safe harbor option is not chosen, taxpayers will continue to use Form 8829 (PDF), Expenses for Business Use of Your Home, to compute the expense allowable as a deduction on Schedule C (Form 1040).  For more information, see Home Office Deduction and Simplified Option for Home Office Deduction on IRS.gov.
If you are an employee and use a part of your home for business, you may qualify for a deduction.  You must meet the use tests discussed above plus:
Employees claim the deduction for business-use-of-home expenses as an itemized deduction on Schedule A (Form 1040) (PDF), Itemized Deductions.  There is a worksheet in Publication 587, Business Use of Your Home, to calculate the amount of the deduction.
Note:  Whether the business use of your home is for your employer’s convenience depends on all the facts and circumstances.  Business use is not considered to be for your employer’s convenience merely because it is appropriate and helpful.

Rev. date: 12/16/2013

If you lease a vehicle, can you deduct the cost of the lease payments plus the standard mileage rate?

If you lease a car you use in business, you may not deduct both lease costs and the standard mileage rate.  You may either:
Both of these deductions are reduced by an income inclusion amount.

Rev. date: 12/16/2013

Are excise taxes for a vehicle deductible?

The federal government charges a wide variety of item specific taxes referred to as excise taxes, to users on a wide variety of products.

Rev. date: 12/16/2013

If you lease-purchase a piece of equipment, like a forklift or truck, do you deduct the lease payments or do you depreciate the cost of the equipment?

You must first determine whether your agreement is a lease or a conditional sales contract.  If the agreement is a lease, you may deduct the payments as rent.  If the agreement is a conditional sales contract, you are treated as the outright purchaser of the equipment.  The cost of property used in a trade or business may be recovered through depreciation deductions.
Whether the agreement is a conditional sales contract depends on the intent of the parties. Determine the parties' intent based on the facts and circumstances that exist when you enter into the agreement.
In general, an agreement may be considered a conditional sales contract rather than a lease if one or more of the following conditions exist:
Additional Information
Publication 535, Business Expenses

Rev. date: 12/16/2013

Are business gifts deductible?

If you give business gifts in the course of your trade or business you can deduct all or part of the costs subject to the following limitations:
You need to have records that prove the business purpose of the gift as well as the details of the amount spent.