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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. I am a sole proprietor and pay personal expenses out of my business bank account. Should I include the money used for personal expenses as part of my business 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 I lease a vehicle, can I 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 for use in a trade or business, 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: 12/18/2014

How do you distinguish between a business and a hobby?

In making the distinction between a hobby or business activity, take into account all facts and circumstances with respect to the activity. No one factor alone is decisive. You must generally consider these factors to establish that an activity is a business engaged in making a profit:
You may find more information on this topic in section 1.183-2 (b) of the Federal Tax Regulations.

Rev. date: 12/18/2014

I am a sole proprietor and pay personal expenses out of my business bank account. Should I include the money used for personal expenses as part of my business income? Can I write these expenses off?


Rev. date: 12/18/2014

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


Rev. date: 12/18/2014

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

Per diem rates are on the Internet: 

Rev. date: 12/18/2014

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. They can claim a prescribed rate of $5 per square foot (up to a maximum of 300 square feet) 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.
Taxpayers who do not choose the safe harbor option, 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, Simplified Option for Home Office Deduction and Reminder to Home-Based Businesses.
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: 12/18/2014

If I lease a vehicle, can I 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:
An income inclusion amount reduces both of these deductions.

Rev. date: 12/18/2014

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: 12/18/2014

If you lease-purchase a piece of equipment for use in a trade or business, 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 consider yourself as the outright purchaser of the equipment. You may generally recover the cost of such property used in a trade or business through depreciation deductions.
Whether the agreement is a lease or a conditional sales contract depends on the intent of the parties as evidenced by their agreement, which is read in light of the facts and circumstances when it was entered into. Determine the parties' intent based on the facts and circumstances that exist when you enter into the agreement.
In general, you may consider an agreement as a conditional sales contract rather than a lease if one or more of the following conditions apply:
Additional Information
Publication 535, Business Expenses

Rev. date: 12/18/2014

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: