How to Deduct Business Expenses Paid Personally Outside of an S-Corporation
If your business is set up as an S corporation, it acts as a separate entity for legal and financial purposes. On the financial side, deductible business expenses relating to the company must be claimed on the S corporation's tax return. It is not a good idea tax-wise to pay business expenses outside of the S corp finances. If too much time has not passed, you can take steps to get those expenses onto your business tax return.
Pass Through Of Taxable Profits
The S corporation business structure allows a small business to operate as a separate entity but not pay taxes at the corporate level. The net income of an S corp passes through to the company owner-shareholders to claim on their personal tax returns. Deductible business expenses incurred by the company reduce the net income for the year and thus reduce the amount of taxable income that passes through to the shareholders. To be used as deductions, valid business expenses must be claimed on the S corporation tax return.
Reimbursement Of Expenses Required
急速PC28彩票If you pay expenses that your S corporation should claim, the proper way to handle the items you have paid is to have the corporation reimburse you for the amounts you paid. The receipts for the expenses should be turned over to the company, and the money you spent should come back to you from the corporation. If you regularly pay business expenses out of your pocket, you may want to set up an expense reimbursement claim form. If you do not submit the expenses for the S corporation to pay you back, you cannot deduct those payments at either level -- the business or on your personal tax return.
Accurate Record-Keeping System
急速PC28彩票From a business management perspective, paying expenses outside of the S corporation accounting system makes it more difficult for the ownership to know how profitable the company really is. For a small business that is an S corp, it may seem easy for an owner to just pay expenses and then get reimbursed later. However, this practice makes it difficult for the bookkeeping to stay up to date and accurate. Also, the mingling of business and personal expenditures increases the chances of either missing some expense deductions or having the Internal Revenue Service disallow what should be legitimate write-offs.
Unreimbursed Employee Business Expenses
An owner-shareholder-employee of an S corporation can also take the deduction for unreimbursed employee business expenses. A typical expense of this type is using a personal car for business purposes, for example. This type of expense can be included in your itemized deductions on you personal tax return if not reimbursed by your employer. Personal business expenses are not the same as expenses that are costs the company incurs in the operating of its business.
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