As business owners prepare for tax season, many sole proprietorships begin to consider the tax benefits of incorporating or forming an LLC. Similarly, business that are incorporated are looking to maximize their tax savings – especially during this tough economy.
The IRS states that any “ordinary and necessary” business expenses can be subtracted from your business income prior to being to taxed. Here’s the interesting part: Your business does not even have to make a profit for your expenses to be deductible. You must only establish a “profit motive.” Under the Internal Revenue Code, a “profit motive” is presumed if you earn any net income in any three out of five business years. Furthermore, the general rule is that as long as the expense is made for business (not personal) purposes, you can deduct it from your business income. (more…)