Expenses – M Hernandez Income Taxes Bookkeeping

November 9, 2020December 10, 2020

Business Expenses for IRS Reporting

The general rule for deducting business expenses are the costs of carrying on a trade or business and are usually deductible if the business is operated to make a profit.

For an expense to qualify as a deduction come tax time, the expense must be both ordinary and necessary.

Qualified Business Expense Test

Is the expense ordinary and commonly accepted in your industry?
Is the expense necessary and helpful in operating your trade/business?

An expense does not have to be essential to be considered necessary. Even though an expense may be ordinary and necessary, you may not be allowed to deduct the expense in the year you paid or incurred it. In some cases, you may not be allowed to deduct the expense at all. Therefore, it is important to distinguish business expenses and include them into the following 3 categories.

Cost of Goods Sold (COGS)
Capital Expense
Personal Expense

Learn More about the different type of categories in a different post.

IRS-Publication-535-1 Download

October 23, 2019December 10, 2020

Liability Vs Expense

What Is the Difference Between an Expense and a Liability?

Now you know what a liability and a expense is. A liability is something a business owes. A expense is something a business paid.

Can you tell the difference between a business expenses and a business liability?

A business expense is the cost of operations that a business incurs to generate revenue. Expenses are related to revenue, and both are listed on a business income statement. In short, expenses are used to calculate Net Income.

REVENUE – EXPENSES = NET INCOME

For example, if a company has more expenses than revenues for the past three years, it may signal weak financial stability because it has been losing money for those years.

A business liability is what the business owes over a period of time and incurred to keep the business open. Liabilities are related to assets, and both are listed on a business balance sheet. In short, liabilities are used to calculate Equity.

ASSETS = LIABILITIES + EQUITY

Expenses and liabilities should not be confused with each other. One is listed on a company’s balance sheet, and the other is listed on the company’s income statement. Expenses are the costs of a company’s operation (paid now), while liabilities are the debts a business owes (not paid but needs to pay at some point).

July 31, 2019December 10, 2020

Save Money for your Small Business: Eliminate Expenses

Looking to cut expenses in your business increase the business profit. Grab your books and let’s take a look.

What expense can you eliminate?

Let’s first check if you have any Club memberships or services with monthly fees. Believe it or not, these small monthly fees can add up over a twelve month period.

Now, let’s move on and check your other large expenses. Evaluate the expense account you believe has an abnormal amount and see if everything in that account is correct. Check and see if those private dining with customers, postage meter rental, online credit alert service, merchant services account, or any other expense you thought was smaller but just found out it was a lot larger than expected.

Third, don’t be afraid to haggle and renegotiate. Sometimes a private memberships club will allow you to park your membership for a reduced fee or a merchant might be willing to lower your fees if you have been a long time customer.