Archives for June 2025

Understanding Startup Costs and Tax Deductions: A Must-Read for New Business Owners

Ken Botwinick, CPA | 06/30/2025

According to the U.S. Census Bureau, nearly 447,000 new business applications were filed in May 2025 alone—a strong signal that entrepreneurial spirit in America remains vibrant. If you’re among the growing number of startup founders, it’s important to understand how your early-stage expenses impact your tax situation. The way you manage your startup costs can significantly influence your first-year federal tax liability.

At Botwinick & Co., we work closely with startups and emerging businesses to ensure they make the smartest financial decisions from day one. Here’s what you need to know before filing your taxes.

How Are Startup Costs Treated for Tax Purposes?

If you’re launching a business or in the planning stages, there are three important tax rules to understand:

What qualifies as a startup cost?
Startup costs include expenses incurred during the investigation or creation of a business, before it officially begins operations.
How much can you deduct?
The IRS allows you to deduct up to $5,000 in startup costs and $5,000 in organizational costs in the year your business becomes active. However, this deduction phases out if total costs exceed $50,000. Any remaining costs must be amortized evenly over 180 months (15 years).
When can you claim deductions?
You can’t deduct or amortize these costs until your business is considered “actively conducting business.” This typically means your business is officially operating and generating revenue. The IRS will look at your activity, intent to earn a profit, and involvement to determine eligibility.

Which Expenses Qualify?

To qualify for the limited deduction, startup costs must be:

Directly related to the creation or acquisition of a business.
Incurred before operations begin, and would otherwise be deductible if the business was already active.

Examples include:

Market research for new products or services
Travel expenses to meet with potential suppliers or customers
Advertising and promotional materials
Business consulting and feasibility studies

Organizational expenses are specifically related to setting up a business structure such as a corporation or partnership. These might include:

Legal fees for drafting incorporation documents
Accounting services for financial setup
State filing fees for registering your entity

Why It Matters

The early financial decisions you make as a startup can have long-term tax implications. Properly classifying and tracking your expenses ensures you don’t miss out on valuable deductions.

Get Ahead with Strategic Planning

Launching a business is exciting—but navigating tax regulations can be overwhelming without the right guidance. At Botwinick & Co., we help startups across all industries build a strong financial foundation. From tax planning to financial structuring, our expert CPAs are ready to guide you through each stage of your entrepreneurial journey.

📞 Schedule a consultation today to discuss your business goals and how we can help optimize your tax strategy from the very beginning.

How to Safeguard Your Business Expense Deductions: Essential DOs and DON’Ts

Ken Botwinick, CPA | 06/24/2025

If you plan to deduct business meals, vehicle use, or home office expenses, be prepared—the IRS scrutinizes these claims closely. Many taxpayers fail to meet the strict substantiation requirements imposed by the tax code, often due to poor recordkeeping or attempting to recreate records long after the fact. As one recent U.S. Tax Court case (T.C. Memo. 2024-82) highlights, incomplete documentation can easily lead to disallowed deductions and costly consequences.

Real Case Example: Why Documentation Matters

A software consultant learned the hard way that vague records and assumptions don’t fly with the IRS. She claimed substantial deductions for multiple tax years, but the IRS disallowed many of them—and the U.S. Tax Court agreed. Here’s what went wrong:

❌ Business Meals

The taxpayer claimed almost $9,000 in meal expenses in one year, stating they were for “working lunches” with colleagues. However, she only provided bank statements as proof. The court ruled that this failed to establish the business purpose or the relationship of the individuals involved, adding that simply eating lunch during the workday is not automatically a deductible business expense.

❌ Supplies

Over two tax years, she claimed more than $17,000 in supply expenses, including desks, monitors, and office materials. But receipts were dated after the tax years in question and included items like soda machines and gift cards—raising questions about personal use. The kicker? All purchases occurred after she had already closed the business.

❌ Home Office Deductions

She deducted over $21,000 for the business use of her home. But the court found that her main place of work was at clients’ offices—not at home. She also failed to show how much time she actually worked from home or if any portion of the residence was used exclusively for business.

Other disallowed expenses included vehicle use, attorney fees, utilities, and hotel stays—all lacking sufficient proof or clear business relevance.

DOs and DON’Ts for Protecting Your Business Deductions

To help your deductions survive an IRS audit, follow these best practices:

✅ DO: Keep Complete, Contemporaneous Records

Document every business meal with the date, amount, location, purpose, and participants’ business relationship.
Track mileage with a log showing where, why, and when the travel occurred.
For home office deductions, measure and designate the exclusive business-use area and keep utility bills and usage logs.

❌ DON’T: Wait Until Tax Time to Reconstruct Logs

Recreating records months later is a red flag for the IRS.
Record expenses immediately using a logbook, accounting software, or apps.
Employees should submit weekly or monthly expense reports for reimbursement and recordkeeping.

✅ DO: Separate Business and Personal Spending

Use dedicated business bank accounts and credit cards.
Avoid paying personal bills with business funds, even temporarily.
Mixed-use expenses will trigger IRS questions and may lead to disallowance.

❌ DON’T: Assume the IRS Won’t Ask Questions

Vehicle, meal, travel, and home office deductions are high-risk audit targets.
Be ready to present solid evidence if the IRS comes knocking.

What If Your Records Are Lost?

In rare situations, such as fire, theft, or flood, you may qualify to estimate deductions under the Cohan Rule, which allows reasonable approximations. However, this is a last resort—and you must still prove that the expense was legitimate and related to your business.

Be Prepared, Not Panicked

The key takeaway? Organization is your best defense against IRS scrutiny. Detailed records and a disciplined approach to expense tracking can make all the difference. If you’re unsure whether your deductions are adequately substantiated, speak with a tax professional who can guide you through IRS-compliant recordkeeping and help protect your legitimate deductions. Contact us today to review your documentation, implement better systems, and avoid costly mistakes.

Big Tax Breaks Ahead? What Business Owners Should Know About the Latest Congressional Proposals

Ken Botwinick, CPA | 06/11/2025

As tax season planning ramps up, business owners may want to keep a close eye on Capitol Hill. A new legislative proposal — dubbed The One, Big, Beautiful Bill — is currently under debate and could introduce sweeping changes to federal tax law. The bill aims to expand several key tax breaks for businesses, with some provisions applying retroactively.

Although still making its way through Congress, the bill has already captured the attention of small and mid-sized business owners, accountants, and tax advisors across the country. If passed, it could dramatically reshape how businesses manage capital investments, deductions, and compliance.

Here’s a breakdown of five major tax changes under consideration — and how they might impact your business strategy.

1. Bonus Depreciation May Return to 100%

Current Law:
Businesses can currently deduct 40% of the cost of eligible property — such as new or used machinery — in the year it is placed in service. That percentage is expected to drop to 20% in 2026 and phase out entirely by 2027.

Proposed Update:
The bill seeks to retroactively reinstate 100% bonus depreciation for assets acquired after January 19, 2025, and maintain it through 2029.

Why It Matters:
This would allow businesses to deduct the entire cost of qualifying equipment in the first year, significantly improving cash flow. Capital-heavy industries stand to gain the most, especially those investing in growth or upgrades.

2. Section 179 Expensing Limits Could Double

Current Law:
In 2025, businesses can expense up to $1.25 million of qualified purchases, with the deduction starting to phase out at $3.13 million.

Proposed Update:
The bill would raise the Section 179 cap to $2.5 million, with the phaseout starting at $4 million — and both figures indexed for inflation starting in 2026.

Why It Matters:
Doubling the limits gives small businesses greater flexibility to fully expense major purchases. This provision would reduce the need for complex depreciation tracking and incentivize reinvestment in growth.

3. Qualified Business Income Deduction (QBI) Expansion

Current Law:
Eligible owners of pass-through entities — including LLCs, S-corps, sole proprietors, and partnerships — can claim a 20% deduction on qualified business income through 2025, subject to limitations.

Proposed Update:
The bill would make the QBI deduction permanent and increase it to 23% starting in tax year 2026.

Why It Matters:
Making this deduction permanent offers long-term tax planning certainty for small and mid-sized business owners. The increased percentage adds additional tax savings year after year.

4. Research & Experimental (R&E) Expense Deduction Reinstated

Current Law:
Since the Tax Cuts and Jobs Act, domestic R&E expenses must be capitalized and amortized over five years (15 years for foreign research).

Proposed Update:
Businesses would again have the option to fully deduct R&E expenses for costs incurred from 2025 through 2029. The requirement to amortize would be suspended during this time.

Why It Matters:
Startups, tech firms, and R&D-driven businesses could benefit enormously. Expensing these costs upfront boosts liquidity and incentivizes innovation without the burden of delayed deductions.

5. 1099-NEC Filing Threshold Could Increase

Current Law:
Businesses must file Form 1099-NEC for independent contractors paid $600 or more annually.

Proposed Update:
The threshold would rise to $2,000, indexed for inflation beginning in 2025.

Why It Matters:
This change would reduce the number of forms businesses must file, saving time and administrative effort. It’s a welcome relief for businesses working with part-time or short-term freelancers.

What Else Is on the Table?

The bill also includes proposals to:

Eliminate federal income tax on eligible tips and overtime
Expand employee benefit options
Modify rules related to business interest deductions
Change Form 1099-K thresholds and requirements

While the legislation narrowly passed in the House, it still awaits Senate approval — and potential revisions. If amended, it would return to the House before heading to the President’s desk.

Next Steps for Business Owners

Though these proposed tax changes appear favorable, business owners should not act prematurely. With the possibility of retroactive rules and evolving details, guidance from a trusted tax advisor is critical.

At Botwinick & Co., our CPAs are closely monitoring developments in Washington. If passed, this bill could represent one of the most impactful business tax packages in years.

📞 Let’s talk strategy before the law changes.
Contact us today to schedule a consultation and make sure your business is prepared for what’s ahead.

How to Make Your Summer Business Trip Tax-Deductible: What the IRS Allows in 2025

Ken Botwinick, CPA | 06/04/2025

Are you or your team planning a business trip this summer? Whether it’s for a conference, client meetings, or site visits, you may be able to deduct many of the associated travel expenses—if you follow IRS guidelines. Understanding the rules can help you legally write off costs while staying compliant with the latest tax laws.

Who Can Deduct Business Travel?

Thanks to the Tax Cuts and Jobs Act, employees currently cannot deduct unreimbursed business travel expenses through 2025. These are classified as “miscellaneous itemized deductions,” which remain suspended until further notice. Additionally, proposed legislation under review in the Senate—dubbed the “One, Big, Beautiful Bill”—could make this change permanent.

However, there’s good news for business owners and self-employed professionals: You can still deduct eligible business travel expenses as long as the trip is necessary, includes an overnight stay within the U.S., and is directly related to your business.

What Summer Travel Expenses Are Tax-Deductible?

If your trip qualifies as business-related, you may deduct a range of expenses, including:

Transportation: Airfare, train tickets, taxis, ride-shares, rental cars, and mileage for personal vehicles
Lodging: Hotel stays during business days
Meals: 50% of the cost of meals, even if they aren’t directly tied to a meeting or client event
Incidental Expenses: Dry cleaning, business phone calls, and rental equipment (like a laptop)

Keep in mind: the IRS disallows deductions for personal activities such as sightseeing, spa treatments, movie tickets, or pet boarding while away.

Business vs. Personal Travel: How to Separate Expenses

Combining work and vacation this summer? That’s fine—but only your business-related expenses are deductible. Here’s how to stay compliant:

Business Days Count: Only meals and lodging for days primarily spent on business are deductible.
Travel Purpose Matters: If your trip is mainly for business, the cost of traveling to and from your destination (like airfare) is fully deductible. If the main purpose is personal, those travel costs are not deductible.
Time Allocation: The IRS will examine how much of your trip was spent on business versus leisure. The more time you spend on personal activities, the less likely your travel will qualify for deductions.

International travel comes with even more scrutiny, so consult a tax advisor for guidance.

Conferences and Spouse Travel: Special IRS Rules

Attending a professional seminar or training event? Keep all documentation that confirms the business nature of the event, including the agenda and registration receipts.

Bringing your spouse or partner along? Their expenses are not deductible unless:

They are a legitimate employee of your business, and
Their presence serves a bona fide business purpose

Simply tagging along doesn’t count!

Maximize Deductions with Proper Documentation

To ensure your travel deductions withstand an IRS audit, keep organized and detailed records, including:

Receipts
Travel itineraries
Business purpose notes
Names of attendees for meals

The IRS places significant weight on documentation, so don’t rely on memory alone.

Need Help Planning a Deductible Business Trip?

Tax law around travel deductions can be complex, especially when mixing business with leisure. If you’re unsure what’s deductible, contact our office for personalized tax planning guidance. We’ll help you stay compliant—and maximize your legitimate deductions.