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Building Your Personal Wealth Building Blocks of Financial Plans Compensating Yourself How Will You Pay Yourself? Expenses Paid by the Business
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PrintExpenses Paid by the Business
Legitimate deductible expenses permitted for travel, meals, entertaining clients, automobile expenses and the like, if properly claimed and documented, give an owner many advantages not enjoyed by regular employees. Considerable benefit can be gained through the use of deductions for company cars and expense accounts, as long as they are supported by extensive documentation that substantiates their legitimate business purpose.
But often the business owner is tempted to go too far. Here is where many small businesses get into difficulty. The founder, failing to differentiate between himself and his business, plunders the business assets at will. After all, it's his business, so it's his money and he can spend it on himself if he likes, right? He's worked hard to build the business up and now he's going to reap the tax-free rewards. Forget compensation on which taxes must be paid, he thinks. He'll just pay his expenses directly out of the company. Or, if he's in a cash heavy business, skim some off the top and not run it through the books.
But an owner who uses his business to finance his hobbies or extravagant indulgences (boating, horse racing, luxury home improvement, world cruises, and private aviation come to mind) can expect frequent and costly visits from Uncle Sam's minions at the IRS.
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