Today TaxMama® hears from LiveMusic, with this interesting question. “I have expenses related to “studying the competition” so as to (hopefully) improve my own business profits. How would I categorize that?”
Dear LiveMusic,
If the expenses are legitimate, you would categorize the expenses as ‘Research.”
To ensure that they are deductible, read on.
Be sure you can document that those costs were specifically for studying the competition. For instance, if you have concert expenses, you must also have detailed notes on what you learned about the competition and how that can be related to your business or business practices, etc.
If all you did was go to a concert or a film and you think IRS is letting you write off your entertainment expenses…you will be facing quite a surprise in an audit.
I have worked with a lot of entertainment industry folks and others. We have gotten most, or all of the expenses approved under audit – when they did their homework – when they really did keep logs and pictures and notes. Some of those people had well-thumbed binders filled with their notes, details, photos, clippings, reviews, samples, examples, etc. – from their honest-to-goodness research of films, locations, (restaurants – a restaurant architect), etc. In fact, we even got over $7,000 worth of travel to the Orient and Hawaii sustained in an audit.
The ones who didn’t do that?
It’s a crap shoot. Some IRS auditors will grudgingly accept part of those costs. Some won’t accept any. And without any documentation, you can’t even fight it. So do your homework.
And remember, you can find answers to all kinds of questions about converting personal entertainment to business expenses, and other tax and business issues, free. Where? Where else? At www.TaxMama.com.
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