If a contract with a client requires me to spend money, is that money a business expense?
Get Legal Help Today
Compare Quotes From Top Companies and Save
Secured with SHA-256 Encryption
If a contract with a client requires me to spend money, is that money a business expense?
My small business is looking to acquire a new client, but the contract would
require that some of the money we receive would be spent to complete with the
contract. Does that constitute a business expense, or would I be taxed on the full
amount of the income?
Asked on July 10, 2017 under Business Law, Utah
Answers:
M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney
Answered 7 years ago | Contributor
To be deductible, a business expense must be both "ordinary and necessary". An ordinary expense is one which is both common in your specific trade or business. A necessary expense is one which is helpful and appropriate for your trade or business. Therefore, any amounts legitmately spent that meets the above criteria is deductible. Specifically, in your case, any sums paid to complete the contract.
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 7 years ago | Contributor
Yes, any amounts you spend, whether pursuant to a contract or otherwise (e.g. without a contract, just because it is appropriate or a good idea) which are legimately for business (to buy inventory, to provide services, etc.) is a business expense and is tax deductible. So say you are paid $30k but have to spend $6k to complete the contract. You net taxable income would be $30k - $6k = $24k.
IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.