Every business owner is on a constant quest to reduce their tax liability. With the myriad of expenses incurred in running a business, it's only natural to wonder which ones can be written off as tax deductions. One such expense that often comes up for discussion is business coaching. So, is business coaching tax deductible? The short answer is yes, but with certain conditions. Always consult with your accountant or the person who prepares your taxes.
Understanding Business Expense Deductions
The Internal Revenue Service (IRS) allows businesses to deduct all "ordinary and necessary" business expenses from their revenue to lower their taxable income. According to the IRS, an ordinary expense is one that is common and accepted in your trade or business, and a necessary expense is one that is helpful and appropriate for your trade or business.
Business coaching often falls under the category of "necessary" business expenses because it can directly influence the success and growth of a company. This is particularly true when the coaching is targeted at improving business skills, enhancing strategic planning, or addressing specific business challenges.
Conditions for Deducting Business Coaching Fees
While business coaching is generally tax deductible, there are some conditions that must be met:
Direct Relevance to Business: The coaching must be directly related to your business or profession. If you're a software engineer receiving coaching on improving your golf game, you won't be able to write off those coaching fees. However, if you're receiving coaching on how to manage a software development team more effectively, that would qualify.
Reasonable Cost: The amount spent on coaching must be reasonable. There's no set dollar amount deemed reasonable or unreasonable; it's determined on a case-by-case basis. A small business spending half its revenue on coaching fees may raise red flags with the IRS.
Documented Evidence: Like all tax deductions, you must have documented evidence to support your claim. Keep detailed records of your coaching sessions, including receipts, contracts, and a log of the time spent in coaching.
Impact of Tax Reform
The Tax Cuts and Jobs Act of 2017 (TCJA) made several changes to business tax deductions. While it didn't specifically address business coaching, it did limit deductions for entertainment expenses, previously often written off as business expenses. However, professional development expenses like business coaching remained unaffected, solidifying their status as legitimate, deductible business expenses.
TAKEAWAY: Business Coaching is a Necessary Expense
In conclusion, business coaching is generally tax deductible, provided it meets the IRS's criteria of being an ordinary and necessary business expense. However, the specifics of each situation can vary, and tax laws are continuously evolving. Therefore, it's always advisable to consult with a tax professional or certified public accountant to ensure you're making the most of your potential tax deductions and remaining in compliance with all IRS guidelines.
Remember, investing in business coaching isn't just about getting a tax break. The real value lies in the skills, insights, and improvements that come from the coaching process, leading to increased profitability and success for your business. Schedule a free consultation with Atomic Business Coaching to learn more about working with a coach.
Disclaimer: This blog post is intended for informational purposes only and should not be construed as legal or tax advice. Always consult with a tax professional for your specific needs.