Clarifying Business vs Personal Expenses

We hope you are enjoying your summer. Today, we’re addressing several important topics related to proper expense coding and deductions to help ensure your accounting remains accurate and IRS-compliant.

Contributions vs. Promotion

When making contributions to nonprofit organizations, how you code the expense depends on the context:

  • Practice Promotion (Account #6760):
  • If your donation includes promotional benefit to your dental practice—such as sponsoring a fundraiser where your practice is listed—this should be coded as Practice Promotion.
  • Why? These are generally more favorable from a tax standpoint than charitable contributions.
  • Charitable Contributions (Account #6730):
  • Donations made without promotional benefits—such as to a church, a memorial, or other purely charitable cause—should be coded as Charitable Contributions. Keep in mind that these deductions may be limited.

Reminder: Contributions made through platforms like GoFundMe are not considered charitable donations to a nonprofit. These should be coded to Account #3030 – Distributions, as they are personal in nature.

Business vs. Personal Expenses

The IRS is very strict in distinguishing between business and personal expenses. Please review these common examples:

  • Meals:
    • Personal meals (take-out lunch, coffee runs) are not deductible.
    • Business meals with a non-related colleague (with a documented discussion) are deductible. Always record the name and business topic on the receipt.
    • Meals during out-of-town continuing education (CE) trips are deductible—be sure to note the CE course on the receipt.
  • Travel and Lodging:
    • Only expenses directly related to CE events held out-of-town are deductible.
    • Traveling to a vacation spot and attending an online CE course while there will not qualify as a business deduction.
  • Automobile Expenses:
    • If your practice owns a vehicle, gas, insurance, and repairs should be paid through the business.
    • If not, no auto expenses should be run through the practice. Instead, track business mileage (excluding commutes), and we will calculate allowable reimbursement at year-end.
  • Staff Meals/Entertainment (Account #5340):
    • Meals for team events such as lunch-and-learns or morning huddles should be coded to this account.
    • Staff holiday dinners or outings also belong here and are generally 100% deductible.

Business Credit Cards

We highly recommend maintaining a dedicated business credit card for all practice-related expenses. Personal expenses should never be charged to this card.

Mixing business and personal charges invites detailed IRS scrutiny during audits—often spanning several years. This can create significant stress and exposure for both you and us. As your CPA/EA professionals, we are required to report questionable expenses, and unsubstantiated personal deductions can result in penalties and interest.