Deductions and Write-Offs

What to pay out of business account?

I have a virtual assistant business out of my home. I plan on writing off part of my mortgage and utilities. Should I pay these bills out of my business account?

Answer:

Hello Katie,

In order to answer your question properly, it is important to know the tax structure of your business; is it a corporation, Single-member LLC or sole proprietor.

Since we can only deduct the portion of your home that is used exclusively and regularly for business (the rule of thumb for the percentage to be in the range of 5-20%), I would advise you to pay for the expenses out of your personal accounts, then record the deductible portion on a monthly basis on a separate sheet. At the end of the year or on a monthly basis, provide an employee reimbursement report to your company for payment.

In general, the deductible portion of the mortgage, real estate taxes, utilities, and insurance need to be booked as "due to shareholder". Once it has been paid by cutting a check or transferring the money out of your business account to your personal account, you will need to reverse the entry by getting rid of your account "due to shareholder" and reducing your cash balance.

Hope my answer helped.


Answer Provided by: personimage Ragi Riad
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