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Can I Claim A Loss Deduction For Personal Expenses
Loss deduction is a tool used by businesses so that they only get taxed on their net income rather than their gross income. The difference between net and gross income is that gross income only consists of profits whereas net income consists of profits minus expenses.
Net income is a much more valuable tool for business owners than gross income because it allows them to see their business's profitability. Because the cost of the items purchased already factors into another business's income taxes, it makes sense for the U.S. government to only tax a business owner's net income.
Personal Vs. Business Expenses
However, the key point to understand for loss deductions is that they can only be claimed for business expenses. This may be more difficult for self-employed individuals or small business owners who often use home offices, multi-use vehicles and multi-purpose equipment like laptop computers for both personal and business use. If this is the case for you, then you should be very careful about keeping good accounting records of what you've spent for yourself and what you've spent for your business.
The IRS is very clear on this point. Only business expenses may be claimed as loss deductions. Claiming a personal expense as a loss deduction is known as tax fraud and may get you in trouble if the IRS audits you.
How To Handle Multi-Purpose Expenses
If you have an expense that is multi-purpose, for instance you are paying mortgage on a house with a home office, then you can only claim a loss deduction for the portion of your mortgage equivalent to the portion of your house taken up by the home office and for the portion of time you spend in the home office. This is often an inexact science, and you may have to contact a tax attorney to be sure that you are getting the best deal without running the risk of an IRS audit.
There are several specific rules involved with loss deduction for business expenses, and you should consult with the IRS or with your tax lawyer for that information. Generally speaking though, you cannot claim any sort of loss deduction for your business if you use business funds to buy personal items.