Business owners are used to seeing thick tax returns. The intricacies of the tax code demand it. The returns filed this month or last (depending on the nature of the business) were surely no exception.
Understanding tax laws does not stop at the nearly 4 million words in the code itself. On top of the code, there are thousands of pages of regulation promulgated by the IRS. And after that, federal courts have put their own spin on what both the code and the regulations mean.
Take the well-known principle that business expenses are deductible. The code calls those “expenses for the production or collection of income.” The regulations specify that the expenses must be both ordinary and necessary to produce income, and also carve some exceptions. Then the courts have added a layer, holding that, in some instances, if the income comes directly from capital (say, sales of stock), the expenses associated with that effort are no longer business expenses in the ordinary sense, and therefore cease to be deductible. This is just one example.
We have often tipped our cap to our accountant friends. Business owners with good lawyers will often hear the advice to consult their accountants. Likewise, because of the way courts and the tax collector both put their spin on things, business owners with good accountants likely often hear the advice to also consult an attorney.
(This post’s sketch of business expenses is provided for illustration purposes only and dramatically over-simplifies the topic – highlighting the need for qualified accountants and attorneys to carefully look at every specific situation.)