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Q: paper work and business expense deduction for sole proprietor in California ( Answered,   1 Comment )
Subject: paper work and business expense deduction for sole proprietor in California
Category: Business and Money > Accounting
Asked by: geneth-ga
List Price: $15.00
Posted: 28 Sep 2006 18:25 PDT
Expires: 28 Oct 2006 18:25 PDT
Question ID: 769363
I am doing consulting as a sole proprietor in California. My
understanding is that no paper work will need to be file with the
secretary of state for "incorporation" (as this is neither an S-corp
nor a C-corp.). I also have some expenses for business development,
e.g. dinners, etc. Will I be able to deduct these in my tax return?
What kind of paper work do I need to keep?
Subject: Re: paper work and business expense deduction for sole proprietor in California
Answered By: keystroke-ga on 28 Sep 2006 19:03 PDT
Hello geneth,

Thank you for your question. You are correct in that you do NOT have
to officially incorporate as a business in order to run as one and
file taxes as one.

Here is specific information on deductions from Nolo (if you ever need
any books to help you out with anything in the business area, Nolo's
books are very helpful, by the way).

"How Sole Proprietors Are Taxed" by Nolo

"You'll be taxed on all profits of the business -- that's total income
minus expenses -- regardless of how much money you actually withdraw
from the business. In other words, even if you leave money in the
company's bank account at the end of the year (for instance, to cover
future expenses or expand the business), you must pay taxes on that


You can deduct your business expenses just like any other business.
You are allowed to expense (deduct) much of the money you spend in
pursuit of profit, including operating expenses, product and
advertising costs, travel expenses, and some of the cost of
business-related meals and entertainment. You can also write off
certain start-up costs and the cost of business equipment and other
assets you purchase for your business.

But you'll need to keep accurate records for your business that are
clearly separate from your personal expenses. One good approach is to
keep separate checkbooks for your business and personal expenses --
and pay for all of your business expenses out of the business checking

You will have to have receipts for everything that you plan to deduct
as a business expense.

Here are some additional resources from Nolo on the subject.

"Understanding Small Business Taxes" from Nolo

The deductions taken for your business must be "ordinary and
necessary" in the course of the business. If your business dinners are
necessary for you to conduct your business, they are certainly

Search terms:
deductions sole proprietor

If you need any additional help or clarification, let me know and I'll
be glad to help.

Subject: Re: paper work and business expense deduction for sole proprietor in California
From: abezon-ga on 29 Sep 2006 10:54 PDT
You probably still need to obtain a CA business license & file a
Business & Occupations tax return every year. This is the return where
you calculate your sales tax & pay it to the state. You'll also
probably have to pay B&O taxes, which are generally imposed at a low
rate, but are imposed on gross income, NOT net after expenses.

You may also have local B&O taxes depending on where your business is located. 

BTW, "ordinary & necessary" expenses need be neither ordinary nor
necessary. The phrase is interpretted to mean "common & helpful."

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