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Are franchise fees, charged by a foreign company, fully tax deductible? In terms of proper documentation, what is important in case I get an IRS audit?
Optional Information: State/Country relating to question: Nevada
Hi and welcome to Just Answer!
Yes - these fees should be fully deductible.To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.So - to support your deduction in case of audit - you need to proof that franchise fees are both ordinary and necessary for your business and that you actually paid this expense.
Expenses are the costs you incur (other than purchases) to carry on your business. Your supporting documents should show the amount paid and that the amount was for a business expense. Documents for expenses include the following:
It doesn’t matter if fees are paid to the US or a foreign company.
Thank you for your answer. Let's say that I would just like to use a foreign company's name (trade mark registered in the US) to market/sell my product. Would that be IRS acceptable, just because I want to do so?
What would be required to be on the invoice from the foreign company?
There are no specific requirements for the invoice or there are no specific requirements for supporting documents.However if the IRS would question your expenses - they will ask you to proof that franchise fees are both ordinary and necessary for your business.These two tests are only requirements.
ok, thank you
Experience: Taxes, Immigration, Labor Relations