What Gets Backed Out of Your P&L—And Why It Matters at Tax Time

Many business owners are shocked when their tax bill doesn’t match what their profit and loss statement (P&L) shows. On this episode of Pivot to Profit, Pam Jordan and tax strategist Alexis Sidney explain why: not everything on your P&L qualifies as a tax deduction.

Let’s break it down.

What Does “Backed Out” Mean?

When an expense is “backed out,” it means it’s removed from your taxable income during tax preparation. Even if it’s coded in your books, the IRS may not recognize it as a deductible expense. This means your taxable income—and your tax bill—can be higher than expected.

“Just because the P&L says you lost $5,000 doesn’t mean the IRS agrees.” — Pam Jordan

Common Expenses That Get Backed Out

Some of the most common write-offs that don’t fly with the IRS include:

  • Personal Expenses: Clothing, Starbucks, Target runs. If it's not 100% business-related, it’s out.

  • Charitable Contributions: Unless you're a C Corp, giving through your business won’t count as a business deduction.

  • IRS Penalties & Taxes: Payments for your personal tax bills or penalties are not deductible business expenses.

  • Meals: Not all meals count. Solo meals? Nope. Business meetings? Maybe. And many are only 50% deductible.

  • Vehicle Costs: Unless properly tracked, personal use must be backed out—even if you use your business card at the pump.

Why It Matters

Imagine your books show $100,000 in profit. But after backing out $50,000 in charitable donations and $10,000 in ineligible meals, your taxable income jumps to $160,000. That’s a big surprise—and a big tax bill.

Knowing what gets backed out helps you plan smarter, avoid surprises, and stay in the right tax bracket.

“The IRS isn’t auditing your bookkeeper—they’re coming after you.” — Alexis Sidney

Take Control

✔️ Know your business entity type
✔️ Track and classify expenses accurately
✔️ Work with a tax strategist to avoid costly mistakes

Your P&L is for managing the business. Your tax return follows IRS rules. The two don’t always match—but understanding the differences can save you thousands.

Pam JordanComment