Do you own a small business? Are you paid entirely by cash or check or 1099s? If you answered yes to either of these questions – then you want this list – EXPENSES!
Expenses. We can’t escape them. But with careful attention, you can use them to reduce your tax liability. When you know what business expenses to deduct, you’ll be certain you’re paying no more than needed. So, without further ado, what are business expenses?
If you were self-employed, a contractor, or a consultant with a home office:
Home office costs
Businesses based in a home office qualify for deductions. There are strict rules around what qualifies as a home office, so make sure you meet the requirements. Here is what the IRS says about home office deduction.
Bring in square footage of your home and the square footage of your office. It’s rare that utilities for your home office would yield a higher deduction than the algorithm for square footage of your office area.
Include the monthly costs of electricity, gas, water, air conditioning, and trash. If you rent or lease your business location, utility costs may be built into the rent. Remember to include the costs of cell phones and internet access as well.
Furniture, equipment, machinery and vehicles
Generally, a business purchase that will last longer than a year is considered a business asset rather than an expense. This includes items like desks, laptops, machinery, and point-of-sale systems. If you buy a vehicle and want to deduct depreciation costs, the vehicle must be driven for business purposes.
Bring in date of purchase and purchase price of each item. Deductions for assets are treated differently. You must either deduct the asset’s entire cost in the first year you bought it or deduct the cost of depreciation. The purchase details help determine how each asset will be handled.
Office expenses are one of the most common categories. Track your spending on pens, folders, disinfectant wipes, trash bags, and other cleaning supplies, so no purchases slip through the cracks.
Advertising and marketing
These are the costs of promoting your brand or service. You might include pay-per-click ads, billboard placements, giveaways, and even business cards. If you pay a graphic designer for a website image, you could include that here, or file it under professional fees.
Website and software expenses
Include fees for your domain name, web hosting, maintenance, and more. Don’t forget to capture your software purchases for accounting, website, expense tracking, apps, Microsoft, etc.
Business entertainment expenses are not tax-deductible, but you’ll still want to track entertainment spending closely. Tickets to sporting events, galas, and networking events fall into this category.
Business meals and travel expenses
The IRS watches these categories closely. If you want to deduct meal and travel expenses, you need to keep accurate records and receipts. Note that business travel constitutes travel outside city limits, including vehicle costs, airfare, accommodations, and meals.
There are two options to write off the costs of using your vehicle for business. You can use the standard mileage rate option or the actual expense option. So, track both mileage and gas, oil, insurance, and repair and maintenance spending. Using a mileage app is great but also records of oil change reports (they list your mileage at each oil change.)
This might include the wages, bonuses, or commission that you pay workers, whether they’re full-time employees or contractors. Place payroll taxes in a separate category for added financial clarity.
If you offer health insurance, list any insurance premiums you cover. Contributions toward retirement plans like 401(k) plans or other funds should be recorded. As a business owner, you might have self-employed insurance costs, too.
Tracking taxes separately helps you correctly allocate money that’s due. Record business property taxes, small business taxes, sales tax, and federal, state, and local payroll taxes, especially Social Security and Medicare tax.
Payments toward business liability insurance, disability insurance, workers’ compensation insurance, and more should be recorded.
Business licenses and permits
Include the costs of occupational licenses, health permits, and other required certifications for your industry.
Interest payments and bank fees
You’ll pay interest on any borrowed funds or ongoing credit lines, like a corporate credit card. If you run into bank fees, like minimum balance fees or overdraft fees, record those, too.
If you’re part of a trade association or local chamber of commerce, use this category to monitor and write off your dues. Keep in mind that you can’t deduct fees for social clubs.
Professional fees and business services
Record how much you pay for professional services. When you work with a marketing agency, legal advisor, use this category…any bookkeeping fees and tax preparation fees will be filed here as well.
Training and education
Business owners are entitled to tax deductions to keep all team members skilled and up to date on the latest industry practices. Document and write off employee training costs, conferences, workshops, and other development opportunities.
Rent or mortgage payments
If you rent or own an office space or another business location, record these transactions for deduction.