What expenses can I deduct as a business owner?

Business owners can deduct a variety of expenses associated with running their business.

By IRS definition, “…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.”

Here are ten of the most common business deductions.

1. Cost of Goods Sold

The following are types of expenses that go into figuring the cost of goods sold for business who manufacture goods .

  • The cost of products or raw materials, including freight
  • Storage
  • Direct labor costs (including contributions to pensions or annuity plans) for workers who produce the products
  • Factory overhead

2. Employee wages and contractor payments

Money paid to others to perform services within and for your business are deductible

3. Taxes

Federal, state, local, and foreign taxes directly attributable to your trade or business can be deducted as business expenses.

4. Insurance

Ordinary and necessary cost of insurance for your trade, business, or profession is deductible. This includes workmans comp, liability, employee health, errors & omissions, and malpractice insurance to name a few.

5. Interest

Interest paid on money you borrowed for business activities is deductible. Examples include interest on a business credit card, line of credit or loan.

6. Rent

Rent paid as an expense for property you use in your trade or business is deductible.

7. Business use of your vehicle

You can deduct vehicle expenses ff you use your car in your business. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. There are a variety of rules and guidelines related to this deduction, so it is important to fully understand the deduction to ensure you are taking it properly.

8. Business use of your home

You may be able to deduct expenses such as mortgage interest, insurance, utilities repairs and depreciation for the business use of your home. Again, there are numerous guidelines and rules related to this deduction, so it is important to consult your tax advisor for assistance.

9. Meals

Business meals can be deducted at 50% for meals provided to potential or current customers, clients, consultants or other business contacts. . The taxpayer or another business employee must be present and the food or beverages cannot be considered lavish or extravagant.

10. Capital Expenses

Some costs cannot be deducted, but may be capitalized as assets. There are generally three types of costs that can be capitalized.

  • Business start-up costs
  • Business assets
  • Improvements
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