According to the IRS, "To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. 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."
All of the deductions below can be claimed by sole proprietorships, as well as C-corps and S-corps, partnerships, and LLCs (note: there may be different rules for each type to be aware of).
Office Supplies
This includes things like pens, keyboards, paper, staplers, etc. It all adds up!
Software Subscriptions
If you have purchased or downloaded software for your business, it can be deducted. These can be claimed under “Other Common Business Expenses>Other Miscellaneous Expenses” on your Schedule C tax form.
Insurance
Nearly all businesses will need some type of insurance. The cost of the business owner’s health insurance, business continuation insurance, and the business owner’s policy are all 100% deductible.
Other types of deductible insurance policies are property insurance, liability coverage, malpractice insurance, auto insurance, and some other types of insurance.
Auto Expenses
You must keep meticulous records of your auto usage to use these expenses as tax deductions. However, you can usually deduct anything considered a car expense if the car is used solely for business purposes. As an alternative, you can utilize the IRS' standard mileage rate. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. Publication 463 has additional information on this specific and unique expense.
Business Property Rent
If you rent a property for business purposes you can use your rent as a tax deduction. Alternatively, if you run your business out of your home the IRS also offers deductions for that if your space is eligible.
Taxes
Did you know that the taxes you incur from just running your business are deductible? These taxes might be federal, state, and local income, real estate, or sales taxes. Your employer taxes, such as the employer share of FICA, FUTA, and state unemployment taxes, are also fully deductible.
Marketing and Advertising
If you are spending money to advertise your business, chances are you can deduct those expenses. This includes a lot of things, just make sure they're ordinary & necessary (for example, you probably won't be able to deduct the cost of a skywriter if your business is a funeral home hah!).
Depreciation & Rent for Machinery or Equipment
When you rent or own machinery for your business's operations, you can deduct the amount you spend on rent or lose in depreciation costs. Depreciation happens over several years so it's best to set a time with your accountant to get a solid schedule written up to track this one and have a section 179 deduction set up.
Legal & Professional Fees
100% of fees paid to legal & accounting services are deductible on your taxes, just another reason to hire us ;)
Employee Benefits & Salaries
All salaries and certain benefits are tax deductible for your business. How cool is that!? For self-employed individuals, contributions to their own retirement plans are personal deductions claimed on Form 1040.
Bad Debts
Anytime your business has lent money out (for business purposes) without receiving it back, it can be written off as a bad debt. The IRS defines bad debt as “a loss from the worthlessness of a debt that was either created or acquired in a trade or business or closely related to your trade or business when it became partly to totally worthless.” This includes credit sales to customers or loans to vendors & employees.
Interest
Interest payments on what you’re borrowing from a lender are usually fully tax deductible as long as the loan is used to cover business expenses. To claim this deduction, the business owner must be legally liable for the debt, and the business owner and the lender must have a “debtor/creditor” relationship. In other words, the loan must be through a traditional lender, and not a friend or family member.
Seeing how many tax deductions are out there should have you thinking about how you can most effectively be tracking these numbers so that you can keep as much of your money as possible. This is the goal of most business owners. To get a better handle on accurately tracking (and proving) these expenses, give us a call today to see how we can help!
The IRS has additional information about what is and is not deductible here.
If you want to keep more of your money, unlike the GIF below, then reach out to us today.
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