Deducting Business Expenses
To be deductible, a businessexpense 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 . Refer to "Deducting
Business Expenses" in Publication 535, Business Expenses.
Cost of Goods Sold
If your businessmanufactures products or purchases them for resale,
some of your expenses may be included in figuring cost of goods
sold. Refer to "How to Figure Cost of Goods Sold" in Publication
334, Tax Guide for Small Business.
Capital Expenses
You must capitalize, rather than deduct, some costs. These costs are
a part of your investment in your businessand are called capital
expenses. There are, in general, three types of costs you
capitalize. Refer to "Capital Expenses" in Publication 535, Business
Expenses.
Personal Expenses
Generally, you cannot deduct personal, living, or family expenses.
However, if you have an expense for something that is used partly
for businessand partly for personal purposes, divide the total cost
between the businessand personal parts. Refer to "Personal
Expenses" in Publication 535, Business Expenses.
Business Use of Your Home
If you use part of your home for business , you may be able to deduct
expenses for the businessuse of your home. These expenses may
include mortgage interest,
insurance
, utilities, repairs, and
depreciation. Refer to Publication 587, Business Use of Your Home.
Business Use of Your Car
If you use your car in your
business , you can deduct car expenses.
Refer to Publication 463, Travel, Entertainment, Gift, and Car
Expenses.
Employees' Pay
You can generally deduct the pay you give your employees for the
services they perform for your business . The pay may be in cash,
property, or services. It may include wages, salaries, vacation
allowances, bonuses, commissions, and fringe benefits. Refer to
"Employees’ Pay" in Publication 535, Business Expenses.
Retirement Plans
Retirement plans are savings plans that offer you tax advantages to
set aside money for your own, and your employees', retirement.
Rent Expense
Rent is any amount you pay for the use of property you do not own.
In general, you can deduct rent as an expense only if the rent is
for property you use in your trade or business . Refer to "Rent
Expense" in Publication 535, Business Expenses.
Interest
Business interest expense is an amount charged for the use of money
you borrowed for businessactivities. Refer to "Interest" in
Publication 535, Business Expenses.
Taxes
You can deduct various federal, state, local, and foreign taxes
directly attributable to your trade or businessas business
expenses.
Insurance
Generally, you can deduct the ordinary and necessary cost of
insurance as a
businessexpense, if it is for your trade, business ,
or profession. Refer to "Insurance" in Publication 535, Business
Expenses.
Costs You Can Deduct or Capitalize
Generally, you deduct a cost as a current businessexpense by
subtracting it from your income, in either the year you incur the
cost, or the year you pay it. If you capitalize a cost, you may be
able to recover it over a period of years through periodic
deductions for amortization, depletion, or depreciation. When you
capitalize a cost, you add it to the basis of property to which it
relates. Refer to "Costs You Can Deduct or Capitalize" in
Publication 535, Business Expenses.
Intangibles
Intangible property is property that has value, but cannot be seen
or touched. Generally, you can either amortize or depreciate
intangible property.
How to Depreciate Property
Depreciation is an annual income tax deduction that allows you to
recover the cost or other basis of certain property over the time
you use the property. Refer to Publication 946, How to Depreciate
Property.
Amortization
Amortization is a method of recovering (deducting) certain capital
costs over a fixed period of time. Refer to "Amortization" in
Publication 535, Business Expenses.
Depletion
Depletion is the using up of natural resources by mining, quarrying,
drilling, or felling. The depletion deduction allows an owner or
operator to account for the reduction of a product's reserves. Refer
to "Depletion" in Publication 535, Business Expenses.
Business Bad Debt
Generally, a businessbad debt is one that comes from operating your
trade or business . You can deduct businessbad debt on your business
tax return. Refer to "Business Bad Debts" in Publication 535,
Business Expenses.
Electric and Clean-Fuel Vehicles
You are allowed a limited deduction for the cost of clean-fuel
vehicle property, and clean-fuel vehicle refueling property you
place in service during the tax year. Also, you are allowed a tax
credit of 10% of the cost of any qualified electric vehicle you
place in service during the tax year. Refer to "Electric and
Clean-Fuel Vehicles" in Publication 535, Business Expenses.
Travel, Meals, and Entertainment
To be deductible, expenses incurred for travel, meals, and
entertainment must be ordinary and necessary expenses of carrying on
your trade or business . Refer to Publication 463, Travel,
Entertainment, Gift, and Car Expenses.
Business Tax Credits
Your general businesscredit consists of your carryover of business
credits from prior years, plus the total of your current year
businesscredits. You subtract these credits directly from your tax.
Miscellaneous Expenses
Advertising expenses, charitable contributions, education expenses,
and more. Refer to "Miscellaneous Expenses" in Publication 535,
Business Expenses.
