Business owners understand that the Internal Revenue Service considers a deductible business expense as one that is commonly required in a particular business or profession. Which types of expenses are permitted for which trades are not written in stone. The IRS states that if an expense is beneficial to the business, it fits the definition of necessary. Understanding the most common business deductibles can help business owners find the not-so-common write-offs.
Most businesses use some sort of supplies and materials, whether it's limited only to office supplies or extends to raw materials for a manufacturing production line. Whatever the type of business, expenses for materials, supplies and equipment are tax deductible. Building rents, lease payments, utility bills and charges for phone and Internet service are common deductions. For businesses operated out of the home of the proprietor, a percentage of household bills can be written off as business expenses. The taxpayer must simply remember to separate the business use cost from the personal use cost. The same concept applies to vehicles used for both business and personal purposes.
Cost of Workers
In addition to the obvious deductions of payroll and employee benefits, the business can write off other costs of workers. For example, if the business reimburses employees for work-related expenses, such as cell phones and travel expenses, these costs are deductible. Uniforms, special shoes and tools that the business requires the employee to purchase are not deductible on their individual tax forms if the business reimburses the cost. Therefore, the business should claim these as necessary expenses.
Fees, Interest, Taxes
Many businesses pay a number of fees and taxes throughout the year. Business license fees, property taxes and local occupational taxes are three examples of common business deductions. Membership dues or fees the business owner pays to benefit her standing, such as to the local chamber of commerce, are also deductible. If the business maintains a line of credit or has a commercial loan, the interest paid on these accounts is tax deductible.
Depreciation of Property
The business owner looks at expenses from prior tax years that were not amortized on federal tax returns and also considers depreciation. Tangible property with a service life longer than one year, such as buildings and equipment, can be depreciated. The business owner claims depreciation annually until he has claimed the full cost of the property. IRS depreciation tables provide business owners with specific percentages of the original costs to claim each year based on the number of years they will depreciate the property.
Deductions that may be overlooked include expenses for educational materials, seminars and association dues the business pays. Costs for repairs to business property can be deducted, and so can promotional expenses. Beyond obvious advertising, sponsorship contributions qualify as advertising costs in many situations. For example, sponsoring a local softball team with the business name on the jerseys would be advertising. Gifts to customers, although limited, are deductible business expenses.
- Internal Revenue Service: A Brief Overview of Depreciation
- Internal Revenue Service: Deducting Business Expenses
- Internal Revenue Service: Publication 15 -- Circular E, Employer's Tax Guide
- Internal Revenue Service: Publication 463 -- Travel, Entertainment, Gift, and Car Expenses
- Internal Revenue Service: Publication 535 -- Business Expenses
- Internal Revenue Service: Publication 946 -- How to Depreciate Property
Vicki A Benge began writing professionally in 1984 as a newspaper reporter. A small-business owner since 1999, Benge has worked as a licensed insurance agent and has more than 20 years experience in income tax preparation for businesses and individuals. Her business and finance articles can be found on the websites of "The Arizona Republic," "Houston Chronicle," The Motley Fool, "San Francisco Chronicle," and Zacks, among others.