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Deducting Business Expenses

A business can deduct a variety of ordinary and necessary expenses to bring down its tax liability. An ordinary expense is a common expense in your type of business. For example, expenses on files and papers are ordinary expenses in a publishing business. A necessary expense is one that is helpful and appropriate based on the work being completed.

business expensesGenerally, you can deduct the full amount of a business expense if it meets the criteria of an ordinary and necessary expense. Other expenses made for the business, such as the business use of your car, are also deductible. Below are some important deductions that businesses can claim.

The Home Office Deduction

Those running their business from their home can use this valuable deduction. If you’re using a part of your home for business purposes, you can deduct expenses such as mortgage interest, insurance, repairs, and depreciation. This deduction allows significant tax savings to those running a small business from their home.

Business Use of Your Car

Another considerable business expense is on transportation. Businesses can deduct car expenses if they use the vehicle for business purposes. If a car is used for both personal and business purposes, then the expenses must be divided, based on mileage.

When the distinction between business and personal blurs, it is very important to keep proper and accurate records. Claiming personal expenses as business expenses is a red flag that may lead to an audit. The IRS is particularly watchful of this detail on a tax return. It’s critical for a business to retain receipts and records of all business expenses they claim on their returns.

Other Deductions

Businesses can also deduct certain other large expenses.

  • Generally, the payment you make to your employees for services rendered is deductible.
  • If you’ve rented a property that you use in your trade or business, you can generally deduct rent as an expense.
  • Interest on the money you borrowed for your business is tax deductible.
  • You can deduct various federal, state, local, and foreign taxes directly attributable to your business as business expenses.
  • The ordinary and necessary cost of insurance for your business is deductible as a business expense.

There are a variety of other expenses that may be deductible, depending upon the type of business in question. Certain business start-up costs can be deductible as well.

You cannot deduct personal, living or family expenses. If an expense is partly business and partly personal, you can determine the expenses made for the business, and deduct that amount only.