Common Small Business Tax Deductions - Is It Tax Deductible?
©2019, Melissa C. Marsh.
By: Melissa C. Marsh
Introduction To Small Business Tax Deductions
This article will explain some of the more common small business deductions. Deductions are the costs associated with running your business which can be "deducted" (hence the name) from the income your business reports to the IRS and state tax officials.
Keep All Your Receipts For Your Business Tax Deductions
All you really need to know is one rule– retain all receipts from every single purchase for every item used for your business. If you do this one simple thing, your accountant can take your stack of receipts showing the time, date and amount of purchases, to determine your total deductible expenses at the end of the year. If you do not keep good records, or have all of your receipts, do NOT try to take deductions for items which do not have an accompanying receipt.
Is It Tax Deductible? What Makes An Item or Purchase Tax Deductible?
Remember that almost anything can be deductible. When deciding what to claim as a deduction, the question is NOT what item you bought, but why you bought the item. To deduct the purchase price of an item, the item must be:
- an ordinary business expense (customarily used or incurred in your type of business);
- a necessary business expense ( reasonably helpful to your business);
- directly related to the operations of your business; and
- reasonable in amount and price (Deduct the actual cost of the item).
Commonly Deducted Business Expenses
Following is a list of commonly taken business deductions:
- Advertising and Promotional Items such as: flyers, business cards, brochures, signs, billboards, yellow pages, print ads, cups, t-shirts, memo pads, etc.
- Automobile Expenses if the automobile is solely used for business purposes or a log is kept showing what portion was used for business and for personal use.
- Bad Debts
- Bank Fees and Interest Charges for business related accounts.
- Casualties and Thefts
- Continuing Education Costs if associated with your existing business (not a new business) and if paid for an employee’s education is less than $5,250 per employee.
- Delivery and Shipping Costs
- Entertainment, but make sure they are reasonable in amount and that a log is kept showing each expense, why it was incurred and the business purpose for each event.
- Gifts purchased for customers and clients that are $25 or less.
- Insurance Premiums for key businessman, general liability, property damage, casualty, inventory, credit, business interruption, vehicle, employee medical, workers' compensation, unemployment, health, etc.
- Internet & Web-Related Expenses such as the cost of your internet access or yearly website hosting fees.
- License and Permit Fees as well as software licenses if the programs are used solely for your business.
- Office Supplies and Equipment such as: computer supplies, cartridges, paper, postage, calendars, letter trays, etc.
- Professional Fees such as: payroll services, accountant, bookeeper, legal (including settlements, damages and penalties) so long as you paid for them and received no personal benefit.
- Rent and Utilities such as trash removal, electricity, gas, telephone, etc.
- Repairs and Maintenance so long as not deemed a capital expense, e.g. fresh coat of paint or cleaning crew once a week.
- Subscriptions to informative magazines related to your business or general magazines for clients to review in your lobby.
- Travel Expenses including dry-cleaning, meals, transportation costs, and hotel charges if you kept records that can prove the entire trip was for a business purpose and the lay over was necessary.
- Wages paid to employees and independent contractors.
IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained on this web site is not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed on a taxpayer under the U.S. Internal Revenue Service.