What do you know about deductible business expenses?
When you run your own company, it’s no surprise that money is one of the top priorities. This goes for what you bring in as well as what you spend.
As a new business, you want to do everything in your power to keep costs low so that they don’t eat into profits.
We’ll explore how to do just that through deductible business expenses.
So keep reading to learn about how some of your routine business practices can save you money.
Knowing How to Categorize
For the purposes of making sure that all of your tax obligations are met every year, you need to know the difference between a business expense and a capital expense.
Business expenses, also known as current expenses, are what you can expect to spend in order to conduct your business. This applies to ordinary, necessary expenses that allow you to keep your company going and can include a wide range of areas like rent or insurance.
Capital expenses, on the other hand, are asset purchases that are expected to last for more than one year and help to improve the business in some way.
Because these expenses have a shelf life of longer than a year, they are often considered to be an investment and the rules regarding deduction are somewhat complicated.
Still, it helps to know just what falls under each category:
Property – If, like many businesses, you rent a space out of which you conduct your business, then that’s something that might be deductible.
Keep in mind that this only applies to property from which you receive no equity, otherwise the cost would not be deductible.
If you use your home as the headquarters for your place of business, then certain expenses like mortgage interest, utilities, and insurance may be deductible.
Employee Related Costs – Having employees that work for your business often bring expenses beyond what you pay them for the work they do.
Depending on the nature and structure of your company, additional expenses could include things like tools, travel, and clothing not suited for other everyday use.
Fortunately, some of these fall under the classification of deductible business expenses.
It depends on what is considered to be necessary for your business team to do its job, but those necessary expenses might not end up costing you as much as you think.
Supplies and Equipment – This could be seen as an extension of employee related costs, but it deserves its own point because the way in which a deduction is assessed in this category goes back to the point of regular business expense versus capital expense.
While run-of-the-mill items like paper and postage stamps can be deducted as normal expenses, other items might have to be depreciated instead of deducted outright.
Say, for instance, you purchase a new car for your delivery service. Since that item will see a much longer life as part of your business than something like printer ink would, a regular deduction wouldn’t apply.
And that brings us to the next point.
Vehicles – For any vehicles that you may use as part of your business operations, deductible business expenses have to meet certain criteria in order for you to save.
To start, necessary costs include things like visiting customers, attending meetings away from the normal workplace, and traveling between work locations.
On top of that, however, criteria for deducting business expenses as they relate to vehicle use include a standard mileage rate, and require thorough record keeping. If a vehicle is used outside of one’s business needs, then deductible business expenses cannot include matters of personal use of the vehicle.
Advertising – One thing that many entrepreneurs don’t always realize is that advertising expenses can generally be deductible business expenses. This would include routine practices like TV and radio ads, setting up a website, and printing business cards.
If you act as a sponsor for an event that offers some sort of community support, then the costs associated with may also be generally deductible business expenses.
Whether you provide food, entertainment, or other elements of the event as a sponsor, these may be things that could help you save while still promoting your business.
While these are all different areas of operating a business, one common thread among them is that they will only truly benefit you the most when you keep thorough records.
Receipts, copies of checks and invoices, and other such documents are surefire ways to make sure you’re able to get the benefit of deductible expenses that will help you immensely in your early business years.
Beyond that, going through the practices that save you money now will only help you further as the business grows. You’ll learn all about the best practices for managing operating costs so that you have a much easier time actually developing your business.
Making Sense of Small Business Tax Deduction
Because taxes and the deductions that go with them are such a complex issue, it makes sense for you to have as much assistance as possible in making sure everything is covered.
In order to get the most of your deductible business expenses, always consult an experienced tax professional who can guide you through the process of identifying all of the appropriate areas.
When you do, you can be sure you’ll have one more instrument at your disposal that will help you take your business where you want.
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Manny Skevofilax is a consultant and speaker that assists his clients with successfully navigating the challenges of growing their businesses profitably. Since 2003, Manny helps businesses to enhance their financial results by using his experience in strategic planning, financial statement analysis, operations, and team-building. His consulting firm, PORTAL CFO Consulting, Inc., has attracted clients from diverse industries in the United States and abroad.
Manny can be reached at 410-808-3441 or via email at email@example.com.