Deduction Detective: What Can Your Business Actually Write Off?

Running a business often comes with many different expenses involved. The good news is that there are a variety of business write-offs you can use to your advantage to help reduce your tax burden from income. A tax-deductible expense can be incredibly beneficial when it comes to your taxable income. That being said, it’s also critical to understand what qualifies and what your requirements are to prove or track those expenses as a business.

In this guide, we will walk you through everything you need to know about business deductions to help you better understand, plan, and prepare for using write-offs to your advantage. Check it out below!

The Golden Rule: Ordinary and Necessary Expenses for Business Write-offs

If you can remember the golden rule, it will help you understand what expenses you can write off – and what you can’t! The IRS’s standard for business expenses says that the expense must be both ordinary and necessary in order to qualify as a deduction.

Here is what those terms mean according to the IRS:

Ordinary: common and accepted as normal within your business industry
Necessary: helpful and appropriate for your business, even if they are not indispensable

For ordinary expenses, it might depend on your industry. For example, a trucking company would deduct fuel expenses and truck maintenance. A marketing firm would deduct their advertising costs.

Ultimately, you just need to ensure your write-off expenses fall under both of these categories in order to be legitimate.

Supplies and Office Expenses

Most businesses need office supplies and materials. Whether you have a physical office or not, this deduction can still apply to your business. If you do have an office, then the allowable expenses will be deductible. These are some of the common office expenses and supplies you might have:

Rent or lease payments for an office
Utility bills
Office supplies such as papers, pens, paper, software, etc.
Furniture and equipment

Remember that these are items specifically related to business supplies or a business office; even if you have an office space at home, some of these expenses will qualify. There are specific details to follow for an in-home office.

Business Travel and Meals

Photo by OrnaW on Pixabay

When business requires you to travel in any way, these expenses can be deducted as well. Travel includes these things:

Flights
Rental cars
Trains
Mileage on personal vehicles
Meal costs
Accommodations

When you do travel for business purposes, you should keep detailed records and receipts for that trip. It’s always good if you can organize receipts for a single trip together, and we recommend making notes about why that trip was necessary for your business as well. This just ensures you remember the purpose of the trip if it is ever questioned.

Marketing and Advertising Expenses

Marketing and advertising can sometimes be costly, and there are so many different forms of it. The nice thing is that promoting your business is considered a business expense, and therefore you can deduct those costs. These are some common examples:

Digital advertising
Print materials
Website hosting and domain fees
Social media promotions
Paid ads
Business cards, brochures, signage, etc.

Any expenses that are marketing for your business can be used here.

Employee Salaries and Benefits for Business Write-offs

If you have employees, the expenses to pay those employees are deductible as well. You can deduct wages as well as benefits that you offer employees. If you provide them with health insurance contributions, bonuses or commissions, retirement plan contributions, and other similar benefits, these are a write-off. You can also write off payroll taxes as a business expense.

Professional Services and Education

Hiring professional support services is a huge part of business because you have to recognize you can’t always juggle it all. That’s why professional services are deductible expenses. When you pay for legal aid, coaching and consulting, or accounting, all of these fall under that category.

In addition, if you invest in training and education for your business and employees, these are deductible expenses as well. This includes certifications, business-related books, online courses, and more.

Business Asset Depreciation for Business Write-offs

Most businesses have assets, although what those are might vary from business to business. If you use a laptop or computer, this is a business asset. Things like computers, machinery, vehicles, and office furniture are all assets of a business and can often be deducted on a depreciation basis.

The process for deducting depreciation may depend on the asset, so we recommend you work with your accountant to fully understand depreciation. The reason is these are often higher-cost items designed to last longer, so they are depreciated over time rather than all at once.

Loan Interest and Bank Fees

If you have any type of debt with your business, the fees and interest you pay are likely deductible. This includes loans and credit cards specific to your business. When you pay interest on any type of loan or line of credit, it’s an added expense for the business and one you can deduct when you file taxes.

Record Keeping is Key for Business Write-offs

Now, the important thing to remember is that if you want to deduct these business expenses, you need to keep records and receipts to do so. You cannot just haphazardly place and claim numbers and expect it to all work out. For every deduction you claim, there should be coordinating records to back it up. One of the biggest mistakes business owners make is failing to keep those records.

Manage Business Write-offs and Deductions with Katherine M. Johnson, CPA

Managing and organizing expenses, deductions, and eligible write-offs can be quite a chore. Working with a professional accounting firm that can support you and help keep things organized is incredibly helpful to ensure you don’t run into issues along the way. We can ensure you are following the compliance guidelines and taking full advantage of the deductions available to you.