The IRS allows a business expense deduction if the expense is both ordinary and necessary. An ordinary expense is defined as an expense that is “common and accepted” in your trade or business. A necessary expense is defined as an expense that is “helpful and appropriate” for your trade or business.
Whether you are forming a new business or are a current business owner, claiming all the expenses you are entitled to makes smart business sense. In addition, deducting business expenses can potentially lower the overall tax liability of your business. Business expenses are the costs of carrying on a trade or business, and they are usually deductible if the business is operated to make a profit.
Start-up Costs: New startups may elect to deduct up to $5,000 of start-up costs in the year a business begins, phase-out of $50,000
Advertising: Business owners may deduct actual cost of advertising
Business Bad Debt: A business bad debt is a loss from the worthlessness of a debt that was either created or acquired in a trade or business or closely related to your trade or business when it became partly to totally worthless.
Car: Business owners may deduct Actual car expenses or standard mileage rate. You must maintain adequate written records to substantiate these expenses.
Charitable Contributions: Taxpayers may deduct Up to 60%, 50%, 30%, or 20% of adjusted gross income depending on the contribution and organization. You must have the proper documentation.
Depreciation: There are various methods of depreciation, however Modified Accelerated Cost Recovery System (MACRS) are generally used to depreciate most property.
Entertainment: Entertainment expenses are generally not allowed.
Gifts: Business Gifts are Limited to $25 per gift for each recipient. You must have the proper documentation.
Home Office: Deduction is allowed based on the percentage of the home that is used “exclusively and regularly” for business purposes and meets one of three IRS qualifications.
Insurance: Business owners may deduct actual cost of Insurance.
Legal and Professional Fees: Business owners may deduct actual cost of Legal and Professional Fees.
Personal Property “Section 179 Election”: Section 179 Deduction is subject to a dollar limit and business income limit.
Rent: Business owners may deduct actual cost of Rent.
Salaries: Business owners may deduct actual cost of Salaries and Wages.
Supplies and Materials: Business owners may deduct Actual costs that are consumed and used during tax year.
Travel: Business owners may deduct actual cost of Travel.
Utilities: Business owners may deduct actual cost of utilities.