Save Money by Finding Tax Relief with Business Expenses

Jill Bridges
Expert Contributor
Last Updated:
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If you own a business, you may benefit from tax-deductible expenses that will lower your tax liability. While some tax-deductible expenses are common and obvious, you may be unaware of others.

What Are Tax-Deductible Expenses?

The Internal Revenue Service (IRS) defines tax-deductible business expenses as “ordinary, necessary, and reasonable” expenses needed to earn your business income. These expenses are subtracted from your business income before they’re subjected to taxation, in turn giving you a lower tax liability.

“Ordinary, necessary, and reasonable” expenses are any expenses that are considered helpful and appropriate for conducting business, according to Section 162 of the Internal Revenue Code. These may include:

  • General and administrative expenses
  • Travel and Entertainment
  • Automotive expenses
  • Employee benefits

Many of your expenses are considered current and may be deducted from the year they’re paid, while others are capitalized and need to be distributed over time. The law prohibits certain business expenses from deductions:

  • Bribes for a public official
  • Business attire other than a uniform
  • Traffic tickets
  • Expenditures that are disproportionately large, such as a private jet for a small business

Proper business management includes efficiently and effectively managing tax liabilities, increasing deductions, and reducing tax obligations. Maximizing tax deductions can be a considerable benefit to a small business, since it lowers your taxable profit and gives you opportunities to enjoy certain business perks, such as a business trip or company car.

Save Money by Finding Tax Relief with Business Expenses

In order to gain all you can from your tax-deductible expenses, you must keep accurate records. Even allowable deductions may be denied if the expenditures don’t have adequate records.

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General and Administrative Expenses

General and administrative expenses include any expenses required to run a business, such as the following:

  • Office rent
  • Supplies
  • Equipment
  • Utilities
  • Salaries and 1099 contractor fees
  • Employee benefits
  • Accounting and legal fees
  • Professional dues and association membership fees
  • Business publication subscriptions
  • Advertising and marketing

Education expenses could also be deductible, provided they are needed to improve the skills of someone in a position or are required by an employer. Education costs can’t be deducted if they were required for a promotion to a different position, however.

Miscellaneous expenses that could be deductible include contributions to charity, repairs and maintenance for business properties, bank fees and service charges, computer software, consultant fees, online services, and postage.

Typically, general and administrative expenses are deductible in the year they’re incurred, except for the expenses related to starting a business and getting it up and running. These expenses need to be capitalized over five years, although they’re deductible immediately after the business opens. If a business is expected to have a loss in the first few years, depreciating the costs of starting a business may be preferable.

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Home Office Deductible Expenses

If you have a home office as your business office, you may have significant tax deductions. These deductions allow those who meet specific criteria to deduct some of the rent or mortgage interest, depreciation of the workspace, home insurance expenses, utility bills, repairs, cleaning, and security expenses from federal income tax.

Those considering a deduction for a home office can do so through IRS Form 8829, which is filed with Schedule C. However, you must consider what restrictions you can claim on this form.

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  • Generally, a home office deduction is possible if the office is the principal place of business, the place in which the owner interacts with customers and clients for a typical business day, or a different structure on the same property, but not part of the primary home or residence.
  • A principal place of business is a place used by the taxpayer for management, if no other location where business takes place exists.

The deduction also considers the total size of the office as its percentage of the entire home or residence. Whatever that percentage is, this same percentage of the home’s utilities, real estate taxes, insurance, rent, mortgage interest, repairs and maintenance, and any other expenses related to maintaining the space may be deducted as business expenses.

Automotive Expenses

If you need a vehicle to conduct business, the related expenses, other than the work commute, may be eligible for a tax deduction. All other mileage may be considered if the travel itself was for the sole purpose of conducting business.

The mileage deduction may be calculated through two different approaches. The cents-per-mile approach multiplies the cents-per-mile allowable by the IRS by the number of miles needed to conduct business.

  • The actual expense approach calculates all related costs of a vehicle over the course of the year, including fuel, insurance, repairs, maintenance, and depreciation. These costs are multiplied by the actual mileage that were needed for conducting business.
  • Businesses have to use the actual expense approach if the vehicle is a lease, if multiple vehicles are needed, or if that approach was used for the first year of business.

Travel and Entertainment

Travel and entertainment expenses are deductible if they are directly related to conducting business or are associated with conducting business. Since they are also personal, only half of the expenses are deductible as related to the business.

Thorough records are required for any deductions, but they’re particularly important with travel and entertainment expenses. These records should have the amount, date, place, and reason, along with the client and type of the business discussed.

Parties that include all company personnel are entirely deductible, however, provided they’re not overly lavish. Gifts to customers or clients are also deductible to the maximum of $25 per year, or $400 if the company logo is placed on the gift.

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Reasonable and necessary business travel, such as travel to meet with clients or to attend seminars and trade shows, are fully deductible as expenses. Airfare, train or bus fare, rental cars, taxi fare, meals, hotel rooms, and tips are deductible as well.

Contact Solvable

If you’re struggling with tax debt related to your business expenses, Solvable can help. We’ll place you in contact with experienced tax relief professionals who will review your situation and find the best solution to eliminate your tax debt and help you start fresh. Contact us today to learn more about our tax debt relief services.

 

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Jill Bridges
Expert Contributor
Last Updated: