General Business Operation Expenses
Some
deductible business expenses are universal — all small business owners incur them. These expenses include wages and taxes. As companies grow, they’re likely to have more expenses and, in turn, deductions. The following are some common business expense examples.
Utility Expenses for Small Business Owners
If a small business owns its premises, it pays for electricity, gas, water and trash collection. For renters, unless the landlord covers those charges, the business is responsible for paying them. In either case, these are just business expenses examples that might be deducted from your taxes.
Rent or Mortgage Payments
Small businesses that rent might be able to deduct their monthly payments to the landlord. And those who own their premises might deduct mortgage interest. However, the principal on the mortgage is not deductible.
Home Office Costs
People who run businesses out of their homes might be able to
deduct some of the expenses for their houses or apartments. But to qualify for the deduction, home offices or businesses must meet IRS criteria. For example, the space where the business is conducted must be dedicated exclusively to business purposes. A corner of a playroom or any space doubles for
personal use won’t qualify. And the home must be the principal place where business is conducted.
IRS Publication 587, “Business Use of Your Home,” explains the requirements and the benefits — including the ability to deduct a portion of home maintenance costs.
Website and Software Expenses
The accounting software subscription you pay for each month or year and your website domain name registration could all be deductible expenses. The fees you pay to the service that hosts your website could also be a deduction.
Business Licenses and Permits
In the case of a trade or business, especially those catering to consumers or doing construction work, owners must get federal, state and/or local licenses or permits. These can be expensive to obtain and renew and may include the costs of being trained and certified to qualify for a license. However, as long as the costs don’t exceed your profit for the year, they may be deductible.
Bank Fees and Interest Payments
There are a variety of fees and expenses you might incur as a small business, and some are tax-deductible. Bank fees, interest on credit cards and loans, financing costs and depreciation are all part of the cost of doing business. As long as they don’t exceed your profit for the year, you may be able to deduct them. The Tax Cuts and Jobs Act (TCJA) of 2017 limits how much interest a business can deduct, but many small businesses whose revenue has averaged up to $25 million over three years may be able to deduct all their interest.
Professional Fees and Business Services
You may be able to deduct business services expenses, including the money you pay your lawyer, accountant and consultant for advice about business decisions, taxes, complying with government regulations and other legal or financial matters. This tax deductible expense does not apply to payments made to companies that provide ordinary and usual business-related services such as cleaning and administrative services.
Entertainment Expenses
The costs of taking clients or customers to entertainment or sporting events are generally no longer deductible under the TCJA. That’s a disappointment to owners who use golf games or concerts to build relationships with customers. While these expenses are, for the most part, not tax-deductible, they may still be worthwhile investments in goodwill. However, since you’ll likely not get reimbursed from the government, you’ll need to apply some business expense management and maybe buy seats in the balcony or upper deck.
Business Meals and Travel Expenses
Owners may be able to deduct costs for business meals — for example, taking a client out to dinner — but the IRS caps the deduction at 50% of the bill. That’s the case whether the restaurant is near your office or the meal takes place during business travel.
The government also puts a 50% limit on car, airfare or other transportation expenses. You can learn more about travel expenses from
IRS Publication 463, “Travel, Car and Gift Expenses.”
Equipment, Materials and Supplies
Any small business owner knows it takes equipment, materials and supplies to run their company. These are typically considered both fixed expenses or operating expenses. Some are deductible.
Furniture, equipment and machinery deductions
Small businesses that own furniture, equipment, tools, and machinery will make regular asset purchases over the years. They might also make one-time purchases like computers and monitors for the office or point-of-sale systems for cash registers and checkout systems. Typically, these types of purchases should be broken down into costs and listed as business assets, not expenses.
Owners also must decide whether to deduct the entire cost of an asset in your first year of owning it, using what’s known as the Section 179 deduction, or
deduct its cost as a depreciation expense. The IRS has established rules for both cases. For 2024, the maximum Section 179 expense deduction is $1,220,000. You can read more about
Section 179 on the IRS’s website.
Owners should be aware that Congress has been known to approve special, or bonus,
depreciation rules. Small businesses need to consider short-term and long-term needs and goals in deciding how to deduct equipment costs. They should consult a tax professional before making a big purchase.
Office Supply Expenses
Office supplies as small as paper clips, rubber bands and pens could be deductible. And cleaning products and break room and restroom supplies fall into the same category of office expenses. Owners must have receipts for these purchases.
