What a Business Expense Category Is
The IRS definition of business expenses is quite broad. If you make anything that gets taxed, it’s considered business. That means, everything from the ingredients you mix in your favorite cupcake recipe to the business materials for your printing business is considered a business expense.
Self-employed business owners tend to undertake a lot of things that the average person wouldn’t do. Who doesn’t love a tax break? One of the most common tax breaks is called –depreciation. When you pay for things to run your business, you get a deduction for the cost of that item. In addition, some business expenses are deductible whether you are a sole proprietor or a corporation.
If you are a part of a corporation, you may be able to deduct some of your business expenses. For example, you can deduct the cost of office supplies and usually other business expenses.
35 IRS Deductible Business Expense Categories
Frequently Asked Questions (FAQs) About Business Expense Categories
What are Business Expense Categories?
The IRS considers many expenses deductible as part of running a business, even though they’re not usually considered –business expenses. This is because the IRS knows that operating a business requires a variety of expenses such as office supplies, repairs, rent, insurance, utilities, equipment and more. Since these expenses are incurred regularly by businesses, the IRS provides an easy-to-use tax deduction for these categories.
Business Expense Categories are broken down into two categories: business-related specific categories and miscellaneous categories. Specific business-related categories include:
- Business Allowances
- Employer Contributions
- Insurance Premiums
And miscellaneous categories include:
- Travel & Entertainment
Other deductions that are not specifically covered by the business expense categories are:
- Sewing Machine
- Home Office
This is where you will need to make adjustments for your specific situation. The categories on which these expenses are deducted vary greatly from industry to industry. For example, companies using computers will find the home office deduction useful, while those running a factory would look to the reduced utilities deduction.
What can be written off as a business expense?
The IRS offers several helpful business expense categories for tax deductions. According to the IRS:
The tax deductions that you can take on your business expenses depend on the type of activity that they fall into. For instance the IRS offers several categories that you can use to write off various business expenses. These categories include:
Auto Expenses – If you drive to work, you can write off a portion of your annual auto expenses. And speaking of which, that payment for a new set of tires you just spent your tax return on are considered deductible business expenses.
Travel – If you make a lot of business trips, then you might qualify for on-the-job travel expenses. According to the IRS, the costs of getting to and from your job location are considered business expenses ” as long as your trips take place in the course of your business. Not limited to just travel costs, the IRS also includes the actual cost of airfare, car rental, and other travel-related expenses.
Meals and Entertainment – In recent years, the IRS has allowed expenses related to business meals and entertainment to be deducted from your taxes. These expenses include the price of food, beverages, tips, and any entertainment expenses as well. The value of your home or hotel room also qualifies as a deductible business expense.
What can’t be written off as a business expense?
Whether you’re self-employed or work as an employee, you can deduct a lot of things on your tax return – but there are a few things you can’t write off. Here’s a list of common business-related expenses you don’t qualify for.
You can’t deduct your salary, bonus, or other benefits you receive from your employer, such as health insurance, and you don’t qualify for the education tax credit.
You can’t deduct money you spend to look the part of a business owner, such as the cost of formal attire (e.g., suits) or a car. You can, however, deduct the expenses of getting to and from work.
You can’t deduct employee parking, meal breaks, office supplies, or subscription fees for newsletters, industry publications, or trade publications.
You can’t deduct your office phone or cell phone bill, if you pay separately for your business and personal calls or data.
You can’t deduct home office expenses, such as rent or renovation, if you aren’t self-employed, and the expenses are for your personal benefit.
Can you deduct job expenses?
No, you cannot deduct job expenses.
If you pay for costs related to your job (like commuting, cell phone, copy machine, or even coffee), you can only deduct those costs if they are a regular and necessary business expense.
Business expenses are generally deductible when you run a business. There are two broad categories of business expenses:
Ordinary and necessary expenses
Ordinary expenditures are like any other ordinary expenditures. You must have a valid business purposei to deduct these expenses. If you generally incur similar costs for personal reasons, you cannot deduct them as business expenses.
Certain expenses are incurred in relation to a business that are regarded as ordinary and necessary. They include things like:
Costs of maintaining and managing the business.
Costs of leasing or buying depreciable business assets.
Deductible management and operating fees.
Certain travel and entertainment expenses.
Technical assistance fees.
How to Claim Expenses
If you’re self-employed, you claim business expenses on Schedule C and then deduct those expenses from net self-employment income on Schedule C.
If you’re a partner, you claim business expenses on Schedule K and then deduct those expenses from net partnership income on Schedule K.