Last Updated on 3 months by Heyward CPA PLLC
So I got a couple of questions over the last couple of weeks. What can I deduct from my taxes? Many struggled because of a lack of understanding of what business expenses are. So we decided to address that situation and give you some insight into what a business expense is from the IRS point of view.
What are business Expenses
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. For example, payroll, retirement utilities, rent, interest, advertisement etc.
One of the challenges running a business and understanding the financial implications is that most people starting a business don't actually start out by taking business courses. It is not a necessity but you don't get indoctrinated in running a business.
What Can I Deduct?
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
Even though an expense may be ordinary and necessary, you may not be allowed to deduct the expense in the year you paid or incurred it. In some cases, you may not be allowed to deduct the expense at all. Therefore, it is important to distinguish usual business expenses from expenses that include the following.
- The expenses used to figure cost of goods sold.
- Capital expenses.
- Personal expenses.
One of the things that you have to be in tune with is your expenses. You have to know what your expenses are and accept that and then know how to navigate with changing tide. If you have to make changes, the expenses are the one thing you can control.