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What are the Different Types of Business Deductions?

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  • Written By: Autumn Rivers
  • Edited By: Andrew Jones
  • Last Modified Date: 17 June 2018
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Business owners typically have various tax deductions available to them. This is because operating a company could be overly expensive if owners had to pay taxes on all of their income every year, as much of their proceeds are often put back into the business. One of the most common types of business deductions is current expenses, which can include everything from employee wages to utility bills. Major one-time expenses, such as necessary equipment, can usually be deducted over time, as well. Additionally, the cost of inventory is typically deductible, though this is usually done when it is sold, rather than when it is purchased by the business owner.

The main category of business deductions is ongoing expenses, as nearly every company has at least a few of these. Building rent, utility bills, and employee wages are some of the largest expenses for the typical company, so these business deductions can greatly help during tax time. Most businesses also pay professionals in the advertising, accounting, and legal fields for occasional advice or even regular assistance running the company, and these expenses are deductible. The standard business needs office supplies, as well, such as stamps and paper, which are small expenses that can add up over time. Some businesses can even legitimately deduct travel and entertainment expenses, as long as they are necessary to keeping the business profitable, and not just for personal pleasure.

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Most businesses have at least some major equipment to buy before becoming successful, and this can be expensive. For example, many companies need to purchase manufacturing equipment, vehicles, or computers, which can become major business deductions. Some business owners even choose to buy an office building rather than renting, which is typically considered a major one-time expense. When deducting such items, amortization is usually recommended, which involves deducting a little bit of the cost every year for as long as the expense is used.

Inventory is often treated similarly, as it cannot usually be deducted all at one time in the year it is purchased. Instead, the cost is typically deducted when the product is sold. This allows its cost to be deducted against the amount that it sells for. Any unsold inventory is then treated as a business asset at the end of the tax year. Products that are purchased by the company owner and then never sold, perhaps due to the business closing, can be treated as business deductions years later, as they are written off as a loss.

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