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What are Tax Deductible Business Expenses?

By Felicia Dye
Updated May 17, 2024
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Generally, there are costs related to operating a business. Such costs are known as business expenses. In many cases, business expenses are tax deductible. Examples of tax deductible business expenses include salaries, insurance coverage, and business travel.

Businesses do not generally operate cost-free. In many cases, a significant portion of the money a business takes in is subsequently spent on costs of continuing to operate the business. There are also commonly significant costs required to get a business started. Since these figures represent expenditures and are not truly profit for the company, tax rules often allow for their deduction.

Usually, the value of tax deductible business expenses cannot be merely excluded. Generally, the full amount of income must be reported. Then, the tax deductible business expenses must be itemized so the type of expense and the amount spent are disclosed. These costs are then deducted from the business’ income.

The Internal Revenue Service (IRS) says that to be deductible, a business expense must be both ordinary and necessary. According to the IRS, an expense is ordinary when it is commonly associated as a cost related to a given business. An expense is necessary if it is useful to the business. For example, if a person operates a trucking company, tires are likely to be viewed as a normal and useful expense for that business. The cost of tires is not, however, as likely to be viewed as normal and useful for an online dating service.

Examples of tax deductible business expenses include office supplies such as computers, paper, and office furniture. The costs for services such as telecommunications, cleaning, and insurance are also usually tax deductible. Personal expenses are not usually tax deductible.

When a business has items or costs that involve closely related personal and business use, it is usually necessary to determine the portion of the cost that is related to the business’ use. When this is determined, only that amount is likely to be deductible. For example, if a telephone is used for both personal and business calls, only the portion of the bill that represents calls that pertain to business will be deductible.

In the US, people are generally required to pay taxes to the federal government and to their state governments. The business expenses which can be deducted at one level of government may differ from those at another level. The practice of designating tax deductible business expenses is not unique to the US. As the deductible expenses vary between the state and federal governments, they also vary between governments of different countries.

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