calculating business expenses

What Business Expenses Are Tax Deductible?

Whether you own a salon or a manufacturing company, running your business will come with operational expenses. If your business exists and operates to make a profit, you are eligible for business tax deductions. 

What Are Fixed and Variable Business Expenses?

Business expenses can be variable or fixed, meaning they can be one-time, occasional or constant. Variable business expenses can include travel or startup costs, while a fixed business expense is constant, like rent or mortgage payments.

Each industry will have specific deduction standards. Generally, you only deduct what’s considered necessary for your business. Qualifications vary depending on your industry and business. 

What Are Ordinary and Necessary Business Expenses? 

The Internal Revenue Service — the IRS — determines ordinary expenses as common to the industry you work in. Necessary expenses are defined as expenses considered appropriate for your trade or industry or a standard cost associated with running a business, no matter the type of business. 

For example, ordinary business expenses for a salon manager could include sinks, hair products and washers and dryers to clean towels. However, a washer and dryer would not be considered essential for an accountant because it’s not required for daily operation and it isn’t integral to providing their services as an accountant. 

What Are Some Ordinary and Necessary Small Business Tax Deductions? 

Small business tax deductions can include: 

  • Rent or mortgage payments.
  • Office equipment.
  • Payroll costs (wages, benefits, and taxes).
  • Utilities.
  • Taxes.
  • Interest payments.
  • Business fees (license, permit, subscription). 
  • Maintenance and repairs.
  • Legal or professional fees.

What Are Some Other Business Expense Deductions to Consider?

There are other tax deductions associated with your business, but there are requirements to meet each qualification:

  • Gifts: You can deduct gifts from your taxes if your gift does not exceed $25. If you send a bottle of wine worth $100 to a client, you can only deduct $25 from that gift. You can also deduct promotional gifts like pens and coffee mugs up to $4 per item if it bears your business name. If a client takes home a pen with your business name, you can deduct it! 
  • Meals and entertainment: Due to the Tax Cuts and Jobs Act of 2018, you can deduct 50% of your business meals. However, a business representative must be present and you must be conducting business. The IRS should not consider the meal extravagant, which includes any restaurants or meals not typical of any ordinary day.
  • Travel expenses: You can deduct automobile travel costs or the standard mileage rate, which is 58.5 cents per mile in 2022 — but you cannot do both. If you do deduct the actual expenses, you can deduct 50% of your depreciation, auto loan interest, fuel, maintenance, insurance and registration. Otherwise, we advise you to track your mileage in case the IRS audits you. 
  • Home office expenses: You can choose to deduct $5 of each square foot of your home office, but it must be a dedicated office space. 

Contact Marshall Jones Certified Public Accountants And Advisors Today

We can help you determine what business expenses are ordinary and necessary. Contact us today and our dedicated team of professionals will advise and guide you in your small business tax preparation!