Business Expense Deductions

Business Expense Deductions – the List and Other Important Aspects

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Business Expense Deductions – the List and Other Important AspectsRunning a business, either small or big, requires a huge responsibility. Not only the owners should pay attention to the growth of their corporation, but they also avoid spending too much on expenses and taxes. This is why business expense deductions can be quite helpful.

Business Expense Deductions

So, what is it? As the name suggests, these expenses are incurred in your business and apply to both small and big companies. These are part of the income statement and can be deducted from revenues to arrive at the business’ taxable net financial gain.

These expenses can also be referred to as reductions. Your business, in general, has several boundaries and special considerations for reducing business expenses. These can be categorized into operational and capital expenditures.

Also read : Corporate Income Tax 101 – The Definition, Filling, & Tips

Further Understanding and Types of Expense Deductions 

The IRC’s section 162 discusses the guidance for business expenses. They allow corporations or businesses to report any expenditures that may be necessary and ordinary.

The first consideration is that the business expense deductions need not be considered necessary or ordinary. In general, ordinary means that the expense occurs often in daily business activities. All owners of the business would potentially have these.

Necessary means that the expenditures should be paid for ensuring that the business runs well. That means the business activity cannot be done without those expenses.

All expenses that meet the definition of necessary and ordinary for business purposes are tax-deductible. They can be either partial or full deductions, though. Here are some examples of operating expenses you can reduce from taxes:

1. The start-up costs

Business owners can reduce expenses that conceded the business operation. One thing, you can only claim it during the fiscal period. It is where the expense was obtained.

2. Advertising

Business owners can reduce expenses for business advertising. These include advertising on radio, television, newspaper, and digital. All of them are tax-deductible or can be included in business expense deductions.

3. Supplies

Business owners are able to deduct the costs of items that they used indirectly to provide services or goods. For example, these include cleaning supplies used by a plumbing company.

4. Dues, licenses, fees, and business taxes

All these things are deductible, so your business should take advantage of them. One thing, you can’t deduct initiation fees or club membership dues if the prime purpose is sporting, recreation, or dining activities.

5. Office expenditures

Business owners can deduct the expenses of small items like pens, pencils, paperclips, stamps, and stationery. However, these exclude chairs, calculators, filing cabinets, and chairs because they are capital units.

6. Wages, benefits, and salaries

The next things your business can deduct are wages, benefits, and salaries. These include employment insurance premiums and pension plans you pay to employees.

7. Travel

Even though these types of business expense deductions are only partial, this one can be quite helpful when it comes to paying your business tax return. In some cases, the 50% limit applies to expenses of entertainment, beverages, and meals when you travel.

8. Home-based

This one can be tricky. However, you can calculate it by the rules. If your office is 30% of your home’s total size, that means you can deduct 30% of home expenses as home office expenditures on the tax return.

9. Rent

Business owners can reduce rent paid for property used in their business. It only applies to those who rent a property for businesses, though.

10. Administration and management fees

Business owners can deduct those fees, including any charges done by the bank for processing payments.

11. Property taxes

Business owners can reduce property taxes for the building or land where their business is operated.

12. Utilities and telephone

Business owners can reduce expenditures for utilities and telephone. These include cable, water, electricity, oil, and gas. One thing, these should expense should be meant to earn income for your business.

13. Insurance 

Business owners can reduce all regular commercial insurance premiums they incur on any machinery, buildings, and equipment they use in business. This is included in business expense deductions.

Common Rules for Claiming Deductible Business Expenditures

If you want to claim deductions on business expenses, these are some general rules to obey:

  • Expenditures should be incurred
  • All expenses must be used for the sake of business’ activity (to make income)
  • Any private or personal expenses cannot be reduced
  • Any fixed assets and capitals are not deductible
  • All expenses should be backed up by complete and proper source documents

Also read : Business Expenses List to Learn for Taxpayers and Small Businessmen

Why Business Owners Should Pay Taxes Promptly

Let’s put aside the discussion regarding business expense deductions. So, why does a business needs to pay taxes accordingly? You need to understand the nature before claiming for deductions later.

Any types of business have the obligation to pay taxes on time as it will be used by the government for various needs. These include maintaining and supporting common resources, paying government employees’ salaries, and many others.

Besides helping the government, paying taxes promptly helps the businesses in many ways. Any delay or failure should be avoided at any cost regardless of the reasons.

To understand better, here are the benefits of paying taxes in a disciplined manner:

1. To avoid penalization

If your business misfiles taxes on time, it will lead to a monetary penalty. The amount of penalty can be high and heavy depending on the country where your business is operated.

2. For the sake of good credit

Do you know that good credit rating matters in a business? If your company needs to take loans for expansions, a good credit rating can make everything easy. On the other hand, bad credit will make this difficult.

One of the requirements to have a good credit rating is whether your business pays taxes on time or not using business expense deductions.

3. Attract more investors

Aside from taking loans from banks to expand the business, you can actually contact some big investors. You should ensure them to put big money on your business, though. Having a good record in tax payment can really help it.

4. Peace of mind

This reason is crystal clear. Paying business taxes on time would remove your burdens. At least, you don’t need to bear a moral responsibility due to late payment and penalties.


Running a business requires huge responsibilities, regardless of the size of the corporation. One of the most important aspects to pay attention to is related to taxes.

The amount of tax does matter. If you are smart enough, you can get business expense deductions. This must be done right, so you can avoid hassles in the future. Hope you get enlightened by reading the useful information above!


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