What Can I Deduct As A Business Expense?Jul 06, 2021
There is so much confusion around what is deductible for business owners so we are going to try and spend some time outlining it here.
We see questions around allowable business deductions pop up all the time in our Free Facebook Group so if you haven't checked that out yet, join it now.
What Can I Deduct As A Business Expense?
Within the day-to-day life of your small business, you will incur ordinary and necessary expenses that you can deduct when filing your taxes.
What does “ordinary and necessary” mean?
- Common and accepted in the general industry in which the business owner is working.
- Appropriate and required or helpful in operating your small business.
Basically an ordinary and necessary expense means that it is appropriate and helpful for your business. To meet this test the expense does not have to happen often or be a recurring expense (although it can be).
We just recently launched our ebook, The Ultimate List of Business Deductions which is a great download for you to begin getting ideas from. If you have not downloaded it yet, do it now!
How Do I Maximize Business Deductions?
You lose every time you spend AFTER tax dollars that could have been PRE tax dollars.
- After Tax Dollars - Money you spend have it has been taxed.
- Think of a W2 employee who buys a desk for their home office using personal funds. They get no deduction for that.
- Pre Tax Dollars - Spending done prior to being taxed.
- Take that same example as above but now you have a business owner. They can buy that desk through the business and get a business deduction, prior to those funds being taxed.
Goal: Strategize to find after tax dollars that can be moved to pre tax dollars by having a business purpose.
A Few Notes And Things To Think About
This is general advice and not every tax deduction may be allowed for your specific business. Be sure to talk with your tax professional before acting to ensure it’d valid in your line of business.
What is a valid tax deduction for one business may not be the same for another.
Always have a separate bank account (or credit card) for your business that you are running your business expenses through.
Keep great record and receipts - Write directly on the receipt the business purpose and background behind the transaction so it is easy to remember in case you need it down the road.
Get Creative! Search through your personal spending and look for way to create those additional pre tax deductions by finding a business purpose for the spending you may already be doing.
Do not forget to download our ebook, The Ultimate List of Business Deductions which is a great place for you to begin getting ideas from.
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