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Small Business Expenses - Maximize Your Deductions
August 15, 2023 - 2 min read

Small Business Expenses - Maximize Your Deductions

Small businesses have a lot of expenses, from major costs, such as rent and salaries, to smaller ones, such as office supplies and bank fees. These expenses take a lot of money out of your revenue, so it is important to know how to track expenses for small business so you can deduct as many of them as possible. So, to help you claim some of the more common small business deductions, we will list some of these deductions and the rules for claiming them.

What counts as a business expense?

Business expenses are the costs incurred in operating a business, and it is essential to know how to keep track of expenses for small business. Business expenses are costs such as rent, vehicle expenses, maintenance, computer expenses, salaries, utilities, and more. In order for these expenses to be tax deductible, the Internal Revenue Service (IRS) must consider the expenses to be ordinary and necessary. The IRS considers an expense to be ordinary if it is common and accepted for your type of business. They consider it to be necessary if it is appropriate and helpful for your business.

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Are small business expenses deductible?

Small business expenses are tax deductible if they are ordinary and necessary. But, this actually covers a lot of business expenses. Most of the expenses incurred to start, operate, and promote a business are likely to be considered ordinary and necessary. The main thing to remember with business expenses is to make sure they actually are business expenses. You cannot deduct personal expenses, such as meals or living expenses.

This can be more complicated if an expense is both personal and business, such as if you have a home office or if you use your car for both personal and business purposes. In this case, you can deduct the business part of the expense, such as the mortgage interest, utilities, home insurance, or vehicle expenses. But, you must determine the amount of the expense that is personal and business. 

You can do this by determining the percentage of the expense that is for business. For example, if your home office takes up ten percent of your home, you could deduct ten percent of the mortgage interest, utilities, insurance, and other home expenses.

Common small business expenses

Countless costs can qualify as small business expenses. But, to give you an idea of what these expenses often are, we are providing a brief small business expenses list.

  1. Start-up costs
  2. Bank fees
  3. Utilities
  4. Vehicle expenses
  5. Advertising
  6. Office supplies
  7. Maintenance and repairs
  8. Insurance
  9. Salaries
  10. Employee benefits

How to keep track of expenses for small business

There are several things you should do to keep track of your small business expenses, and here are a few of them.

We have a simple small business income and expenses spreadsheet template you can use to record all business income and expenses and keep on top of your record-keeping.

Obtain a business bank account and credit card

These are two of the most important steps you can take to ensure you keep track of your expenses. If you use your business bank account or credit card for all of your small business expenses, it will make it easier to track these expenses. Additionally, it will also keep them separate from your personal expenses, which is important for tax purposes.

Purchase user-friendly accounting software

If you are keeping your own books, it is important to have accounting software that you can easily understand so that you can properly track your expenses. 

Safely store your receipts 

Having physical proof of your expenses can be important. Therefore, it is important to safely store your receipts and have a system that makes it easy to access them as needed.

Use a mileage tracking app

The easiest way to account for your vehicle expenses is to use a mileage tracking app, such as the Driversnote mileage tracking app, to track your mileage. Then, you can multiply your mileage by the IRS standard mileage rate of 65.5 cents per mile (for 2023) to determine your deduction for vehicle expenses. The standard mileage rate is meant to account for all of your vehicles’ deductible expenses and is far easier than keeping track of all of these expenses for your vehicles.

FAQ

Small business expenses are deductible if they are ordinary and necessary. But, this does cover most of the expenses you are likely to have for your small business.
Most business expenses are claimed on Form 1040 Schedule C. This form will cover most of your tax deductions. Although, if you use your home for your business, these expenses can be deducted on Form 8829.
The tax rate for small businesses did not go up. However, some of the rule changes could result in increased taxes for small businesses, such as only being able to deduct 50% of what your business spends in restaurants in 2023 rather than the 100% allowed for 2022.

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