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August 26, 2022 - 2 min read

Business expenses

Business expenses are any expenses you have related to operating your business or self-employed practice. Business expenses are included in a business's income statement; they are deducted from the company’s revenue to show the net profit, reducing the company’s taxable profit.

Business expenses can be deducted if they are eligible according to IRS rules. 

The IRS separates eligible for deduction business expenses into two categories - ordinary and necessary. Ordinary expenses are considered “common and accepted” in your business industry, and necessary expenses are considered “helpful and appropriate”.

Although some business expenses can be considered ordinary and necessary, you might be able to only partially deduct them or not at all. Business expenses that might be limited or not deductible at all are:

  • Expenses used to figure out cost of goods sold
  • Capital expenses
  • Personal expenses

How to write off business expenses

In order to write off business expenses, you will need to record all eligible expenses throughout the year - remember to keep receipts for all. Add up your eligible expenses and claim them on your annual tax return. 

Note that depending on the type of business you have, you will have to file expenses under either a personal income statement or a corporate tax return. Use the personal tax statement if you are self-employed, a sole proprietor or a limited liability company. If your company is structured as a corporation, you will have to file a corporate tax return instead.

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List of deductible business expenses

Common business expenses you can deduct fully or partially can be fixed, variable and periodic. Common business expenses eligible for at least a partial deduction are:

  • Rent, mortgage and utility bills
  • Insurance
  • Bank and legal fees
  • Maintenance and repair of equipment
  • Employee salaries and benefits, commissions
  • Eligible employee expenses you have reimbursed
  • Business travel
  • Company cars payments, leases, maintenance
  • Advertising, software and office supplies

See a full list of deductible business expenses on the IRS website.

Are you deducting mileage expenses? See our full guide on mileage reimbursement and deductions in the US.

FAQ

Business expenses are expenses accrued for the operation of your business and in most cases can be deducted at tax time.
In order to claim business expenses at tax time, you will need to account for all of them by keeping receipts. You can also use tax software which will help you digitize and safely store all documentation for your claim.
The best way to keep up with your business expenses is to note them down and save the receipts at or near the time of each expense. Have a dedicated filing system for your receipts so you don’t misplace any, or use software or an app that will help you scan receipts and keep them safely stored.

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