Recognizing deductible business expenses is critical during tax time. Missing a deduction can increase the company's tax liability, while deducting an item that's not allowed can trigger an audit and penalties. Know the exact amount of each deduction by keeping detailed records of each expense.
Deduct expenses related to vehicle use in the normal operation of your business. Commuting use is not deductible. Calculate the deductible amount by using the miles driven during the year or actual expenses. Written records are not required, but are suggested if using actual expenses.
Labor expenses include wages paid to employees or contractors. This expense also requires that each employee receives a W-2 at the end of the year. Send a 1099 to each contractor. Deduct any commissions or fees paid in addition to standard wages.
Deduct depreciation on capital investment items. This is the amount that each piece of equipment has decreased in value during the year. Certain items qualify for accelerated depreciation, which means the entire cost could be deducted in the purchase year.
Interest and Rental
Deduct mortgage interest paid on property used by the business, and interest paid on business loans and rental fees. Rental fees include property or equipment rentals.
Deduct expenses related to advertising, legal services, accounting services, surveying, research, consulting and other professional service expenses.
Insurance and Benefits
Deduct the cost of employee benefit programs including heath insurance, pension, profit sharing and 401K programs. This figure includes any establishment and administration fees in addition to company contributions. Do not include employee contributions. Deductible insurance costs also include workman's compensation and general liability policies.
Deduct costs associated with running a business, including office expenses, utilities, taxes and licenses. If the business requires employees to travel overnight, transportation and meal costs are deductible. If a client is treated to dinner or a show, the expense falls under the entertainment expense category.
Repairs and Maintenance
Deduct any amounts paid to repair or maintain equipment and machinery. This amount includes fluids and parts in addition to labor expenses.
Deduct the material and supply costs. Materials include either raw materials or items purchased for resale. Supplies include everything from packing materials to professional instruments.
Some business expenses do not fall neatly into an IRS-defined expense category. Deduct these miscellaneous expenses in the "Other" section with precise details.
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