Running a business isn’t easy. Neither are taxes.
There are a lot of responsibilities that come with being an entrepreneur and many tax rules can be complicated and confusing. We’re here to help you make sense of your tax-deductible business expenses.
First, A Brief Tax Primer
When filing your business taxes, you'll need to report:
Gross business income. How much money your business brought in.
Deductions. What you spent to keep your business running.
BUSINESS INCOME - DEDUCTIBLE EXPENSES = TAXABLE INCOME
The lower your taxable income, the less you’ll pay in taxes. So it’s in your best interest to identify and track all business expenses.
Identifying Eligible Deductions
Not all business expenses are considered tax deductible. Generally speaking...
Ordinary + Necessary = Tax-Deductible
An expense is ordinary if it is common in your trade. Eligible deductions vary by industry. What's ordinary for a photographer will be different for a tutor.
An expense is necessary if it is needed to run your business. Without these expenditures, it may be difficult for your business to earn money.
For example, if you’re a tattoo artist you’ll need tattoo needles, ink, and other supplies to do your work. Those costs are tax-deductible. But hiking gear wouldn't be, since it isn’t common or necessary to tattooing.
If you’re not sure if something is deductible, ask yourself:
Does this expense support or help my business succeed?
Are other businesses in my industry commonly paying for this?
Would giving up this expense have a negative impact on my business?
Mia has just started her own landscaping design business. Which of the following expenses is not tax-deductible?
Common Tax-Deductible Expenses
Advertising and promotion of your business
Professional training and conventions
Business meals with existing or potential clients
Business use of your car
Salaries and benefits for your employees
Home office (rent, mortgage, utilities)
Computers and other tech
Telephone and internet expenses
Your business website
Office supplies, like paper and ink
This week, review your business expenses and apply the Ordinary + Necessary formula.