Running a business isn’t easy. Neither are taxes. Byte Author Uploaded Image

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

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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

Flaticon IconAn 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.

Flaticon IconAn 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.

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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?

Quiz

Mia has just started her own landscaping design business. Which of the following expenses is not tax-deductible?

A hair cut

Gardening gloves

A work truck

None of these

Common Tax-Deductible Expenses

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  • Advertising and promotion of your business

  • Professional licenses

  • Professional training and conventions

  • Business travel

  • Business meals with existing or potential clients

  • Business use of your car

  • Accounting fees

  • Salaries and benefits for your employees

  • Health insurance

  • Home office (rent, mortgage, utilities)

  • Computers and other tech

  • Telephone and internet expenses

  • Your business website

  • Office supplies, like paper and ink

  • Office snacks

Summary

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This week, review your business expenses and apply the Ordinary + Necessary formula.

Are you missing anything you can claim on your taxes?

License:

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This Byte has been authored by

JW

Jenn Whiting

UX/LX Designer