When it comes to taxes, what your business can claim as expenses will be different from other businesses. Depending on your profession, occupation, or business activities in the current year, you may be able to claim different types of expenses. Also, when you run a business, the type of expenses you can deduct will depend on which category your business falls under. Here are some general guidelines about the types of business expenses that you can claim for your business.
Tips for Determining Whether Something is a Business Expense
If you’re unsure of whether you can claim a certain expense, here are some tips to help you determine if it’s a business expense you can claim:
1. Did You Buy the Item for Your Business?
If you buy a new piece of equipment for your business, and it’s not for personal use, you can deduct the cost of the equipment. Just be sure to keep all relevant receipts.
2. Was it Necessary for Your Business to Function?
If you buy a new printer for your business, that’s a business expense. However, if you invest thousands of dollars in furniture that you didn’t need to operate, this could be a red flag.
3. Did the Item Help to Generate Revenue?
Ideally, the expense helped to generate revenue for your business. For instance, for a business meal, did you secure a contract as a result of taking your client out to a restaurant?
4. Were You Required to Pay for the Expense?
If you must pay for a business expense out of pocket, you can sometimes claim it as a business expense. For example, if visiting your client requires you to pay for parking, then you can deduct this as an expense.
5. Was the Item Meant to Promote Your Business?
If you buy something that helps further your business interests, this is an item you can deduct from your taxes. This includes branded merchandise.
6. Is This a Normal Type of Expense for Your Industry?
The Internal Revenue Service allows a range of items to be business expenses, especially if you can prove the expenses were common practice in your industry. For instance, Grammarly Premium editing software would be a business expense for a writer but possibly not for a plumber.
Types of Business Expenses You Might Be Able to Claim
By running a business, you are able to deduct certain business expenses from your income. Some common business expenses include:
Staff Costs and Wages
Staff costs are the main operating costs for many businesses and this category of expense makes up the majority of business expenses for businesses with many employees. Wages and salaries are the largest staff cost that small business owners can deduct when calculating their business taxes. Other staff costs like paid leave, payroll tax, workers compensation insurance, and other staff benefits, are also usually deductible.
Most businesses will incur some expenses for professional services like accounting, legal, insurance, and consulting fees. For instance, professional services are usually deductible and are often grouped together in the same category of other expenses.
Equipment, Tools and Furniture
Businesses that rely on equipment and tools may be able to claim the costs as a deduction. For example, a plumber with tools and special equipment used for everyday operations could deduct those equipment costs. However, the deduction is usually limited to the amount of income generated from the use of the equipment.
Where the equipment is a necessary part of the business, expensive equipment is often deducted as an asset depreciation. For example, a cafe owner may have special equipment worth $10,000 that they would deduct over 10 years. As a result, you calculate the deduction based on the expected life of the equipment and the amount of income generated.
Office Supplies and Equipment
Office supplies, small pieces of office equipment, and books used for business purposes are usually deductible. Some examples of office supplies are printer paper, pens, folders, rulers, sticky notes, staplers, computers, printers, software and internet service. Additionally, where an item is used for both business and personal purposes, the owner must make a reasonable estimate of the percentage of use for each purpose.
Interest on Business Loans
Many small businesses need to borrow money to get them up and running. The interest paid on business loans is usually deductible. However, there are different rules for small business owners compared to large business owners. Most small businesses can claim interest as a deduction if they use the funds to acquire business assets like office equipment, computers, furniture or a vehicle.
Computer and Equipment Repairs
Most businesses will have to repair or replace computer and business equipment at some stage. The cost of repairs and maintenance is usually deductible. Just be sure to keep records of these costs as it may be difficult to claim them if you don’t keep good records.
Marketing, Advertising and Promotion
A lot of people neglect to claim these as deductions, but most business expenses related to promoting and advertising your company are usually deductible. This includes costs like newspaper or magazine advertising, posting flyers, online marketing costs, business cards, brochures, trade shows, conventions and seminars.
Inventory and Inventory Processing
Businesses will have to purchase inventory at some point. If you store your inventory in your own business premises, the cost of purchasing and storing inventory is usually deductible. However, if you use a third party for storage such as a warehouse, the cost to rent or buy the space is usually deductible.
Most business owners need to travel for meetings and conferences with potential investors, customers and suppliers. Additionally, if you need to travel to meet with clients, suppliers or investors, you can usually claim a deduction. Keep in mind that there are strict rules around the type of deductions you claim for accommodation, travel and meal expenses.
Repairs and Maintenance Costs
Business owners should keep an eye out for minor repairs and maintenance costs as they relate to the general wear and tear of your business’s location. For example, a carpet in a real estate office needs replacing every few years, or a broken computer screen might need replacement.
Business insurance is usually deductible. There are different types of insurance for businesses. Business owners will usually not be able to deduct the costs of personal accident and health insurance.
Most states do not require all small businesses to carry insurance, but it is always a good idea to have coverage. The cost of business insurance will usually be deductible on the business taxes. However, some examples of deductible business insurance include fire, auto, and liability insurance.
Licenses and Permits
Businesses must check with local or state authorities before they conduct any business operations. Many licenses and permits are required when running a business including health, liquor licenses, gaming licenses, occupational or professional licensing, or even parking permits. Additionally, these legal costs are often deductible.
Office Rental Costs
Most small businesses will rent offices at some point in time to house their business. Renting office space is usually a part of the business expense, but be sure to keep records as this may be a deductible expense.
For businesses that own assets that have a useful life longer than 12 months, you may be able to claim a depreciation deduction. The most common depreciated assets are furniture, computers, vehicles, tools and machinery. Remember, depreciation deductions decline over the life of the asset.
Other Business Expenses
This category is usually where most small business owners will claim their expenses as deductions. However, be sure to keep good records of these expenses and have evidence of how they are related to your business.
Claim Phone Answering Services as a Business Expense
When running a business, the type of expenses you can claim will depend on the industry you are in or the type of business you operate. The most common types of business expenses are staff costs and wages, professional services, equipment, tools and furniture, office supplies, interest on business loans, computer and equipment repairs, marketing, advertising and promotion, repairs and maintenance costs, and depreciation.
One service that you can fully deduct is your phone answering service. There is little grey area that your phone answering service is for your business and not your personal use. If you have any questions about the costs and benefits of using a phone answering service, contact Answer Aide.
If you’re ready to get started with a professional answering service, we’re here to help. Contact Answer Aide by calling (866) 427-3500 or by filling out our online form. We’re happy to partner with you to support your business while it grows.
NOTE: This information is provided as general guidance. However, every tax situation is different. Business owners should consult with a tax professional or CPA regarding their specific business needs.