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Business Deductions
Q: I just started my new small business and was looking for a list of what is deductible and what isn’t. Does such a list exist?
A: The question is a very good one, but also one that I don’t like to answer. The first key point is that any ordinary and necessary expense that you incur in facilitating your trade or business is deductible. If you pay for a license or a sign, business cards or thank you cards, file folders or file cabinets, air fare or restaurant fare, it’s always deductible if the primary purpose of the expense is business. Be careful reading from a list provided by your CPA or even the IRS that might lead you to spend money that you don’t really need to spend. Rather than review a list, review your business needs and make sure you keep good records of the money you actually disburse. If you spent the money on business, it is deductible.
Having said all of that, the IRS does have a great publication to help you account for most deductible business expenses, called Publication 535, Business Expenses. You can also review Publication 334, Tax Guide for Small Business for more detail about your new business activity. Both publications can be downloaded for free from the IRS website at www.IRS.gov. It is a great idea to review these publications but let your own business bank account dictate what is actually deductible for your business. Never spend money that you don’t have to just to get a tax deduction.
Perhaps the most important lists to review are those tax deductible items that may not appear in your business checkbook. The business use of your automobile is a very common business expense and can be overlooked since it does not appear in the business bank account. Likewise the use of a Home Office can also be overlooked if you indeed operate your new small business out of your home. If you contribute personal assets to the business such as a computer, laptop, office furniture, copiers, etc. a portion of the actual costs of those items may be deductible based on business use even if purchased prior to starting the business. Lastly, don’t forget about contributions to a retirement account for you and your employees which can be a very valuable business deduction.
As always, don’t forget that you are not alone. Bookmark our website at NASE.org as well as the IRS website at IRS.gov you will always be able to find the help you need.