What Can Be Written Off as a Business Expense?

It's important for small business owners to educate themselves on the available write-offs to maximize their tax savings and improve their bottom line.

This article will discuss what can be written off as a business expense, including some frequently overlooked deductions that can help maximize your tax savings.

What are Business Expenses?

Business expenses refer to any cost incurred in the ordinary course of conducting business operations. These expenses can range from office rent, salaries, and wages to expenses related to marketing, travel, and entertainment. Business expenses must be ordinary and necessary, meaning they are common and essential to running a business.

Ordinary Expenses

Ordinary expenses refer to expenses that are common and accepted in your industry. For example, if you're running a photography business, the cost of a camera and lenses would be considered ordinary expenses.

Necessary Expenses

Necessary expenses refer to expenses that are essential to running your business. For example, if you're running a restaurant business, the cost of food and kitchen equipment would be considered necessary expenses.

Types of Business Expenses That Can Be Written Off

Now that we've defined business expenses let's dive into the various types of expenses that can be written off as a business expense.

1. Home Office Expenses

If you're running a business from home, you can deduct a portion of your home expenses, such as rent, mortgage interest, utilities, insurance, and property taxes. You can use the Simplified Method, where you can deduct $5 per square foot of your home office, or you can use the Regular Method, where you calculate the actual expenses related to your home office.

2. Travel Expenses

If you're traveling for business, you can deduct expenses related to airfare, lodging, meals, and transportation. However, if you combine business and personal travel, you can only deduct the expenses related to business.

3. Vehicle Expenses

If you're using your vehicle for business purposes, you can deduct expenses related to gas, oil, repairs, insurance, and depreciation. You can either use the standard mileage rate or calculate the actual expenses related to your vehicle.

4. Advertising and Marketing Expenses

You can deduct expenses related to advertising and marketing, such as website development, social media marketing, and print advertisements.

5. Business Insurance Premiums

If you're paying for business insurance premiums, such as liability insurance or property insurance, you can deduct these expenses.

6. Legal and Professional Fees

You can deduct expenses related to legal and professional services, such as accounting, bookkeeping, and legal fees.

7. Office Expenses

You can deduct expenses related to running your office, such as rent, utilities, supplies, and equipment.

8. Employee Expenses

You can deduct expenses related to your employees, such as salaries, wages, and benefits.

9. Depreciation

You can deduct expenses related to the depreciation of your business assets, such as equipment, furniture, and vehicles.

10. Taxes and Licenses

You can deduct expenses related to taxes and licenses, such as business license fees and property taxes.

Frequently Overlooked Business Expenses

Apart from the common business expenses mentioned above, some frequently overlooked business expenses that can be written off include:

1. Bad Debts

If you're in the business of selling goods or services on credit, and your customers don't pay you back, you can write off these bad debts as a business expense.

2. Education and Training Expenses

If you're taking courses or attending conferences to improve your skills and knowledge related to your business, you can write off these education and training expenses.

3. Bank Fees

If your business incurs bank fees, such as wire transfer fees or overdraft fees, you can write off these expenses.

4. Charitable Donations

If your business makes charitable donations, you can write off these donations as a business expense.

5. Business Start-Up Costs

If you're starting a new business, you can write off expenses related to the start-up, such as legal fees, market research, and advertising costs.

What Cannot be Written Off as a Business Expense

While there are many expenses that can be written off as a business expense, some expenses cannot be written off. These include:

1. Personal Expenses

Expenses related to personal use, such as clothing, personal car expenses, and personal travel expenses, cannot be written off.

2. Illegal Activities

Expenses related to illegal activities, such as bribes, fines, and penalties, cannot be written off.

3. Political Contributions

Expenses related to political contributions or lobbying cannot be written off.

4. Personal Loans

If you take out a personal loan, you cannot write off the interest on that loan as a business expense.

Can Clothing be a Business Expense?

As a general rule, clothing is not considered a business expense and cannot be written off on your tax return. However, there are some exceptions to this rule. 

If you need to wear a specific uniform or protective clothing for your job, such as a construction worker wearing a hard hat and safety vest, you can write off the cost of that clothing as a business expense. Additionally, if you purchase clothing that is primarily used for promotional purposes, such as t-shirts with your company logo, you may be able to write off the cost of those items as a marketing expense.

It's important to note that if you purchase clothing that can be worn for personal use as well as for work, such as a suit, you cannot write off the cost of that clothing as a business expense, even if you only wear it for work. The IRS considers these items to be personal expenses and therefore not eligible for a tax deduction.

In summary, while clothing is generally not considered a business expense, there are some exceptions for specific types of clothing that are necessary for work or promotional purposes. As always, it's important to keep accurate records and consult with a tax professional to ensure you are following all IRS rules and regulations.

Conclusion

In conclusion, as a business owner, it's essential to keep track of your business expenses and know what can be written off to lower your tax bill. Remember that personal expenses, illegal activities, political contributions, and personal loans cannot be written off as a business expense.