Common Business Tax Expenses

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Common Business Expenses

Business Start-Up Expenses

The capital you spend going into business—such as leasehold improvements, furniture, or office equipment—are considered “capital expenditures” and will be deducted over the first five-year period. The operating expenses are deducted as current business expenses. A way around this rule is if you expect to make an immediate profit;

then you can delay payment of some bills until you are actually “in” business, or doing a small amount of business. If you expect to suffer losses during the first couple of years of operation, which is the case with most businesses, it may make sense to opt for the deduction over five years.

If you work full-time and have a business on the side, note that the IRS does not allow "hobby losses." For example, if you have a art collecting business, you may not deduct a loss if you did not intend to make a profit.

Advertising and Promotion

The cost of advertising is deductible as a current expense; this may include everything from television, print, and radio ads to business cards and brochures. Promotions to foment business goodwill, such as sponsoring an event, are also deductible, but you will have to demonstrate how the event is directly connected to your business, perhaps by displaying advertising banners at the event.

New Equipment

You may be able to write off the full cost of new equipment during the current year, but more than likely you will have to capitalize it over a

set number of years. This will depend on the value of the equipment when you purchase it as well as its period of use.

The IRS is not particularly concerned with small personal expenses written off as a business expense. However, if you decide to deduct a home theater system or other questionable purchase, an auditor may realize what you are doing and reject the deduction while adding a penalty.

Lawyers, Accountants and other Professionals

Any professional service for current benefit is deductible during the current year. If the work done for the project is for future years, then the deduction must be spread over the duration of the project.

Education Expenses

These expenses are deductible if you use the education to improve or sustain the knowledge necessary to work on your business, or occupation, or if it is a legal requirement.

Moving Expenses

These expenses are deductible if you move for business reasons, and your new location is at least 50 miles apart from your current one.

If you are operating a home-based business, make sure that you maintain a separate space in the house for your business. The IRS only allows deductions for these expenses proportional to the space used. For example, if you have a 2000 square-foot space and you are using 1000 square feet for your office, you can only claim up to 50% of your total housing costs for a deduction.

For more information on taxes and business expenses proceed to the next section.

Other Business Expenses