A Guide to Managing Tax-Deductible Business Expense Categories

Several of your business expense categories qualify for tax deductions. You can subtract them in whole or following specific rules from your taxable income. However, you need to know which expenses are tax-deductible to be able to lower your tax bill.

We will start with a list of business expenses you can deduct from your taxable income.

Tax-Deductible Business Expense Categories

The IRS lets businesses deduct expenses that are:

• Ordinary: The expense is standard and accepted for your industry.
• Necessary: The expense aligns with your business and helps you generate income.
• Reasonable: The expense is legit and not unreasonably large.

Every industry has common business expense categories to deduct from tax returns. Your CPA or tax consultant will be aware of all expenses that you can claim. Here is a list of tax-deductible expenses that apply to most industries:

Rent Expense

You can deduct your rent payments and interest on mortgages if you lease or rent your office space. If it’s your home, you can deduct a portion of the rent based on the area of business use.

Office Supplies

IRS allows you to claim expenses made for buying papers, pens, ink cartridges, sanitizers, trash bags, and more.

Employee Payments

Wages, salaries, and bonuses you pay to your staff are tax-deductible.

Retirement Plans

Employers can deduct contributions to 401K, retirement plans, and other employee benefits.

Taxes

A business may claim various local, state, and federal taxes paid over the year from taxable income. You should determine with a tax specialist which expenses you can deduct.

Interest on Loans

You can subtract interests paid for business loans to banks and financial institutions.

Insurance

Entrepreneurs can deduct the cost of insurance from their tax returns. The insurance must be related to business activities like auto or professional liability insurance.

Home Office

You can claim home office expenses if you operate primarily of your home. IRS lets you deduct $5 for each square foot of home office space, up to 300 square feet.

You can also track your actual expenses and claim them from your tax return if you don’t like the gross calculation of $5.

Utilities

Businesses pay a range of utility bills, including internet, phone, electricity, gas, water, and more. You can deduct these expenses directly from your taxable income.

Travel Expenses

You may subtract travel expenses made for business purposes. Businesses can claim transport fares, hotel charges, parking fees, meals, and more during filing returns.

Software Expenses

Businesses today use a range of software that come with monthly or annual payments. All such expenses, including your SaaS payments, are tax-deductible. You can even deduct charges for maintaining your website.

Business and Professional Fees

IRS allows entrepreneurs to deduct fees for professional services. For example, you can deduct the fee paid to your CPA for their consultation.

Business Licenses

You may need to pay periodically to renew your professional license. They are tax-deductible without exceptions.

Moving Expenses

A business may need to shift equipment between locations or move inventory. The costs for such movement can be deducted from your taxable income.

How to Manage Tax-Deductible Business Expense Categories

Here are the steps to ensure you claim a hundred percent of your tax-deductible expenses without fail:

Track All Payments

Businesses should be able to back up each business expense deducted from tax returns. You should keep all invoices, receipts, and payment proof to show the IRS in case of audits. As a result, you will need to start tracking all your business expenses.

Mesh can help you track every business expense in real-time. Our tool can also collect e-receipts and proof of payment electronically. Best of all, you will be able to sort your expenses into categories for quickly claiming from your tax.

Invest in Proper Bookkeeping

You need to record your expenses and enter them in your books for a foolproof system. Businesses can use spreadsheets or any accounting software in the market. 

Mesh easily integrates with your accounting software and sends ready made data for saving time and work. You don’t need to capture or enter each transaction in your books manually.

Final Thoughts

Using an expense tracking tool like Mesh helps you simplify your tax deductions. You don’t need to search for receipts at the last moment or collect any proof. Additionally, filing your taxes becomes simple when you have a ready database of expenses at your disposal.

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