A Guide to Managing Tax-Deductible Business Expense Categories By Mesh Team June 16, 2021 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. Get the latest blogs from Mesh by subscribing to our newsletter Manage Your Payments With Full Control & Visibility Get Started
Cloud Accounting Automation: Understanding the Basics March 24, 2023 Learn how cloud accounting automation is different from traditional accounting methods and how it can benefit your business. Read the Article
Preparing Key Financial Statements for Tax Season March 10, 2023 A smooth year-end close is essential to preparing for next year's tax season. Here are the financial statements you should focus on. Read the Article
7 Useful Techniques for Effective Cash Flow Management February 27, 2023 Discover the best ways to optimize your cash flow management, from monitoring operations and adjusting inventory to implementing automation. Read the Article
Why Do Businesses Favor Cloud Over Desktop Accounting? February 3, 2023 Find out why so many businesses are switching over to cloud accounting and how it can help you save costs and scale more effectively. Read the Article
Accounting Automation – The Complete Guide January 16, 2023 What is accounting automation? read our complete guide & discover the top benefits of streamlining your corporate bookkeeping processes using accounting automation software. Read the Article
7 Ways Automation Simplifies Invoice Coding & Processing January 15, 2023 Learn how automating your invoicing process can improve your company's efficiency, strengthen vendor relationships, boost your bottom line, and more. Read the Article