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What Are Business Expenses?

Business expenses include office supplies.
Many business owners keep track of their business expenses in order to take advantage of tax deductions.
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  • Written By: Daphne Mallory
  • Edited By: Melissa Wiley
  • Last Modified Date: 24 October 2014
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Business expenses are the costs associated with operating a business. The expenses are either tax deductible or non-tax deductible. National tax laws determine which expenses can qualify as deductions, such as those that are ordinary and necessary to conducting that type of business. Some of the categories for business expenses include rent, wages, and technology costs. In order to make a profit, the total expenses must be lower than the total income derived from the business.

Many business owners keep track of their business expenses each year in order to take advantage of deductions available to them when it’s time to pay taxes. For example, in the United States, federal tax laws allow business owners to deduct common business expenses. As long as the expenses are necessary to the operation of the business and are ordinary to the type of business in that industry, a business owner can deduct them and reduce the overall tax liability. The Internal Revenue Service Publication 535 details the rules and exceptions for expenses related to business activities and the forms that must be filed for each tax year.

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Every trade often has unique expenses associated with running a business, but there are common business expenses that are shared by most business owners. To begin with, telephone expenses, including cell phones, business lines, and personal phone lines used for personal and business use are expenses that are common among many business owners. Marketing costs, such as web design, web hosting, and printing costs related to marketing materials are also common business expenses. Some business expenses are not common or necessary to all business owners. For example, some entrepreneurs work from home and do not need to spend money on renting office space or a building. The same is often true for solo entrepreneurs who don’t spend any money on staff and other business owners who have to pay for employee salaries.

Some business owners who want to write a business plan can often research common expenses in their particular field. There are numerous non-profit trade associations as well as government agencies that keep statistics on various aspects of running a business, including expenditures. For example, an entrepreneur who wants to start a U.S.-based retail business can find a detailed list of expenses for the retail industry on the U.S. Census Bureau website. The information can often be helpful to gauge whether the business owner is overspending or underspending in some areas. It can provide important information to help with future business planning and development.

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cloudel
Post 4

@DylanB – Meals are business expenses qualifying as deductions, but only to a certain extent. You can only claim 50% of the cost.

Also, the meals can't be extravagant. They have to be reasonably priced.

With transportation, I think it gets trickier. If you use the same vehicle for business and personal use, then you have to keep track of your mileage when traveling for business.

The more extensive the records you keep, the better you will be able to figure everything out. I always hire an accountant to help me, and she appreciates the fact that I have detailed records.

DylanB
Post 3

I'm wondering what business travel expenses would be considered deductions. If a business pays for an employees meals and transportation while he's away on business, are all of those expenses tax-deductible?

shell4life
Post 2

I have a couple of friends who own a party supply store together. They have a lot of small business expenses that they can use to their advantage when tax time arrives.

They have a couple of phone lines, as well as a computer and internet service. They use the computer for keeping records of all the sales and orders, and they order supplies for the store online, so both are valid expenses.

They also have one other employee whose wages they pay. I'm sure this is a major expense that helps them save on taxes.

Kristee
Post 1

I am self-employed, but I haven't been claiming any business expenses. This is because I'm an independent contractor working for a couple of different companies.

I work from home, and since I didn't actually buy my computer for my job, I can't use it as a deduction. I don't have any mileage expenses, so I really don't think there is anything I would qualify for.

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