Many of my clients are small businesses who file a Schedule C with their personal taxes due to being self-employed. I’ve received a lot of questions lately about what all can be deducted as part of their business expenses.
My standard answer is “it depends”.
The IRS requires a business expense to be ordinary AND necessary to be deductible.
This means that expenses that are deductible by one business may not necessarily be deductible by another business.
For instance, a small construction business would normally have expenses for materials, fuel, worker’s compensation insurance, and payroll.
Whereas a small sole proprietor operating a craft business from their home may be able to deduct a portion of their home for storage, booth fees to craft shows, and craft materials.
The expenses that are Ordinary AND Necessary vary greatly from industry to industry and must be evaluated according to that industry.
It’s also important to note that the following are NOT Deductible expenses:
· 50% of deductible meals
· ANY Entertainment Expenses
· Fines or penalties paid (including parking tickets)
· Clothing if it can be worn outside of work (hospital scrubs and uniforms may be deductible)
· Standard charge + taxes for 1st telephone landline even if used for business
These are just a few examples of non-deductible expenses.
If you have any questions, or would like additional information, please feel free to contact me.