What Counts as a Business Expense?
Avoid These Common Mistakes
Understanding what qualifies as a business expense is essential to maintaining clean records and maximizing your tax deductions. In the eyes of the IRS, a business expense is one that is “ordinary and necessary” for your business to operate. This includes things like office supplies, utilities, advertising, and even business meals under certain conditions.
Common mistakes include categorizing personal expenses as business ones, or failing to track expenses like mileage and home office costs. The IRS offers a detailed list of acceptable deductions in Publication 535. Business owners should familiarize themselves with these rules to avoid red flags during an audit.
A few examples of business expenses that can be easily overlooked include:
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Home Office Deductions: If you work from home, you may qualify for a deduction based on the size of your office relative to your home. Ensure to use the space exclusively for work to meet IRS criteria.
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Travel Costs: Business travel expenses like transportation, lodging, and meals are deductible, but only when they are directly related to business activities.
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Meals and Entertainment: You can deduct 50% of meals, but it must be business-related. Keep a log to track these expenses, and always ensure they are documented with receipts.
By keeping accurate records and classifying your expenses correctly, you’ll avoid potential audits and ensure you get the maximum allowable deductions. Remember: when in doubt, ask your accountant for clarity on specific expenses.
