Business Expenses
Costs incurred in running a business that are deductible on your tax return if they are ordinary (common in your industry) and necessary (helpful and appropriate for your trade).
Business expenses are the costs of carrying on a trade or business. To be deductible, an expense must be both ordinary (common and accepted in your field) and necessary (helpful and appropriate for your business). These expenses are reported on Schedule C for sole proprietors or on the applicable business tax return.
Common deductible business expenses include: office rent and utilities, business insurance, professional services (accounting, legal), advertising and marketing, travel and transportation, office supplies and equipment, software and subscriptions, contractor and employee costs, and business meals (generally 50% deductible).
Capital expenses — those that provide a benefit lasting more than one year, such as equipment, vehicles, or building improvements — must generally be depreciated over time rather than deducted in full immediately. However, Section 179 and bonus depreciation rules may allow you to deduct the full cost of qualifying assets in the year they are placed in service, providing a significant upfront tax benefit.
Related Terms
Schedule C
The IRS form (Schedule C of Form 1040) used by sole proprietors and single-member LLCs to report business income and expenses. The net profit flows to your personal tax return.
Depreciation
A tax deduction that spreads the cost of a business asset over its useful life. Section 179 and bonus depreciation may allow full first-year expensing for qualifying assets.
Home Office Deduction
A deduction for the business use of your home, available to self-employed individuals. You can use the simplified method ($5 per square foot, up to 300 sq ft) or the regular method based on actual expenses.
Sole Proprietor
An individual who owns and operates an unincorporated business by themselves. Business income and expenses are reported on Schedule C of the personal tax return.