A Guide to Small Business Expenses
A Small Business Owner’s Guide to Business Expenses
By Anne Shaw
The Hartford Small Biz Ahead | Originally published: December 28, 2020
Updated: July 31, 2023
What do printer ink, client lunches and shipping costs all have in common? They’re business expenses—the costs incurred while operating your business. And, as long as you run a for-profit company, you can deduct many of these expenses from your taxable income which can help your business’s finances at tax time.
What Are Some Examples of Small Business Expenses?
The types of business expenses vary depending on your specific business. For instance, a photographer who drives to events he’s been hired to shoot adds miles to his personal vehicle, which can be expensed. He may also have expenses related to equipment, editing software and his home office, a portion of his condo that he uses exclusively for his business. A retail shop owner, on the other hand, incurs other types of expenses, including her on-hand inventory, storage, and employee wages.
Common business expenses shared by nearly all companies, no matter the size or the industry, include advertising and marketing, office space, utilities, payments to employees and vendors, software (e.g. bookkeeping), and necessary equipment.
What Can Be Written Off as a Business Expense?
Your business expenses can translate into tax write-offs (or deductions) as long as they’re “ordinary and necessary“—that is, common in your industry and essential to your business. When an expense meets those requirements for your business, you can deduct it. Subtract the amount of the expense from your business’s gross income to reduce the overall amount on which you pay taxes.
Here’s a list of common deductions that business owners make in any given tax year:
- Internet, phone and software
- Office space and related utilities (including home offices)
- Office expenses (like paper and printer ink)
- Equipment (from computers to specialized tools and machinery)
- Payment to employees and independent contractors
- Employee training and education (including subscriptions and publications)
- Credit card processing fees
- Business travel and vehicle use
- Business meals*
- Advertising and marketing
- Interest payments
- Business insurance coverage
- Retirement plans and other benefits
- Taxes (real estate taxes, payroll/self-employment taxes, etc.)
*If provided by restaurants, businesses can deduct 100% of the cost for food and beverages—including employee meals—in 2021 and 2022.
Can a Business Expense Overlap With Company Expenses and Personal Expenses?
Yes, sometimes an expense can be broken down between your business and personal lives. For example, if you use part of your home as your office, then you may be able to make a home office deduction. In this case, you must use that area of your home solely for business purposes and, per the IRS, it must be the “principal place of your business.” So, if your main business location is a separate office space outside the home, then you may not qualify for this deduction, even if you occasionally work from your home office.
For those who are eligible for this deduction (see Figure A. for a flowchart guide), the standard method of deducting home office expenses involves calculating the percentage of your home that is used for business. Start with the square footage of your office area and divide it by the total square footage of your home. Let’s say your home office space is 100 square feet, and your home is 2,000 square feet. Divide 100 by 2,000 to arrive at 0.05, or 5%. Your office is 5% of your home, so you can deduct 5% of the cost of your mortgage interest, utilities, insurance and other related expenses at tax time…[MORE]
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To read the entire article by Anne Shaw at The Hartford Small Biz Ahead website, visit: A Small Business Owner’s Guide to Business Expenses