When you’re running a business—whether it’s a full-time operation or a side gig—understanding which expenses are deductible can make a big difference at tax time. Knowing what qualifies can lower your taxable income, increase your profits, and help you make smarter financial decisions throughout the year. Let’s break down what business expenses are and what you can legally deduct.
1. Operating Expenses
These are the everyday costs of running your business. The IRS defines deductible business expenses as both “ordinary” (common and accepted in your industry) and “necessary” (helpful for your business). Examples include:
- Office supplies: Pens, paper, printer ink, and other consumables you regularly use.
- Utilities: Business electricity, water, and internet bills.
- Software subscriptions: Tools like Zoom, QuickBooks, or Adobe Creative Cloud if they’re used for your business.
2. Home Office Deduction
If you run your business out of your home, you may be eligible to deduct a portion of your housing costs. To qualify, the space must be:
- Used exclusively for business: A separate room or designated area used only for work.
- Used regularly for business: Must be your primary place of business or where you meet clients.
You can choose between a simplified option (a flat rate per square foot) or a detailed method based on actual expenses like mortgage interest, rent, and utilities.
3. Travel and Transportation
Travel expenses related to business activities are deductible, as long as they’re deemed necessary and not excessive. Examples include:
- Airfare and hotel stays: If you attend a conference or meet clients out of town.
- Meals while traveling: Typically deductible at 50% when well-documented with receipts.
- Vehicle expenses: You can deduct actual vehicle costs or use the IRS standard mileage rate (for 2024, it’s $0.655 per mile).
4. Employee and Contractor Costs
If you have help in your business—either from employees or freelance contractors—many of those costs are deductible. This includes:
- Salaries and wages: What you pay employees for their work.
- Benefits: Health insurance, retirement plan contributions, and bonuses.
- Independent contractor payments: Just make sure to issue 1099 forms when applicable.
5. Marketing and Advertising
Promoting your business is essential for growth, and fortunately, advertising costs are fully deductible. Examples include:
- Digital ads: Facebook, Google, or Instagram advertising campaigns.
- Website costs: Domain registration, hosting fees, and website development.
- Printed materials: Business cards, flyers, or direct mail marketing.
6. Professional Services
Any fees you pay to professionals who help support your business operations are deductible. These can include:
- Accountants: Helpful for handling taxes and bookkeeping.
- Lawyers: Especially useful for contracts or business structure advice.
- Consultants: Business coaches, marketing advisors, or industry experts.
7. Education and Training
If you’re improving your skills or staying current in your field, those costs might be deductible. This includes:
- Workshops and seminars: As long as they’re directly related to your business.
- Online courses: Industry-specific training or certifications.
- Books and trade publications: Business books or industry journals you use for learning.
Final Thoughts
Understanding what counts as a business expense doesn’t just help at tax time—it can guide how you budget and invest in your company throughout the year. Always keep accurate records and receipts, and consider working with a tax professional to make sure you’re complying with IRS rules while getting every deduction you’re entitled to. Smart expense tracking is a key part of running a financially healthy business.