Your Official Guide to Expense Categories for Your Business
Taxes are an unavoidable part of doing business but through expenses, you can reduce the amount you’ll pay on the money you bring in each month. To be most successful at this, however, you must first find a way to track those expenses in an organized manner each month. At the end of the year, you’ll then be able to transfer them to your tax worksheets, saving time for you and the person who prepares your taxes.
But if you’ve tried to claim expenses in the past, you’ve likely noticed that the IRS already has categories in place. Your job is to fit each of your expenditures into one of those categories. To make that process easier, this guide provides each category along with an explanation. Use this to put each of your expenses into a category throughout the year.
Whether you journey across the country or across town, you can claim the money you spend to get you from your office to meetings and back again. This includes trips you take to buy office supplies, attend networking events, and conduct research related to your business.
- Fuel—Even if you never leave town, fuel is one expense you’ll be able to claim. Track your mileage as you go from your office to other areas of town on behalf of your business. At the end of the year, you’ll likely find that even the smallest trips add up to big cost savings.
- Accommodations—When business travel requires an overnight stay, that cost can be claimed as a business expense. You can also claim the cost of lodging for business associates who have traveled to see you, as long as your business is footing the bill for that stay.
- Flight—From time to time, business travel will require you to take a flight. This includes the cost of your ticket, as well as any baggage claim fees, tips, and food costs you incur while at the airport or on the plane.
- Meals—While you’re on the road, you can claim meals, but in many cases, the IRS will only allow you to claim half of the cost. In town, you can claim half of the cost of meals related to entertaining clients or meeting with industry colleagues for advice about your business.
Once you’ve begun hiring workers, you’ll be able to deduct the money you pay them on Schedule C. This applies not only to payments you make in cash, but in service or merchandise. To qualify, the pay must be reasonable and it must match the services they performed within the relevant tax year. Business owners cannot deduct their own salaries, nor can they deduct any personal withdrawals they make from their business accounts.
- Business Use of Your Home—If you’ve started your business out of your home, you can claim the portion of your home being used exclusively for your work. You can only claim the part of your home that is being used for business and you must regularly use it for your work. You can either figure out the portion of your utilities and mortgage the office space costs each month or you can use the IRS’s option to claim a flat fee per square foot.
- Rent—If you lease office space, you can claim your rent on your taxes as long as that monthly amount is reasonable. Usually high rents become an issue when a business is renting space from a relative.
In order to stay tuned into the happenings in your industry, membership in multiple professional organizations is usually necessary. Those dues can be deducted, as can registration fees for conferences and events you attend. If you hold subscriptions to publications that help you with your business, you can deduct those fees, as well, even if you’re having them delivered to your electronic device.
If you’ve found that end-of-year taxes are complicated, there are some things you can do starting now. By tracking your expenses and categorizing them properly, you can make tax time easier for both you and your tax preparers. For a full list of business expense categories, visit http://www.irs.gov/publications/p334/ch08.html.