Outsourced Accounting / Is This Your Situation: Figuring Out What Expenses You Can Deduct?

Is This Your Situation: Figuring Out What Expenses You Can Deduct?

“You can deduct that — it’s a business expense” is often casually tossed around, as if it gives business managers carte blanche to put anything they want on their tax forms. But the reality is more nuanced.

To start with, says the IRS, not every expense you have is suitable for deduction; an expense must be both ordinary and necessary. “An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.” And necessary means just that — it doesn’t have to be essential.

In small, family-owned businesses especially, the line between business and personal expenses can get blurred — but the IRS wants to see every penny in its proper category.

Typically, you cannot deduct personal, living or family expenses. However, if you purchase something that gets both personal and business use, you can make a partial deduction. For example, says the IRS, if you borrow money and use 70 percent of it for business and the other 30 percent for a family vacation, you can deduct 70 percent of the interest as a business expense. (More details are available in Publication 535, Business Expenses.)

A Few Important Deductions

The IRS provides a list of some of the largest and most common deductible expenses:

  • Employees’ pay – Your employees’ wages and salaries.
  • Retirement plans – Expenses associated with savings plans that offer you tax advantages to set aside money for your own and your employees’ retirement.
  • Rent expense – Any amount you pay for the use of property you do not own. If you have or will receive equity in or title to the property, however, the rent is not deductible.
  • Interest – The amount charged for the use of money you borrowed for business activities.
  • Taxes – Various federal, state, local and foreign taxes directly attributable to your trade or business as business expenses.
  • Insurance – The ordinary and necessary cost of insurance as a business expense if it is for your trade, business or profession.

How BlueStone Services Can Help

This is just a brief introduction. More information is available on the IRS website. Also, we’d be happy to discuss how the many IRS and state rules affect your business, and options you may have to lower your taxes. Contact us today to get started!

Keep informed
Receive tips on how you can use outsourcing to save time and improve your business processes.

Related Articles


Alternative Business Structures That Might Be Right for Your Company

Since the start of the COVID-19 pandemic, many aspects of business have changed, including (in some sectors) the increasing availability of private

Read More  

Is an ESOP the Right Choice for Your Company?

Employee stock ownership plans have been in the headlines recently, but they have been around for decades. ESOPs are qualified defined contribution

Read More  

Outsourced Accounting and Due Diligence

Due diligence is a deep-dive investigation relating to compliance. It can be an essential function to help you understand your potential liabilities.

Read More