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How to Write off Business Expenses

If you want cash back in your business pocket, it’s time to learn how to write off business expenses. We can help.

Business owner looking around at the office full of inventory.
December 19, 2022
Kathleen Crampton
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Reading time about 5 min

Writing off expenses is one of the silver linings of small business finances. Even if your business doesn't bring in the big bucks, the ability to write off expenses can be a huge boon when tax season comes around — because when you start a company, every penny counts.

Whether you’re just starting an LLC or have a seasoned business, learning how to write off business expenses is a must. We’ve got you covered.

What Are Business Expenses?

Business expenses are pretty simple — they include any normal, necessary costs involved in running your business. They're split into capital expenditures and operational expenditures.

  • Capital expenditures: This is money used by a company to acquire, upgrade, and upkeep any physical products and assets.
  • Operational expenditures: Unlike CapEx, Opex represents the expenses that keep your business running day-to-day.

Think about it like this: Do you have a trending sneaker company? Capital expenditures might be the money you spend on raw materials to make your special shoes, while operational expenditures might be the social media campaign you launch to get your shoes seen by the masses.

Any time your company buys something, it must be classified as either a CapEx or an OpEx.

Both types can be deducted from your taxes, but here’s the clincher: CapEx gradually reduces your taxable income over a period of years, while OpEx reduces your taxable income that same year.

Car being used for flower delivery

What Business Expenses Can Be Written Off?

Business expenses for tax write-offs depend in part on the type of business structure you have. But whether you have a C-corp or S-corp, a partnership or a sole proprietorship, or a PLCC or LLC, you’ll be able to write off various business expenses as tax deductions.

Here are the different types of tax deductions businesses can write off:

  • Goods: You can typically write off the cost of goods sold for any items you sell. Did you buy a pack of pens or new desk chairs? Those can be written off, too.
  • Insurance: Health insurance is fully deductible, and other types, such as property and malpractice insurance, are partially deductible.
  • Services: Utilities like water, gas, electric, garbage, and phone bills are deductible. Anything considered a car-related expense is also deductible if you use a car for business purposes. Business-related software, entertainment, and travel can be deducted if necessary for business success. The cost of hiring independent contractors and freelancers that work for your business can also be deducted.
  • Rent: Do you rent or lease a property for your business? Deduct it. Do you rent any machinery or equipment? Deduct that, too.
  • Employee salaries, benefits, and gifts: Most employee wages and some employee benefits can be deducted.
  • Interest: You can write off interest and even taxes incurred by your business.

For a complete look at what your company can deduct, check out the IRS Publication 535, Business Expenses, which covers everyday business expenses, which ones can be written off, and which ones you're obligated to pay for in full.

What Expenses Can't Be Written Off?

Now we must break the news that some things can't be written off on your taxes. First, only include personal expenses, like using your car for a non-business summer road trip. You can't deduct lobbying costs, bribes, fines or penalties, or political donations. According to the IRS, the expenses must be "ordinary and necessary" for doing business. Taking a client out to dinner to discuss a deal may be an ordinary and necessary expense, but taking them skydiving likely is not.

How To Write Off Business Expenses

Before you start listing all your expenses, we recommend hiring an accountant who knows the ins and outs of tax deductions for your specific business structure. You can also leverage financial planners for small businesses. Feel comfortable with tax write-offs? Then, follow these steps.

  • Categorize your expenses: They should be categorized as qualifying and non-qualifying. It's best to have a credit or debit card you use solely for business purchases to easily discern purchases from personal ones. Keep a business expense spreadsheet to categorize your expenses throughout the year to make your life even easier.
  • Add up qualifying expenses: Drumroll, please! Add up your list of deductible business expenses to find your grand total.
  • Fill out the correct form: Once you have that number, you'll use Form 1040 if you're self-employed or run your business as an LLC or a sole proprietorship. You'll use a corporate tax return if your business is structured as a corporation. Either way, you'll create an itemized list detailing the different expenses, how much they cost, and the total sum of business expense tax deductions.
  • Work with an expert: Remember that accountant or financial planner we mentioned? At this point, have them check everything to ensure that you're getting the maximum deduction amount possible and that nothing slipped through the cracks.
  • File: Once you’re confident that you’ve correctly filled out the form with an itemized list of all qualifying business expenses, voila! You’re ready to file.

Now that you understand how to write off business taxes, it’s time to get money back in your pocket. Always consult an accountant or tax expert when navigating tax season, so your finances stay in good shape.

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