There are business expenses that an entrepreneur can deduct on their tax returns to help reduce the amount of money you owe in taxes. As a business owner, there are several expenses that the Internal Revenue Service allows you to deduct. Some deductions are for part of the cost of items. The IRS considers some expenses reasonable and ordinary, which are required expenses for someone in the same line of work.
Entrepreneurs can deduct business expenses which include the following.
• Accounting expenses
• Bank fees
• Bad debts
• Commissions and sales expenses
• Consultation fees
• Continuing education fees
• Contract labor expenses
• Credit and collection expenses
• Delivery fees
• Dues and subscriptions
• Fees for legal and professional services
• Home offices
• Internet service costs for a website, domain name, and a hosting service
• Maintenance and repairs
• Office supplies
• Pension plans
• Staff compensation
• Security services
• Telephone service
• Travel expenses
• Mailing expenses
• Software packages
Entrepreneurs can deduct business expenses that include your cars. If you use your car to see your customers or to attend meetings, then you’re able to deduct 100% of the expenses on your taxes. If the driving was 100% related to the business.
There are different ways that you can deduct your vehicle. If you choose the standard mile deduction, you deduct the miles you travel to work with your clients. Entrepreneurs who deduct the actual cost of the transportation expenses, you will deduct things such are the cost of gasoline, repairs, regular maintenance, insurance payments, registration fee, oil changes, and new tires.
If you deduct your expenses, then you cannot revert to the standard mile deduction rate later for the same tax year. It’s possible to switch to the actual expenses that you paid in a different year. If your auto expenses increase because of extensive repairs that outweigh the number of miles you drove the vehicle.
When you take a vehicle deduction, it's a good idea to keep track of the records. Track your mileage and the repair expenses so you have this information available for the IRS.
One of the most important factors to decide on when determining if you will use the actual miles that you drove versus the expenses would be to consider how many miles you drive for business. Review the cost of gas and consider the cost of the repairs you’ve made in a year. You can track your expenses and the mileage to decide which rate would be better at the end of the year. Another consideration is if you use your car for personal use, you wouldn’t be able to deduct all of your expenses.
Home office business expenses
Some entrepreneurs may use a home office for business purposes. If you use a home office, then you can deduct this expense under certain conditions. To use a home office deduction on your taxes, you would have to show that you are performing business in your office and that this location is only used to run your business and not for other reasons. You cannot use a home office deduction for a room that you don’t use regularly. This means that if you have an exclusive business office at home and you don’t use the office often, then you cannot take a home office deduction on your taxes.
The home office deduction is for a location that is the primary office of your organization. This deduction is not used for an office that is only used on an occasional basis.
If you meet with clients outside of your office but perform the most important tasks of your business in your home office, then you can take the home office deduction. Business tasks that you may perform in your office can include setting appointments, billing your customers, ordering your supplies, writing invoices, storing supplies, performing contract management, and conducting webinars.
As a business owner, you calculate this deduction based on the amount of space your business uses. Some entrepreneurs calculate the percentage based on the square footage of the office and divide the total home square footage. Another method that’s used is to divide the number of rooms in the house that are used to operate your business by the rooms in the house if the rooms are the same size or close to the same size.
Rent payments business expenses
The IRS designated the rent deduction for property that you don’t own, which includes your home or apartment. As an entrepreneur, you can take this deduction if you qualify for the home office deduction and use a room to conduct business. The amount of the deduction must be reasonable if you rent property from a family member.