A summary of business expenses which can be deducted for a small
business/self employed person is provided at the Internal Revenue
Service (IRS) website:
?What Can I Deduct?
To be deductible, a business 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. An expense does not have to be
indispensable to be considered necessary.?
?Cost of Goods Sold
If your business manufactures products or purchases them for resale,
some of your expenses may be included in figuring the cost of goods
sold. You deduct the cost of goods sold from your gross receipt to
figure your gross profit for the year.
If you use an expense to figure the cost of goods sold, you cannot
deduct it again as a business expense.
The following are types of expenses that go into figuring the cost of goods sold.
The cost of product or raw materials, including the cost of having
them shipped to you.
The cost of storing the products you sell.
Direct labor costs (including contributions to pensions or annuity
plans) for workers who produce the products.
Factory overhead expenses.
You must capitalize, rather than deduct, some costs. These costs are a
part of your investment in your business and are called capital
expenses. There are, in general, three types of costs you capitalize.
Going into business.
Generally, you cannot deduct personal, living, or family expenses.
However, if you have an expense for something that is used partly for
business and partly for personal purposes, divide the total cost
between the business and personal parts. You can deduct as a business
expense only the business part.
Business Use of Your Home
If you use part of your home for business, you may be able to deduct
expenses for the business use of your home. These expenses may include
mortgage interest, insurance, utilities, repairs, and depreciation.
Refer to Publication 587, Business Use of Your Home.
Business Use of Your Car
If you use your car in your business, you can deduct car expenses.
Refer to Publication 463, Travel, Entertainment, Gift, and Car
Other Types of Business Expenses
Employees' Pay - You can generally deduct the pay you give your
employees for the services they perform for your business.
Retirement Plans - Retirement plans are savings plans that offer you
tax advantages to set aside money for your own, and your employees',
Rent Expense - Rent is any amount you pay for the use of property you
do not own. In general, you can deduct rent as an expense only if the
rent is for property you use in your trade or business. If you have or
will receive equity in or title to the property, the rent is not
Interest - Business interest expense is an amount charged for the use
of money you borrowed for business activities.
Taxes - You can deduct various federal, state, local, and foreign
taxes directly attributable to your trade or business as business
Insurance - Generally, you can deduct the ordinary and necessary cost
of insurance as a business expense, if it is for your trade, business,
This list is not all inclusive of the types of business expenses that
you can deduct. For additional information, refer to Publication 535,
Tax Guide for Small Business
Travel, Entertainment, Gift, and Car Expenses
Taking Business Tax Deductions
What kind of small business tax deductions can I take for a business expense tax?
?You may be able to take more small & home based business tax
deductions than you thought.
Home office expenses
Legal and professional fees
Tax Ideas for the Self-Employed
?What kind of expenses can you pay and deduct before year's end? Let
your imagination run wild. Common items include office supplies;
postage; security monitoring; Internet access and online services;
stationery; business cards; advertising; business and professional
licenses; dues for professional organizations; Chamber of Commerce and
civic club dues (Lions, Elks, Women's Club, etc.); legal fees;
accounting; fees for tax preparation and advice; education and
training; 50% of business meals and entertainment; and business travel
In a nutshell, the litmus test for deductibility is whether you would
have incurred the expense if you weren't in business. The general rule
for prepayments is no current deduction for any expenditures that
deliver value more than 12 months past year's end. For example, if you
renew your Wall Street Journal subscription for three years on Dec.
31, you can only deduct one-third of the price in your yearly return.
However, if you set a price break by prepaying for more than a year, a
court decision says you can generally deduct the whole amount in the
year you pay.?
A dozen deductions for your small business
I hope this helps. Good luck.
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