To be deductible, the IRS says a business expense must be ordinary (common in your industry or trade, such as software) and necessary (needed to run the business, such as supplies). Expenses must be for business, not personal purposes. Here are the top small business expenses.

Contract Labor

Many small business owners use freelancers or independent contractors to meet their labor needs.

Supplies

The cost of items used in a small business (e.g., cleaning supplies for a cleaning service), as well as postage, are fully deductible business expenses.

Insurance

The costs of your business owner’s insurance policy, malpractice coverage, flood insurance on business premises, cyber liability coverage, and business continuation insurance are all fully deductible business expenses.

Repairs

The cost of ordinary repairs and maintenance on business property is fully deductible. On the other hand, costs that add to the property’s value are usually capitalized and recovered through depreciation. However, various safe harbor rules allow for an immediate deduction in any event. Your tax advisor can explain the safe harbor rules.

Commissions and Fees

Commissions and fees you pay are fully tax-deductible. However, commissions paid in connection with buying real estate are not deductible. Realty commissions are added to the basis of the property and are usually recovered through depreciation.

Travel

If you or staff members conduct business travel, the cost of transportation (e.g., airfare) and lodging is fully deductible. You must substantiate a business purpose to claim any travel deduction. Don’t forget incidental travel expenses such as fees for checked baggage or oversized baggage, tips and more.

Advertising

Everything from printing business cards to Facebook ad campaigns and anything in between.

Legal & Professional Fees

Accounting and tax preparation fees; any professional services employed that are related to your business. Cost of a lawyer reviewing a business contract or lease; Some legal fees may not be deductible. Check with your Collective team.

Meals

Deduct these business expenses only up to 50% (although fully deductible meals do exist). This means in effect that you pay for half of a business lunch, and Uncle Sam pays for the other. You can only claim the deduction if you substantiate the expenses are exclusively for business purposes.

Rent & Lease

Commercial lease, NOT for home office/accountable plan, fees paid to lease or rent items used in your small business

Interest on Business Debt

Most business taxpayers can deduct interest paid on business loans.

Employee Benefit Programs and Qualified Retirement Plans

You may deduct the cost of employee benefit programs, such as education assistance and dependent care assistance, as well as contributions to employees’ qualified retirement plan accounts.

Payroll Expenses

Gross wages, employer portion of taxes, health insurance, employer benefit expenses, non-health benefits

Office Expenses

Do you use flowers, fish tanks, magazine subscriptions and other items to spruce up your office? Perhaps music a music subscription like Spotify or snacks for munching? These are all office expenses.

Miscellaneous Business Expenses

Even if an expense doesn’t fit neatly into any of the categories listed above, you may still find it deductible as long as it’s “ordinary and necessary” for the business. Include items you pay out of petty cash. Examples: business and trade magazines you buy at a newsstand, coffee with a customer, or a taxi ride to a vendor. The key to deducting them is to have documentation. Suggestion: when you can’t obtain a receipt, take a photo with your smartphone (which is imprinted with the date) and maintain a log of miscellaneous expenses.

Bank Fees

Fees you pay to maintain your business checking account, access the ATM, obtain new checks, and other banking fees are fully deductible. Review your bank statements to identify fees.

Membership Dues

You can deduct membership dues from professional and business-related organizations. Organizations include chambers of commerce, civic organizations, and trade associations.

Taxes & Licenses

LLC taxes (franchise tax, etc.), licenses, permits, NOT your federal or income state taxes

Credit Card Convenience Fees

A small business that uses credit cards can deduct convenience fees charged by the card companies. A convenience fee is any non-standard use of a credit card for which the merchant charges a special fee. This might be a fee for accepting phone orders.

Education Expenses

Ordinary and necessary expenses paid for the cost of the education and training of your employees are deductible. You can also deduct the cost of your own education related to your trade or business.

Employee Reimbursement

Accountable plan: Mileage, Home office space/phone/internet

Information Sources

IRS. “Publication 535 Business Expenses.” https://www.irs.gov/pub/irs-pdf/p535.pdf

Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining accounting or other financial advice from an appropriate financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.