Reflection of the week

Can I deduct that as a business expense?

Happy Friday, all!

This week, I’m answering another common tax question: “Can I deduct that as a business expense? “

As a business owner, managing your expenses wisely isn’t just good financial sense—it’s also a powerful way to reduce your tax bill. Deductible business expenses allow you to lower your taxable income, keeping more of your hard-earned money. However, not every expense qualifies, and the IRS has specific rules for what counts as a legitimate deduction.

In this post, we’ll break down what makes an expense deductible, how these deductions can lead to significant tax savings and some unexpected yet allowable business expenses that you might not have considered.

What Makes a Business Expense Deductible?

The IRS defines deductible business expenses as those that are both ordinary and necessary:

• Ordinary: Common and accepted in your industry. If most businesses like yours incur a similar expense, it’s likely ordinary.
• Necessary: Helpful and appropriate for running your business. The expense doesn’t have to be essential but should contribute meaningfully to your operations.

For example, a photographer purchasing a high-end camera or a consultant paying for industry-specific software would be considered ordinary and necessary. However, if a personal trainer tried to deduct a pet parrot as a “motivational coach,” the IRS might have some questions.

Another key factor? The expense must be for business purposes—not personal. You can only deduct the portion used for business if you mix personal and business use (such as a car or phone).

The Power of Deducting Business Expenses: How It Saves You Money

Business deductions lower your taxable income, reducing the amount of tax you owe. Let’s break it down with an example:

Say you earned $100,000 in revenue this year. If you had $30,000 in deductible expenses, your taxable income would drop to $70,000. If you’re in the 24% tax bracket, this deduction could save you $7,200 in taxes!

That’s why tracking and maximizing deductions is so essential. Every dollar you can legitimately deduct puts more money back in your pocket.

Some of the most common deductible business expenses include:

• Rent or mortgage interest for business space
• Office supplies and equipment
• Marketing and advertising costs
• Professional services (accountants, legal fees, consultants)
• Business travel and meals (with some restrictions)
• Employee wages and benefits
• Education and training related to your field

However, beyond the basics, there are some surprisingly deductible expenses you might not have thought about.

Unexpected (Yet Legal) Business Deductions

Business owners sometimes miss out on deductions because they don’t realize what’s allowed. Here are a few unorthodox deductions that might apply to your business:

• Pets (Sort Of!): If you have a guard dog protecting your office or warehouse, the costs of its care, food, and vet bills may be deductible. However, your lapdog at home doesn’t qualify.
• Personal Development (If It Benefits Your Business): A life coach, therapy, or even meditation training might be deductible if it helps you manage stress and improve your business performance.
• Clothing (If It’s for Business): Regular clothes aren’t deductible, but they can be if you buy branded uniforms or special attire required for your business (like safety gear or costumes for a performer).
• Home Office Expenses: If you work from home, you can deduct a portion of your rent, utilities, and internet costs as long as the space is used exclusively for business.
• Creative Marketing Expenses: Hosting an industry event at a unique venue? Running an out-of-the-box ad campaign? You can likely write it off if it’s a legitimate marketing effort.

Final Thoughts: Keep Good Records and Work With a Pro

Maximizing your deductions starts with good bookkeeping. Keep receipts, track your expenses, and categorize them correctly. If you’re unsure whether an expense is deductible, consult a tax professional—paying for expert advice is another expense you can deduct!

By understanding deductible business expenses and using them strategically, you can lower your tax bill and save more money to reinvest in your business. So start tracking, saving, and making the most of every deduction available.

Questions of the week

• How well do I track my business expenses, and are there any deductions I might be missing that could lower my tax bill?
• Are there any unorthodox or overlooked expenses in my business that could qualify as deductions, such as home office costs, marketing experiments, or professional development?
• How can I improve my record-keeping and financial organization to maximize my tax deductions each year?

Tool of the Week

As I mentioned, maximizing business deduction starts with good bookkeeping. So, if you don’t have good bookkeeping software, get to Quickbooks, Xero, or Wave quickly. And make sure to deduct it as a business expense!