Deductible Business Expenses Categories for Small Businesses
One of the benefits of small businesses ( sole proprietor or LLC) is that certain expenses can be deducted before taxes. The IRS has defined business expenses as “the cost of carrying on a trade or business,” going on to say that these expenses are usually deductible if the business operates to make a profit. – Any expense that is considered ordinary and necessary for your business is likely a deductible expense.
At minimum, the following are the basic categories used by small businesses to declare basic expenses to the IRS ( see more detail on IRS publication: 2023 Publication 334 (irs.gov) and IRS Publication 535; Business Expenses )
Please note that depending on YOUR NEED, you can have many other categories and subcategories, but ultimately, a simplified roll-up will be needed for the IRS.
| Expense Category | Description |
|---|---|
| Advertising | This includes the cost of placing ads or running commercials for your business. |
| Continuing education | Thinking of going back to school to learn the latest in your field? That’s deductible. |
| Cost of Goods Sold (COGS) | COGs (cost of goods sold), or items and storage paid to sell are all tax-deductible ( see Cost of goods sold—chapter 6 of Pub. 334.) |
| Credit and collection fees | If you need to use outside agencies to collect past due balances, you can deduct that. |
| Dues and subscriptions | Subscription costs to publications related to your business are deductible, as are membership dues for professional organizations. |
| Employee benefit programs | The cost of employee health insurance or retirement benefits such as a 401(k) match is fully deductible. |
| Insurance | General liability, worker’s compensation, product liability, and disability insurance premiums are deductible. |
| Maintenance and repairs | Whether it’s for routine maintenance like HVAC servicing, or replacing cracked tile in your reception area, maintenance and repairs are deductible. |
| Office expenses and supplies | This includes things such as pens and pencils, file folders, toner for your copier, and ink cartridges for your printer. |
| Postage and shipping | The cost of shipping orders or simply mailing a letter is a deductible expense. |
| Printing | Whether it’s a one-page document, or a booklet for your customers, the cost of printing is deductible. |
| Rent | If you rent office or retail space, the rent is deductible. |
| Salaries and other compensation | Employee salaries as well as any wages paid to contract employees is completely deductible. |
| Telephone | Whether it’s a state of the art phone system or cell phones for your field reps, the cost of your phones is completely deductible. |
| Travel | Any business related travel is deductible, whether it’s local, national, or international, as long as it’s considered necessary for your business. |
| Utilities | The cost of your gas, electricity, and water is a completely deductible expense. |
Additionally, for new businesses you can have Startup Expenses which are defined as the amounts that are paid for:
- Creating an active line of trade or business
- Investigating the creation or acquisition of an active line of trade or business
A startup cost can be written off if it meets both the following conditions:
- Active Trade or Business Expense: A cost incurred to operate an existing business in the same field as the one you entered into.
- Pre-Opening Expense: A cost paid or incurred before the start date of your active trade or business.
There are many resources on the web to explain
- Business expense categories you need to know | Expensify
- 36 Business Expense Categories for Small Businesses and Startups | NetSuite
- Business Expense Categories Cheat Sheet: Top 35 Tax-Deductible Categories (fylehq.com)
- Guide to business expense resources | Internal Revenue Service (irs.gov)
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