The following is a guide to allowable business expenses that can be deducted from your income taxes using Schedule C.
If you have any questions about whether you are taking full advantage of these deductions, or need more information, please contact us.
- Vehicles—mileage, operating costs
- Commissions and Fees
- Contract Labor
- Employee Benefit Programs
- Business Insurance Premiums
- Business Service Providers—lawyers, accountants, consultants, etc.
- Office Supplies and Postage
- Retirement Contributions—employees, self-employed contribution as employer
- Rent or Lease Payments—vehicles or equipment
- Incidental Repairs
- Marketing and Advertising
- Materials and Supplies
- Taxes and License/Certification Fees
- Travel, Lodging, Meals and Entertainment
- Salaries and Wages
- Business Use of Home
Vehicles—mileage, operating costs
You can deduct the operating cost or mileage for any vehicle you use for your business. If the vehicle is only used for the business, all mileage or costs can be deducted. If you use the vehicle(s) for both business and personal use, you can only deduct the mileage or costs associated with the business.
Keeping excellent records of both is the easiest way to take advantage of this deduction.
- The current (2021) calculation for mileage is $0.56 per mile. (In 2020 it was $0.57½ per mile.)
- Operating costs include items like gas, insurance, repairs, oil changes, tires, etc.
Commissions and Fees
This includes any commissions paid that are related to your business and fees such as association memberships, trade publications, etc.*
This includes anyone that worked for your company that was not an employee.*
Do not include contract labor that you claim in other sections of your Schedule C (such as accountants, lawyers, etc.)
You can claim the depreciation of any large items and/or property you purchased for your company that you will have for more than one year. This includes vehicles, machinery, office equipment, etc.
Depreciation starts on the day the property/item is first used and ends when it is no longer in service.
This is one of the complicated deductions to calculate and it is advisable to consult with an accountant or CPA to ensure it is done correctly.
Employee Benefit Programs
- Health insurance
- Life insurance
- Dependent care assistance
This pertains to employees only.
Business Insurance Premiums
Any insurance premiums paid for the business, such as liability, malpractice, property (business property only), are deductible.
Interest paid on a mortgage for a property that is used by the business.
Business Service Providers—lawyers, accountants, consultants, etc.
Any fees paid by the company for services utilized by the business. Do not include contract labor (see above) in this calculation.
Office Supplies and Postage
Though many companies are no longer mass mailing through USPS, and paperclips are not as prevalent as they were in the past, do not neglect these. Many companies are surprised at the amount they spend on these items, even in the digital age.
Retirement Contributions—employees, self-employed contribution as employer
Include pensions, profit sharing and annuity plans. There are some limitations and differing forms dependent upon the size of the business.
Rent or Lease Payments—vehicles or equipment
Rent and/or lease payments made on vehicles, equipment, machinery, etc. can be deducted if it was used for the business. There are some restrictions on vehicles leased for 30 days or more.
Repairs and maintenance on property, including machinery and equipment, can be deducted if it does not increase the properties value or overly prolong its life (such as a full restoration). You cannot claim a deduction for your own labor if you made the repair.
Marketing and Advertising
All normal promotional activity costs, marketing, advertising, PR, can be deducted.
Materials and Supplies
Those items used to run your day-to-day business. For example, paint if you are a painter, cement if you are in construction, ingredients if you are a baker, etc. The caveat given by the IRS to this is “only to the extent you actually consumed and used them in your business during the tax year” and you cannot claim materials and supplies you deducted from your prior taxes.
Taxes and License/Certification Fees
On federal income taxes, you can deduct:
- State and local sales tax
- Social security paid for employees
- Medicare tax paid for employees
- State unemployment tax
- Real estate tax if location is used by the business
You can also deduct any license/certification and regulatory fees that are required by a state or local government in order for you to operate your business.
Travel, Lodging, Meals and Entertainment
If you had to travel for business, the costs incurred are deductible. This cannot be used for daily commuting cost. There are restrictions on all these items, and you must be able to clearly show that they were for business purposes only, not personal.
You can include all utilities paid for the business. This includes cell phone(s) if they are for business use. There are restrictions for home phones if you use your home as your place of business.
Salaries and Wages
All salaries and wages paid to employees. For your 2022 taxes, this would need to be reduced if you took advantage of elements of the American Rescue Plan and other employee incentive credits, such as: Employee Retention Credit, Work Opportunity Credit, Empowerment Zone Credit, Employer Credit for Paid Family and Medical Leave, Indian Empowerment Credit and Credit for Employer Differential Wage Payments.
Business Use of Home
Some expenses incurred from the use of your home for your business can be deducted. There are limitations. There are two ways to calculate this deduction. The first is using Form 8829, where you will provide detailed information. The second is a simplified version. With the simplified calculation, you determine the square footage of your home used exclusively for the business, up to 300 sq ft, and multiply it by $5.00.
* There may be additional filing requirements. Contact us if you have any questions.