Deductible vs. Nondeductible Business Expenses

You can decrease the taxes you pay by claiming the right deductions.

You can decrease the taxes you pay by claiming the right deductions.

Tax deductions can greatly decrease your tax liability, and may even move you to a lower tax bracket. Businesses can take advantage of a host of business expense deductions. However, not all business expenses are deductible, and deducting ineligible expenses can cause you to owe back taxes as well as late fees and penalties.

Travel Expenses

You can deduct many -- but not all -- travel-related expenses. Expenses related to travel from your home to your office or work site are not deductible. The costs of travel between multiple work sites, travel to another city for work and travel-related lodging and meals are generally deductible. The IRS provides a standard mileage deduction rate per mile driven. The rate was 55.5 cents per mile as of 2012.

Capital Expenses

Your expenditures to start a business are called capital expenses. The IRS does permit businesses to deduct up to $5,000 in general start-up costs, but you may not itemize deductions beyond that amount. Expenses in excess of this sum are not deductible.

Rent and Utilities

You can generally deduct rent and utilities associated with an office or storefront. If you have a home office, you can deduct the portion of your mortgage and utilities that covers your home office. You can't deduct the cost of a home office that's used for other purposes, and you can't deduct utilities that are not solely dedicated to your business. For example, if you get cable television that you occasionally use for business research purposes but you use it primarily for entertainment, you can't deduct the cost.

Business Supplies

You can deduct business-related supplies and expenses such as advertising, software, computers, paper, pens and similar items. You may not, however, deduct personal items. If, for example, you purchased a laser printer for your daughter and you occasionally use it to print work documents, the printer is not deductible as a business expense.

Fines and Penalties

The IRS does not allow businesses to deduct any fines or penalties associated with late filing, failure to file, underpayment, interest on taxes owed or failure to file quarterly estimated taxes.


About the Author

Van Thompson is an attorney and writer. A former martial arts instructor, he holds bachelor's degrees in music and computer science from Westchester University, and a juris doctor from Georgia State University. He is the recipient of numerous writing awards, including a 2009 CALI Legal Writing Award.

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