In the world of business finances, it’s essential to know the difference between expenses you can deduct and those you can’t. Whether you run a big company or a small one, you spend money on various things to keep your business going. But when it comes to taxes, not all expenses are treated the same. The following is here to help you understand deductible and non-deductible business expenses:
Deductible Expenses
- Ordinary and Necessary Business Expenses
- Rent or lease payments for office space
- Salaries and wages for employees
- Employee benefit programs and pensions
- Utilities and office supplies, including software
- Professional fees (legal, accounting, etc.)
- Advertising and marketing costs
- Insurance premiums
- Interest on business loans
- Taxes and licenses
- Charitable Contributions
- Travel expenses that are for business purposes
Non-Deductible Expenses
- Personal, Living, or Family Expenses
- Expenses that are considered personal, living, or family expenses are not deductible for tax purposes.
- Penalties and Fines
- Penalties and fines paid to the government for the violation of any law are not deductible.
- Political Contributions and Lobbying Costs
- Contributions to political parties, campaigns, or candidates, as well as certain lobbying costs, are not deductible.
- Federal Income Taxes
- Federal income taxes are not deductible on the corporate tax return.
- Business Meals
- Business meals that are ordinary and necessary expenses incurred during the active conduct of business may be partially deductible. The meals must not be lavish or extravagant, and the taxpayer or an employee of the taxpayer must be present at the furnishing of the meal. The Tax Cuts and Jobs Act (TCJA) allows for a 50% deduction for business meals.
- Entertainment Expenses
- Travel expenses that are for personal purposes