Thursday, March 16, 2017

A Guide to Deductible and Non-taxable Expenses for Small Businesses

The first rule that all small business owners should abide by is to always pay their taxes. The IRS is very strict, and tax evasion is prosecutable by law. However, there are still ways through which businesses can get as many deductions as possible. A tax deduction is an amount that is not taxed because it is a necessary and ordinary business expense. Knowing these deductible expenses can help a business owner to reduce the amount of taxes that they pay to the government. The following is an outline of deductible expenses that small business owners can take advantage of.

Personal and business expenses

Generally, personal expenses are not deductible expenses. However, business expenses should be deducted and they are not taxed. In case of situations where a personal property is also a business property, the IRS will divide the expenses between personal and business properties. The business owner can deduct the business expense.

If you use your home as your business office, you can deduct some of the expenses. However, the home office has to be used exclusively for business purposes and for nothing else. It should be used regularly for your business, and it should be the principal office. This means that the office must be the place where clients or patients are met. It could also be a separate structure in the home that is used in the business.

Bad debt

A bad debt is an amount that is owed and that cannot be collected. There are non-business bad debts as well as business bad debts. Business bad debts can be deducted from the expenses when filing taxes for the business. The bad debt could have been incurred in the business or for a business reason.

Employee’s pay

Employees pay can be deducted from the taxes as a business expense. This payment may be in the form of services, property or cash. In order for this payment to be deductible, it must be necessary and ordinary. It must also have been paid during the current tax year. It must be a reasonable payment, and it must be reimbursement for services performed. However, small business owners are not allowed to deduct their own salaries. This is because a sole proprietor is not considered an employee in their business.


There are certain types of premiums that are related to the business that can be deducted as expenses. Example of premiums include theft, food or fire insurance premiums, credit insurance, group medical insurance for employees, liability insurance, workers’ compensation insurance, malpractice insurance and business interruption insurance.


There are certain taxes that are part of the business expenses that can be deducted from the business taxes. Examples of paid taxes that are related to the business include employment tax, income tax, personal property tax, self-employment tax, fuel tax, excise tax and sales tax.

Other expenses that can be deducted from the business taxes include bank fees, advertising, donation to business organizations, interview expenses, utilities, supplies and materials, license and regulation fees and penalties and fines. A small business owner should be familiar with all of these deductions so that they can know how much they owe the IRS every year.

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