Common Business Deductions

Here is a list of common business deductions, it’s far from all inclusive and some of the items are subject to special rules. We’ve included comments on certain items. While intended for taxpayers filing a Schedule C, the rules generally apply to all businesses.

Accounting fees Generally what you pay your bookkeeper for accounting, tax preparation goes under legal and professional.
Advertising Include flyers, direct mail, yellow book, Internet ads, journals (such ash high school yearbooks), sports sponsoring, events.
Amortization Some costs such as start-up expenses, organization costs, etc. may be partially deductible up front; excess amounts can’t be deducted but must be capitalized and amortized over a number of years.
Auto Actual expenses or standard mileage.
Bank charges & Merchant Credit Charges This would include the credit card fees (merchant charges) that are charged to you when you accept credit card payments.
Charitable contributions Special rules apply to regular corporations; contributions by S corporations, partnerships, and sole proprietorships are deductible by the shareholders, partners and/or owners.
Cleaning (Office, shop, etc.)
Cost of goods sold Products you purchase for resale
Credit and collection charges
Delivery & Freight Special rules apply to freight with the conjunction of the purchase of an asset, which be added to the purchase costs.
Depreciation Usually calculated by your tax professional, given to you year end as an adjustment to the account
Dues and subscriptions
Education or Continuing Professional Education Courses and seminars to maintain and improve skills, courses to maintain license, but can’t also take education credit.
Employee benefit programs Health insurance, education expenses, etc.
Entertainment Generally only 50% is deductible; only business related; strict substantiation rules apply, see IRS publication 463. Record the full amount.
Equipment rent
Freight in Usually associated with cost of goods sold.
Home office Special rules apply. See your accountant.
Insurance Business, etc., but not health. Include liability, business owners, auto (company owned vehicle), workers’ compensation, etc.
Internet service Web connection and web hosting, business portion only.
Laundry Uniforms used in business.
Legal Some legal expenses, such as those associated with asset purchases, can’t be deducted directly.
Licenses or Permits Includes your business license.
Meals Special rules apply. Generally only 50% is deductible, but record the full amount as the 50% is taken off on the tax return.
Office supplies Note equipment purchases generally over $100 are listed under assets as equipment.
Outside Services Generally these are for your IT work or other services and costs such as temporary help, secretarial services, etc.
Pension and profit sharing
Repairs Expenses that keep equipment in repair, but do not prolong its life as that may be considered a capital improvement. Check with your accountant.
Salaries and wages Show gross, before deduction for withholding taxes.
Small tools And those with life of less than a year. Others must be capitalized as assets and depreciated.
Software See the comment for small tools.

Staff Meetings & Employer Convenience Meals Special rules apply to these, but they are generally 100% deductible.
Supplies Those items that help or enhance your product or services such as paper bags, coffee, display racks etc.
Payroll Taxes Federal and state unemployment taxes (only the employers portion).

Property Taxes Real estate for owned property and personal property.
Telephone Including cell phone
Travel Travel meals are included under meals.
Utilities Electric, gas, water, sewer, etc.

Equipment, Furniture & Computers Generally items over $100 with a life over a year
Buildings and similar improvements
Repairs that extend the life of the property (Considered new property)

You may be able to write off some of these expenditures (e.g., equipment, but not buildings) if you make an election under Section 179 to do so. For 2011 100% bonus depreciation may be available; for 2012 50% bonus available.

Some expenses must be capitalized and amortized. They include:

Start-up expenditures (up to $5,000 can be expensed; limits and rules apply)
Organization costs (up to $5,000 can be expensed; limits and rules apply)
Business licenses with a life of more than a year
Acquisition costs of goodwill, customer lists, etc.

Some expenditures can’t be deducted:

Penalties and fines Traffic tickets, fines for business activities.
Illegal bribes and kickbacks
Land And many costs associated with land; land improvements generally have 15-year life.