General Overview of Business Deductions
Are there business deductions you can take advantage of? Yes, but first you have to make sure your expenses are truly business-related. The lines can blur, especially with a small business, because you generally cannot deduct personal, living or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts, and then deduct the business part.
An example: You borrow money and use 70% of it for business and the other 30% for a family vacation. You can deduct 70% of the interest as a business expense. The remaining 30% is personal interest and isn't deductible.
Let's look at business use of your car and your home:
Other types of business expenses? Let's take a closer look:
This list is not inclusive but endeavors to offer some common business expenses and explains what is and isn't deductible. Of course, in some cases, expenses might need to be amortized — deducted over a period of several years — if they are startup costs or if they're related to the purchase of business equipment.
You must capitalize, rather than deduct, some costs that are part of your investment in your business — these are called capital expenses. Capital expenses are considered assets in your business.
Finally, keep in mind the the Consolidated Appropriations Act, 2021, passed at the end of 2020. This huge act has many provisions, and you should consider the relevant changes carefully. Indeed, some business deductions can be very complex, so professional advice is necessary to make sure you're getting what you're owed without raising any red flags with the IRS. We're here to help you with your business tax needs.
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