Top Business Expenses (and Deductions) Entrepreneurs Need to Know
The internet has made us all potential entrepreneurs.
And the dream and reality of owning a business is one of the most liberating feelings that you can have. After all, there’s a reason why 27 million people are entrepreneurs.
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While there are many benefits to owning your own company, there’s also plenty of crucial information you need to keep in mind. This is especially true when it comes to finances.
Every business is different, and so are the many ways they can save money, write off expenses, and funnel money into different companies or investments. The best way to approach any of these topics of concepts, is to first consult with a financial advisor or attorney. However, there are many resources out there to learn from before you next legal and accounting meeting.
Not sure where to start? Don’t worry, we got you covered.
Let’s take a look at everything you need to know about common types of business expenses (and deductions). Be sure to read through the list below, take a few notes, and also have some questions in mind for the next time you meet with your financial and legal consultant.
Whether your company has one employee or a whole team at your disposal, your business is going to have ongoing expenses. Here are some you need to keep an eye on that many people forget to consider.
Just like when living in a home, it’s impossible to avoid utility expenses when running your business. While all of us are accustomed to paying our utility bills, business owners sometimes focus too much on tangible costs (equipment, rent, etc.).
Gas, electric, and sewage expenses are all staples when it comes to budgeting for business utilities. Additionally, you’ll need to consider your Internet service expenses, including Internet service and server hosting (if necessary).
You could have a product or service that shakes the foundation of your industry. But, it won’t mean much if nobody knows about your business. Whether it’s through Facebook ads or an extensive multimedia campaign, you’re going to have to allocate money for marketing as an entrepreneur.
Even if you’re a smaller, local business that doesn’t have the need for large-scale advertising, you still may need to employ the services of an SEO specialist to help get your name on the front page of Google.
If you forego including this in your budget, most of your other work will go unrewarded.
As previously mentioned, entrepreneurs often focus on tangible expenses when conducting their financial planning. But, these often include larger purchases, such as furniture, computers, and company vehicles.
Office supplies, however, are a necessity that can quickly add up to hundreds (or even thousands) of dollars.
Common items that can add to the cost include:
- Filing cabinets
- Office chairs
- Printers/printer ink
- USB thumb drives
Necessary office products can include intangible goods, as well, such as software or monthly fees for necessary applications.
To avoid going bankrupt in the event of a catastrophe, it’s imperative as an entrepreneur to have the proper insurance coverage.
In general, liability insurance and property insurance are vital policies to budget for. For example, liability insurance will help protect you financially if someone (an employee or non-employee) experiences bodily harm on your property.
If a fire/natural disaster were to occur or if someone steals property from your business, your insurance coverage will help you cover the costs.
Luckily, with expenses come deductions. While they vary depending on the type of company that you run, there are many most entrepreneurs can take advantage of.
For anyone running a business online, purchasing a domain name and web hosting are two examples of common deductions.
When many people think of the term “legal fees”, they often picture the inside of the courtroom. They may even imagine a consultation with a lawyer.
But, legal fees can stem from many more scenarios, including accounting, bookkeeping, and consultations.
Fortunately, however, you’re able to deduct these expenses as a business owner.
But, the cost must be reasonable for the supplied service. For example, you can’t overpay a friend for their legal services and then expect to write off the entire expense.
If you happen to run your business from home, you’ll be able to secure a significant tax deduction. This is calculated by determining what percentage of the property in square footage is used for business.
There is a catch, however: this space must be used exclusively for business.
In other words, if you have a desk in your bedroom that you use for your company, you won’t be able to claim this space as your home office.
Furthermore, there needs to be a legitimate reason to have this designated space other than as an area for productivity. Thus, if you’re not meeting with clients or conducting administrative tasks, you may not be able to get the deduction you want.
For business-related trips that require an overnight stay, you’ll be able to deduct various expenses when filing your taxes.
These can include:
- Auto expenses
- Luggage and shipping
This is especially useful when traveling over long distances or for an extended period of time. When it comes to international travel, though, there are different rules to keep in mind.
Entertainment + Meals
This is perhaps one of the most popular deductions that entrepreneurs file for. But, this doesn’t mean that every meal or outing can result in a tax deduction.
The expenses must be necessary and business-related, and there must be a chance of an actual payoff. In other words, going to a casual lunch with friends is not a deductible expense.
Going to a bar for food and drinks with a client, however, often is. You can also deduct meals/entertainment that you provide for clients or employees on your own property.
Understanding Types of Business Expenses Can Seem Difficult
But it doesn’t have to be.
With the above information about the different types of business expenses in mind, you’ll be well on your way to making sure that you can scale your business as fast as possible.
Want to learn more about how to run your business efficiently? Make sure to check out this article.
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