One of the easiest ways to save your business money is to reduce your income tax bill. Doing this means claiming the tax deductions that apply to your business. But which business expenses are tax deductible?

In this article, we’ll explore some of the most common deductibles that help businesses save considerable amounts of money. But take note: Some of these deductibles may not apply to you. Be sure to speak with a tax attorney to find tax savings strategies that apply to your business.

Further, please note that this article contains common industry practices and not professional legal, tax, or financial advice. This article does not create an attorney-client relationship, and it should not be considered a substitute for attaining an attorney’s advice.

What is a tax deduction?

A tax deduction is an expense you can subtract from your taxable income to reduce the size of your tax bill. Not every business expense qualifies. Deductible expenses must meet the IRS’s rules provided in Publication 535, Business Expenses. They typically include those that are “ordinary and necessary” for your business or industry.

In this context, “ordinary” means that the expense is common to most taxpayers in similar lines of work. “Necessary” means that the expense is helpful and appropriate for your business’s success. It doesn't necessarily mean that an expense that is indispensable.

Many business expenses can be deducted dollar for dollar. Some others can be partially deducted, and a few expenses can’t be deducted in any way.

Which business expenses are fully tax deductible?

Many businesses can take a dollar-for-dollar deduction for these common expenses:

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Specific rules apply to each of these deductions. Read Publication 535, Business Expenses, and consider working with an accountant to understand which deductions apply to your business (and to what extent).

Would you like to connect with an accountant? Check out the teams at these firms:

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Thinking of Hiring an Accountant? Start Here.

Every business owner can benefit from hiring an accountant, especially one who is well-versed in financial standards, compliance, valuations, and taxation and is knowledgeable in financial strategy and forecasting. In your business, you may use an accountant for daily cash reconciliations, tax preparation, reporting, collections oversight, forecasting, or preparing financial statements that can help you […]

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Which other business expenses are tax deductible?

As mentioned above, certain expenses aren’t eligible for a dollar-for-dollar deduction. Still, you may be able to claim a partial deduction for those costs. Common expenses in this category include:

Which business expenses are not tax deductible?

Some business expenses aren’t eligible for any form of deduction. Examples include:

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Here's a general rule of thumb. Any expense that isn’t ordinary or necessary for your line of work isn’t eligible for an IRS deduction.

Need help with this determination? Visit the IRS Interactive Tax Assistant page or contact a CPA.

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How can my business keep track of the expenses that are tax deductible?

It’s a must to track your business expenses throughout the year. Why? Because it'll be nearly impossible to remember every item at tax time. By forgetting key items, you could miss out on significant tax savings.

To track your expenses, you can invest in a bookkeeping program or work with a professional bookkeeper who can handle this work for you.

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Here are some of our favorite programs:

QuickBooks | Go Forward Confidently

QuickBooks is the solution of choice for many business owners and accountants alike. Its layout and functionalities make accounting and tax reporting tasks simple, even for novice users. Whether you choose their live bookkeeping program or their bookkeeping software, you'll find a great solution in QuickBooks.

Zoho Books | Smarter Accounting Software

Zoho Books supports users through nearly all of their accounting and taxation needs. It offers automatic tax calculations, simplifies tax payments and reconciliations, and enables users to set tax preferences for every transaction. It also integrates with other Zoho solutions, including their CRM tools, workflow tools, and HR solutions, which can be purchased separately. Use this link to start a free 14-day trial.

Zoho Finance Plus | Everything You Need to Manage Your Finances PLUS Operations

This comprehensive solution pairs its Books program with other solutions to manage sales orders, invoices, inventory, subscriptions, and expenses. It comes with a higher price tag than Books, but many owners find the full suite of services helpful to manage their business’s financial needs.

FreshBooks | Run Your Business Easily

FreshBooks is a web-based service that helps small and medium-sized businesses take on their accounting and invoicing needs. This service, in particular, makes it simple to track receipts and expenses, which is essential for adding up amounts that may be eligible for tax deductions. Use this link to try FreshBooks for free (no credit card required).

Here are a few other services we like to consider:

Be sure to keep detailed receipts of the expenses for which you’re seeking a deduction. If possible, keep records of the date, location, purpose of the cost, and other key factors that will help you prove that the expense was ordinary and necessary for your business.

How can I deduct my expenses?

The forms and rules you’ll follow to deduct expenses depend on how your business is structured. Work with your accountant to complete the right sets of forms and properly document your expenses.

What’s next?

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