NEWS & RESOURCES

Authored by: Jennifer Faulconer, CPA, Wealth Advisor, Senior Manager

Understanding Deductible Business Expenses: What Counts and What Doesn’t

When it comes to managing a business, keeping tabs on deductible expenses is more than just smart—it’s essential for optimizing your tax position. The Internal Revenue Code (IRC) section 162 lays the groundwork, allowing deductions for expenses that are deemed “ordinary and necessary” in carrying on a trade or business. But what exactly falls into these categories, and what doesn’t?

What Makes an Expense Deductible?

Under IRC Section 162, two key words define deductibility:

• Ordinary: The expense must be common and accepted in your line of work.
• Necessary: It should be appropriate and helpful for your business operations.

Beyond these criteria, meticulous recordkeeping is crucial. Receipts, invoices, and mileage logs not only support deductions during tax filing—they’re your best defense in case of an audit.

Common Deductible Expenses

Many everyday operating costs fall into deductible territory. These include:

• Employee costs: Salaries, wages, employee benefits, and payroll taxes.
• Office supplies: Everything from printer ink to paper clips to software subscriptions.
• Occupancy costs: Rent, utilities, property insurance, and related expenses.
• Repairs and maintenance: Fixing a leaky office roof or servicing company equipment.
• Professional fees: Payments to accountants, consultants, or legal advisors.

These are the kinds of expenses that not only keep your business running but are also clearly defined and supported by documentation.

Don’t Overlook These Less Obvious Deductions

Some expenses slip under the radar but are still potentially deductible:

• Business mileage: Whether you’re driving to a client’s office, picking up supplies, or attending an industry seminar, those miles can add up. But remember—commuting from home to your main workplace is not deductible.
• Home office: If you use a portion of your home exclusively and regularly for business, you may deduct a percentage of home-related costs like rent, utilities, and internet. This deduction requires a dedicated workspace and diligent documentation.

Expenses That Don’t Qualify

Not every outlay qualifies for a tax break. Common non-deductible expenses include:

• Entertainment: Golf outings, concert tickets, and sporting events are generally not deductible—even when business discussions occur.
• Meals: Business meals are only 50% deductible, and even then, the purpose and participants must be documented.
• Owner’s insurance premiums: Life or disability insurance premiums for business owners or officers are typically not deductible.

Final Thoughts

Navigating what’s deductible—and what’s not—can feel overwhelming. But with a solid understanding of the rules and a commitment to good recordkeeping, business owners can take full advantage of what the tax code allows. When in doubt, consult a qualified tax professional to ensure you’re making the most of your eligible deductions while staying in the IRS’s good graces.

At Cordell, Neher & Company, PLLC, we specialize in helping you maximize your deductions, and minimize your stress. Partner with our expert tax professionals and let us turn complex tax rules into real savings for your business. Reach out to our team to learn more about how we can support your business. Contact us at cnccpa.com or call (509) 663-1661. We’re here to provide you with a complete financial team in your corner.