Ordinary expenses are typical expenses associated with the type of business, and necessary expenses are costs that are applicable and helpful. Business expenses are separate from:
Capital expenses are part of your business investment, and are treated as assets. Startup costs, business assets, and improvements are capital expenses.
Cost of Goods Sold
Tax law legitimizes the acquisition of wholesale product to sell for your business, but specific tax requirements apply, regarding the calculation of cost of goods sold, and the deduction of expenses associated with resale. Generally, the determination of cost of goods sold requires performing a beginning and ending tax year inventory. Cost of goods sold is calculated by adding the beginning inventory plus inventory purchases, and then subtracting the ending inventory amount.
For expenses that are used for both business and personal reasons, the business portion can be deducted.
If your business is home based, portions of the expenses may be deducted, including: Mortgage interest, Utilities, Repairs, Insurance and Depreciation.
If vehicle is used for business, the expenses can be deducted. If the vehicle is used for both personal and business reasons, business deductions are calculated using mileage.
Other Business Deductions include:
- Employees’ wages
- Retirement plans
- Books or magazines about your field
- Industry training programs or materials
- Work-related travel
- Client entertainment
If you are considering starting up your own business, there are some great tax benefits available. Don’t miss out. Knowing the applicable tax law will give your new business a huge advantage.
This article has been edited and condensed.
Brian Cleg helps small businesses build a healthy financial future by using proven financial practices. He is the founder of Brian Cleg Solutions, a Salt Lake City Utah based financial advisement firm. Connect with @BrianCleg123 on Twitter.
© YFS Magazine. All Rights Reserved. Copying prohibited. All material is protected by U.S. and international copyright laws. Unauthorized reproduction or distribution of this material is prohibited. Sharing of this material under Attribution-NonCommercial-NoDerivatives 4.0 International terms, listed here, is permitted.