Hi, I’m Bette Hochberger, CPA, CGMA, and today I will discuss how to categorize your business expenses. It can be a struggle to track all your expenses, which is why breaking them down into categories is important. It allows you to see what your funds are being used for and make better business decisions.

Categorizing your business expenses can have significant benefits, including a better understanding of which expenses you can and cannot deduct. If you have a bookkeeper or tax preparer to handle your taxes, organizing your expenses using a chart of accounts can save you valuable time and money regarding income tax preparation.

The specific types of expenses you can deduct will depend on various factors, such as your industry and whether you work from a commercial office space or your home office. However, there are some standard business tax deductions that you may be eligible for. Here’s a list to consider:

  • Rent
  • Salaries
  • Advertising
  • Startup costs
  • Depreciation
  • Insurance and employee benefits
  • Business Insurance
  • Licenses or permits
  • Continuing education
  • Supplies and office expenses
  • Maintenance and repairs
  • Vehicle use
  • Professional fees
  • Utilities and telephone costs
  • Dues and subscriptions
  • Business travel and meals
  • Shipping costs
  • Loan interest

When it comes to business expenses, only those that are essential for the operation of your business are considered deductible by the IRS. To meet these criteria, these expenses must be ‘ordinary and necessary.’

However, if an expense is not deemed necessary for running the business or falls under any of the following categories, it will not be tax deductible:

  • Lobbying expenses
  • Political donations
  • Traffic tickets
  • Clothing for work
  • Commuting to and from the office 
  • Entertainment expenses
  • Business gifts exceeding $25
  • Travel expenses for companions (unless employees)
  • Anything illegal 

So, now that we’ve gone over the basics, how do you track your business expenses? With a little organization and time, here’s how:

  •  Have a separate bank account. Instead of having one personal and one business account, create a separate business bank account and only use it for business transactions. This includes getting a business credit card.
  • Keep digital copies of receipts. Make it a habit to scan all business receipts; it may seem like a lot of work, but it’s worth it in the long run.
  • Seek help from a tax professional. Many CPAs help with bookkeeping, which can be useful when keeping track of business expenses.

I hope you learned something new today. If you need help with tracking your business expenses, feel free to schedule a meeting with me, and I’d be happy to help.

As always, stay safe, and I will see you next time.