Deductible vs. Non-deductible Business Expenses

Businesses can write off a variety of expenses as deductions on their taxes. However, not all expenses are created equal. There are two types of business expenses: deductible and non-deductible. Deductible business expenses are those that can be deducted from your business income when you file your taxes. This reduces your taxable income, and therefore reduces the amount of taxes you have to pay. Non-deductible business expenses are those that cannot be deducted from your business income. This means that they will be included in your taxable income, and you will have to pay taxes on them. It’s important to know the difference between deductible and non-deductible income in order to avoid problems at tax time. 

How Can I Tell if an Expense is Deductible? 

There are a few things to keep in mind when determining whether an expense is deductible or not. Deductible expenses must be incurred in the course of doing business and they must be reasonable in amount. For example, if you purchase a new computer for your business, the cost of the computer would be a deductible expense. However, if you purchase a new TV for your home office, the cost of the TV would not be a deductible expense.

Deductible business expenses are those that are directly related to your business. This includes things like the cost of goods sold, advertising, travel, and office supplies. Any expense that is considered necessary for your business can be written off as a deduction.

Non-deductible business expenses are those that are not directly related to your business. This includes things like meals and entertainment, car payments, and home office deductions. While these expenses may be necessary for your business, they cannot be written off on your taxes.

It's important to note that not all deductions are created equal. The amount you can write off for a deductible expense may be limited, while the amount you can write off for a non-deductible expense is not. For example, the IRS may limit the amount you can write off for meals and entertainment to 50% of the expense. 

It's important to understand the difference between deductible and non-deductible expenses if you want to minimize your tax liability. Deductible expenses offer more tax savings, while non-deductible expenses offer less tax savings. Talk to an accountant or tax specialist to learn more about which expenses are deductible and which ones are not.

Are Company Computers or Devices a Deductible Business expense?

Yes, computers and devices used for business purposes are tax-deductible. This would include items like a laptop, desktop, or tablet used to conduct business. However, you cannot deduct the cost of personal computers or devices that are also used for personal reasons. The devices must be exclusively used for business purposes.

What are Non-Deductible Business Expenses?

Non-deductible business expenses are those that cannot be used as a tax write-off. This includes expenses like entertainment, meals, and travel. These types of expenses are considered personal in nature and are not deductible. Business owners should be aware of these types of expenses to avoid accidentally claiming them as deductions.

Examples of non-deductible business expenses:

• Fines and Penalties
• Insurance
• Capital Expenses (the cost needed to launch a business)
• Personal expenses
• Business contributions
• Gifts up to $25
• Entertainment expenses
• Legal Fees

Consult a Tax Professional About Business Write Offs 

Business owners should be aware of the types of expenses that are tax deductible in order to maximize their tax savings. Consulting a tax professional is the best way to make sure you are taking advantage of all the deductions available to you. 

Our team at Sorge CPA can help you identify which expenses are related to your business and which ones can be written off. This can save you a lot of money on your taxes and help you keep more of your hard-earned money. Contact us today to learn more.