39 Business Expenses You Need to Track

The first rule of business tax deductions is that your expenses must be “ordinary and necessary.” You can dive into the IRS’s playbook to get a deeper understanding of what they mean by those terms, but the definitions break down like this:

• Ordinary - An expense that’s common and accepted within your industry.
• Necessary - An expense that’s helpful and appropriate for your business or trade. It’s important to note that it doesn’t need to be considered indispensable to be deemed necessary. 

While you can argue that everything that you’ve spent on your startup is absolutely essential, not everything on your list will be 100% deductible.

There are definitely some common expenses that almost every business owner can claim. However, there are some that only apply if you’re a sole proprietor, working from home, just starting your business, or looking to grow.

Basic expenses for everyone:

Regardless of the size of your company, you should be tracking the following common business expenses, as they're the most frequently claimed deductions:

1. Rent/Mortgage Payments
   
   If you rent office space, or commercial space for inventory storage, it’s deductible.If you have a commercial mortgage, or have taken out a loan for business improvement/expansion, only the interest will be tax-deductible.
   
   
2. Salaries & Other Compensation
   
   Employee salaries, gross wages, commissions, bonuses, and any other forms of compensation count as a tax-deductible expense. The only caveat is that the amounts paid should be considered reasonable.
   
   
3. Office Expenses & Supplies
   
   Any office supplies that are purchased for the needs of the office can be deducted. This can include cleaning products, paper, stationary, envelopes/packaging materials, writing materials, and even snacks and drinks.The office expenses category covers costs related to the operation of your business, such as software, hosting, etc.
   
   
4. Telephone & Internet
   
   Whether it’s for commercial space, a home office, or cell phone plans, you should definitely include telephone and internet costs in your deductions.
   
   
5. Utilities
   
   If you’re listing expenses for a commercial space, then costs like  electricity, internet, sewage, trash, water, A/C, etc. are all fully deductible.
   
   If you’re working from a home office, then you can deduct a portion of these costs, based on the percentage of your home that’s being used for the business.
   
   
6. Credit Costs & Fees
   
   Since you pay interest on any borrowed money or lines of credit, such as a business credit card, you can claim that interest as a business expense.
   
   
7. Bank & Collection Fees
   
   Any banking fees on business accounts, such as minimum balance fees, overdraft fees, business transaction fees, payment processing fees, etc. can be used as tax deductions. Just make sure you're using a dedicated business bank account.
   
   Otherwise, it could be difficult to maintain accurate records of what you're spending from your business finances, and what should be coming out of your personal finances.
   
   
8. Dues & Subscriptions
   
   Any subscriptions to relevant industry publications can be deducted.
   
   All membership fees to professional or trade associations that help promote your business can be deducted as well.
   
   
9. Insurance
   
   You can deduct premiums for business-related insurance, such as malpractice, real estate, workers’ compensation, and business liability insurance.
   
   However, when it comes to car insurance, there are 2 ways to report these expenses for a deduction.
   
   
   1. Standard Mileage:
      
      If you use the same car for business and personal needs, you’d base your claim on mileage. In 2020, the rate was $0.575 per mile. On the plus side, tolls and parking fees are fair game.
      
      
   2. Actual Vehicle Expenses:
      
      This includes premiums, repairs, depreciation, gas, lease payments, tires, and tolls/parking fees.
      
      
10. Maintenance & Repairs:
    
    This applies to your workplace, equipment/machinery, and your fleet of vehicles, if you require one for your business.
    
    
11. Employee Benefit Programs
    
    Payments made towards benefits for you and your employees, such as disability insurance, life insurance, dependent care assistance, and health plans are tax-deductible.
    
    
12. Postage & Shipping
    
    This includes stamps, freight, postage fees, and prepaid shipping fees on returns.
    
    
13. Printing
    
    Ink cartridges, printers, or printing services that you’ve contracted are all eligible business expenses.
    
    
14. Travel
    
    As long as it’s business-related, you can claim travel expenses. This includes flights, hotels, and meals.
    
    If you’re travelling for an interview, those costs can also be included.
    
    
15. Website & Software expenses
    
    While website and software expenses could be included with your office expenses & supplies, you can also deduct it separately.
    
    Any hosting, bookkeeping software, or SaaS subscriptions used for business purposes, are tax-deductible.
    
    
16. Furniture, Equipment, & Machinery
    
    Any business purchase that is expected to last longer than a year is considered a business asset, rather than an expense. This would be items such as desks, laptops/computers, machinery, and POS systems.
    
    Deductions for these items are treated differently. You can either deduct the entire cost of the asset in the year it was purchased, or you can deduct the cost of its depreciation.
    
    
17. Advertising costs, both online or offline
    
    The cost of items and services purchased to directly promote or market your business can be claimed. This can be fees paid to an advertising agency, and the marketing they do on your behalf. It could also be anything that you personally spend to promote your business.
    
    
18. Continuing education
    
    Are you taking courses that can further your education or applicable skills in your industry? Tax-deductible items include: relevant materials, books, registration fees, course fees, as well as reimbursement payments made to employees, for their own relevant educational expenses.
    
    
19. Events, promotions, trade fairs, etc
    
    Hosting events and attending conferences or trade shows are a cost of doing business. This can be claimed in addition to your travel, accommodation, or food expenses.

Additional Expenses:

The following expenses also qualify as deductibles.

20. Business Meals
    
    For business meals, only 50% of the cost of food and drink is deductible, and it has to be related to your business.
    
    
21. Business Use of Your Car
    
    Alternatively, if it’s for both business and personal, then you can claim the mileage related to the business uses.
    
    
22. Depreciation
    
    For large items, such as machinery or a vehicle, you can deduct depreciation of its lifetime value, rather than deducting its entire cost during a single tax season.
    
    
23. Charitable Contributions
    
    Any charitable contributions made to eligible organizations are tax-deductible.
    
    
24. Foreign Earned Income
    
    If you're based abroad, you might be able to leave foreign earnings off of your tax return, provided you meet the requirements. This is known as the Foreign Earned Income Exclusion.
    
    
25. Client Gifts
    
    These could be gift cards or holiday baskets for clients, vendors, or even employees.
    
    
26. Child/Dependent Care
    
    Qualified costs relating to child or dependent care are tax-deductible, as long as you meet the IRS’ requirements.

If you’re a start-up: 

You should add these expenses to your overall list above. Don’t forget to include your basic expenses and additional expenses, as well.

1. Start-up Expenses

   If you’re launching a new venture, you might be able to deduct up to $5,000 in start-up expenses leading up to the launch. This can include costs associated with marketing, employee training, or business materials.
   
   

2. Licenses & Permits

   The cost of any required business licenses or permits can be deducted from your taxes. This can include building permits, licenses to practice in your state, etc.
   
   

3. Legal & Professional Expenses
   
   This category includes fees paid to certified public accountants (CPAs), financial planners, lawyers, and any other hired professionals.
   
   
4. Manufacturing & Raw Materials
   
   Anything related to the cost of manufacturing products for sale can be expensed.
   
   
5. Brand Identity (i.e., logo, etc.)

Similar to advertising cost deductions, anything you spend to develop your wordmarks, logo, or brand identity can be submitted as a deductible expense.

If you’re scaling up:

Expansion is expensive. These are some things that you can deduct, while you’re growing your business.

32. Moving Expenses
    
    For any work-related moving expenses, you can deduct 100% of the related costs. The only rule is that the new location must be at least 50 miles from your previous one.
    
    
33. Hiring
    
    Any costs incurred for recruitment, human resources, and software solutions to assist with the hiring process can be claimed as a business expense.
    
    
34. Brand Positioning & Trademarks

When you expand, you need to modify your brand positioning and licenses. This expense is tax-deductible.

Be mindful that expanding into new geographical areas and scaling your business may require a new set of licenses and additional insurance costs and other legal expenses.

Home office &  work-from-home expenses:

This applies to anyone working remotely or from a home office. With all the shifts to remote work over the last couple of years, many are seriously reconsidering going back to the office. Whether you only work from home, or you’re implementing a hybrid model, how much you spend working from your home will affect your deductions.

35. Mortgage Interest
    
    If you’re working out of your home, you’ll be able to deduct the interest incurred from your mortgage loan.
    
    
36. Medical Expenses 
    
    If you’re self-employed, and you pay for your own medical expenses and insurance premiums, you can deduct these expenses as well. This includes doctor’s fees, prescription drugs, and assistive devices like crutches.
    
    
37. Repairs
    
    Any improvements or repairs done to increase the efficiency of your home office space could be tax-deductible.
    
    
38. Real Estate Taxes
    
    Any taxes paid towards your home office should be itemized, and included with your other deductions.
    
    
39. Retirement contributions
    
    You can reduce your taxable income, if you’re contributing to a tax-advantaged account, such as an IRA or 401k.
    
    You can also include business travel, food, and vehicle expenses as a self-employed worker.

Track everything: