Small business owners are often hands-on in all parts of their business. This is often out of necessity—when you’re first starting out, hiring help may be outside your budget. Often, this means learning important tasks, such as managing your business finances, on the fly.
Business expenses are one area where many small business owners often gain on-the-job experience. Learning what a true business expense is and how they affect your tax liability can play a big part in helping your business become profitable.
What are business expenses?
Business expenses are costs associated with running a business. This includes anything from rent and utilities to payroll expenses and small business insurance costs. Business expenses can be fixed (they don’t change) or variable (they often change).
These expenses play a part in how profitable your business is. It’s important to accurately record all business expenses, so you can know whether you have a net profit or loss during a given period.
A list of common business expenses
There are many different types of business expenses you may encounter as a small business owner. This is a list of the most common you might see in any industry.
Everyday operations
Rent or mortgage payments – If you are working someplace other than your home, you will likely need to pay rent or a mortgage on your work premises.
Utilities – This is the electricity, water, and gas needed in your place of work. It might also include phone lines, cell phone plans, and internet connection.
Office equipment – Even a small home office may need equipment. This includes computers, printers, and copiers, along with office supplies, like paper and pens.
Advertising and marketing – In order to succeed, you’ll probably need to communicate with your current and potential customers. These expenses might include hiring a creative agency to make an ad, paying for ad space, building a website, or SEO research.
Legal requirements
Payroll costs – There is more to these expenses than your employees’ wages. They also include employee benefits (such as health insurance or 401K contributions) and payroll taxes.
Small business insurance – If you’re putting in the time and money to build a business, you probably want to protect it. Business insurance can create a safety net to do just that. Some types of insurance, such as Workers’ Compensation, may be a legal requirement for your business.
Business fees – There may be special costs associated with running certain types of businesses. This includes professional licenses, permits, and subscriptions.
Banking & Finance
Taxes – These are the various business taxes assessed at the state (if applicable to your area) and federal levels, including income tax and sales tax.
Loan payments – Repayments on any business loans you have taken out are considered a business expense.
Interest payments – The interest paid on your business loans might also be part of your expenses.
Can I deduct business expenses on my taxes?
Some business expenses are deductible when you file your taxes. These deductions can help lower your tax liability. According to the IRS, businesses can deduct an expense if it is both ordinary (common to your business) and necessary (helpful and appropriate to your business).
Depending on the expense, you may be able to deduct the full amount or a portion of it. Other business expenses cannot be deducted at all. An accountant can help you understand deductable and non-deductable business expenses for your business.
Quick tips for managing business expenses
Managing your business expenses is an important part of keeping operations running smoothly and avoiding issues down the track. Here are five tips to help you better manage business expenses:
- Keep your business and personal finances separate – Things get complicated when business and personal finances are comingled. Separating the two makes tax filing and reporting easier and clearer cut.
- Make a budget (and try to stick to it) – Careful budgeting can help your company become and remain profitable.
- Keep good accounting records – Always get a receipt when you make a purchase, and always send an invoice when your request a payment. This makes it easier to reconcile your budget, file taxes, apply for loans, and other important financial tasks.
- Stay on top of tax deadlines – Missing a deadline could result in fines and penalties or an audit.
- Hire an accountant – Professional help might save you a few headaches! An accountant can help with all the above when it comes to your business finances.
Protect what you’re building
Carefully managing your business expenses can help your small business become a profitable success. All this hard work is worth protecting with business insurance. The premiums paid on business insurance policies are typically deductible, which could reduce your tax liability while providing you with an important safety net.
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