Business Expense Deductions
Definition
Business expense deductions are costs incurred in the ordinary course of operating a business that can be subtracted from taxable income to reduce the overall tax liability.
Explanation
To be deductible, a business expense must be both ordinary (common in the industry) and necessary (helpful and appropriate for the business). Common deductible expenses include rent, salaries, supplies, marketing costs, insurance, and business travel.
Business owners must keep detailed records of all expenses. The IRS distinguishes between current expenses (fully deductible in the year incurred) and capital expenses (depreciated over time).
Example
A freelance graphic designer can deduct the cost of a new laptop, design software subscriptions, home office expenses, and a portion of internet service as business expense deductions.