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Investment Planning |
Business Expenses for the Self-Employed
Here's a list of common business expenses you'll list on your individual tax return if you have an unincorporated business:
- Advertising
- Car and truck expenses (you can take the higher of actual miles driven or actual expenses, including gas, oil, tires, maintenance, insurance, etc.)
- Commissions paid
- Insurance (other than health)
- Interest expense paid to banks for equipment or real estate loans
- Internet service provider
- Legal and professional fees
- Office expense
- Pension and profit sharing plans
- Postage
- Rent - vehicles, machinery, equipment
- Rent - office space
- Repairs and maintenance
- Supplies
- Taxes (other than income taxes)
- Telephone
- Travel
- Meals and entertainment
- Utilities
- Wages
If you're a self-employed business owner, certain costs, such as supplies, telephone calls, and wages can be deducted against your business income in the year you pay them. However, expenses incurred for purchasing property must be depreciated over several years. Each piece of equipment you purchase will have to be reported separately on your tax return. You'll list the item's description, the date purchased, and the cost on your return.
Depreciation is the method you must use to deduct the cost of property on your tax return over several years. However, if you qualify, you can elect to deduct the entire cost in the year the equipment or property is purchased. The election falls under Internal Revenue Code Section 179 and is sometimes referred to as a Section 179 deduction. In 2009, the maximum amount of Section 179 deduction is $250,000 per year, generally increasing each year. This maximum amount is reduced by a dollar for each dollar of the cost of qualified property placed in service during the tax year over $800,000. Also, the total cost of property expensed for any year can't be more than your taxable income derived from the business.
Computers and furniture are a few of the more popular types of property that is expensed in the year it's purchased. Real estate does not qualify for the Section 179 deduction.
Refer to IRS publication 946 and IRS Form 4562 to learn more about depreciation. You can find these at the IRS website.
Tips Disclaimer
These tips contain information that may change over time as a result of new tax legislation. Although we make efforts to keep this information current, you should check with your tax advisor before taking action based upon any information contained in these tips.