Business expenses are the cost of carrying on a trade or business.
These expenses are usually deductible if the business is operated to
make a profit.
What Can I Deduct?
To be deductible, a business expense must be both ordinary and
necessary. An ordinary expense is one that is common and accepted in
your trade or business. A necessary expense is one that is helpful
and appropriate for your trade or business. An expense does not have
to be indispensable to be considered necessary.
It is important to separate business expenses from the following
The expenses used to figure the cost of goods sold,Capital Expenses,
and Personal Expenses.
Cost of Goods Sold
If your business manufactures products or purchases them for resale,
you generally must value inventory at the beginning and end of each
tax year to determine your cost of goods sold. Some of your expenses
may be included in figuring the cost of goods sold. Cost of goods
sold is deducted from your gross receipts to figure your gross profit
for the year. If you include an expense in the cost of goods sold,
you cannot deduct it again as a business expense.
The following are types of expenses that go into figuring the cost of
The cost of products or raw materials, including freight Storage
Direct labor costs (including contributions to pensions or annuity
plans) for workers who produce the products Factory overhead.
Under the uniform capitalization rules, you must capitalize the
direct costs and part of the indirect costs for certain production or
resale activities. Indirect costs include rent, interest, taxes,
storage, purchasing, processing, repackaging, handling, and
This rule does not apply to personal property you acquire for resale
if your average annual gross receipts (or those of your predecessor)
for the preceding 3 tax years are not more than $10 million.
For additional information, refer to the chapter on Cost of Goods
Sold, Publication 334, Tax Guide for Small Businesses and the chapter
on Inventories, Publication 538, Accounting Periods and Methods.
For more information, contact Elite Bookkeeping & Tax Services at (800) 416-3820 or (775) 884-6188 Address: 123 West Nye Lane, Suite 103, Carson City, NV 89706. Visit our website at www.elitebookkeeping.biz