Business Expenses- What Can You Write Off?

Business expenses and what can be included in them is a massive subject and opinions on what qualifies as an expense can vary greatly. The problem here is that, for somebody that runs their own business, an individual has certain tax liabilities to consider and some will use expenses as a way to reduce that all important tax bill. This takes us into a rather shady area with loopholes and uncertainty, but there are a few basic rules that should be adhered to at all times. Failure to do so could easily lead to major problems not only for your business, but also you on a personal level as well.

The Definition Of A Business Expense.

The main definition of a business expense is something that has to be bought directly for the business itself. That does not include your own salary or anything that you could be taking out if the business on a personal level or for your own gain. If you thought that buying yourself a new outfit for a business meeting was included, then think again.

This means that equipment, vehicles, travel expenses, and even a business lunch can, in theory, be put down as a business expense. The size of the bill is not important, as there is certainly the idea that it can and does add up to quite a substantial sum over the year, and that is why you have some clever business people that will even claim for basic stationery that is only costing them $2. Is it because they are misers and are tight when it comes to spending money? Not at all, but instead they are being shrewd and playing the system that has been set up by the tax authorities and of course anything that can be beneficial to your business has to be a good thing, doesn’t it?

Business Expenses And Tax.

We have already mentioned the link between business expenses and your tax bill, but it is worth discussing it in greater detail. The tax bill for your company is worked out by looking at both your income and expenditure to then decide if you have made a profit or a loss. The amount of tax that you then pay on your profit varies depending on the actual figures themselves and this is where business expenses can make a real difference.

By keeping receipts of everything that can be seen as being paid out in order to benefit the business, you will of course increase your expenditure and profits will fall. This is important as this drop in profit can potentially move your business into a lower tax bracket, so the percentage that you are liable for will be reduced. This, in some instances, can lead to a substantial saving and really work to your benefit especially when you then consider that you have also been able to purchase everything that your business needs in order to operate.

Are There Any Limits? 

The quick answer here is no there are no limits as long as the items you purchased are clearly for the business and not for yourself. The only other limitation that you will have is the amount of money that is available in your account, but then that has nothing to do with business expenses.

The problem with creating a comprehensive list of what can be included as a business expense is the way in which different types of businesses clearly need various items in order to operate. An import business may spend money sending staff abroad with flights and hotel bills to pay, but a small local tradesperson will be focused more on materials, equipment, and fuel to get around.

This is where a good accountant can prove to be worth their weight in gold as they can look at your expenses and really make them work for you. However, they will also be able to advise you on what should be left out due to it being an unreasonable expense.

What we are saying here is that the idea of business expenses should not be abused, but at the same time a careful understanding of how they can make a difference to your profit is also extremely important. The main thing to keep in mind is that you are unable to claim for anything that is clearly for your own personal use although obviously you can still benefit from use of a vehicle as well as a host of other things. If you are in any doubt as to what constitutes a business expense, then talk to your accountant as they are the absolute experts and will advise you accordingly.