What Expenses Can I Deduct as a New Business?

November 30, 2012 by Ed Becker

New business owners want to sleep soundly at night, but sometimes an endless array of questions circles in their heads as they prepare the logistics of operating a new business.

Typical questions that startup business owners ask are:

• What type of entity do I set up?
• Where do I incorporate?
• Can we hire subcontractors?
• Does my personal CPA handle businesses?
• Can I now lease an automobile?
• How do I file payroll returns?
• What type of insurances do we need?
• What happens when I travel?
• Can I pay wages to my wife?
• and the list goes on and on.

In this post, I will address the question, “What expenses can you deduct as a new business?”

In general, any expense you incur on behalf of the business is deductible.  This requires common sense when paying items that are business related and you should not abuse this.  If you are ever audited, IRS agents will spot the misuse of deductions and this alone may cause them to expand the scope of what the look at.  Why get yourself into trouble over a small deductions, is it really worth he risk?

Here is a sample list of items you can deduct, and there are many others as long as they have a business purpose:

1. Insurance (workers compensation, liability, etc)
2. Travel costs (hotel, rental car, parking, etc)
3. Office supplies
4. Computer expenses
5. Software
6. Professional fees (legal and accounting)
7. Telephone
8. Meals and entertainment
9. Direct costs (materials, subcontractors)
10. Wages and payroll taxes
11. Subcontractors (make sure you file 1099’s for these)
12. Dues
13. Licenses and permits

If you are unsure, the best approach is to ask your CPA or advisor on what is allowed.  A few minutes of planning can save you many headaches down the road. OSYB, as a service to its clients does a complete file review to look for expenses that are questionable and advises clients on how to best handle these cases based on the business purpose of each. Over the years, our recommendations have saved our clients money and allowed our clients to sleep well at night.