What Are Business Expenses?

February 19, 2022
Published by Gonzales Group CPA

As much as you may wish it to be, not every expense that has to do with your business qualifies as a business expense. Still, there are plenty of business expenses that you can claim and a quality San Antonio CPA like Gonzales Group CPA can help you determine your particular business’s official expenses. Still, this should help you understand some of the basics of the three main categories of business expenses.

Broken down to the most basic level, business expenses are the costs of starting and running your business. Your business expenses are subtracted from your revenue, and the remaining money is your net taxable income.  However, what counts as a business expense isn’t always so simple. For the IRS, they want to see your expenses broken down into three categories: fixed, variable, and periodic.

Fixed expenses are fairly straight forward. They’re an amount that stays the same – or nearly the same – every single time you pay it. Think along the lines of rent, internet, phone, and similar contract-type expenses.

Variable expenses are pretty much what the name says. These are ones that change from month to month and can often be big parts of your expenses. If you offer overtime or use freelancers sporadically, or if you have to rent a space for a few days or equipment for some reason, then these are variable because they’re not happening every month and aren’t necessarily expected. Some may be expected, but the amount, such as overtime, may not be pre-determined.

Variable expenses aren’t expected, but the final category, periodic expenses, are more typically expected, or at least you have a better idea of what they will be. For example, you may need to renew licenses for vehicles or even for your own business practices. You may also need to make upgrades and/or repairs to equipment. This may not be regular, but you know at some point at least maintenance will need to be done. It’s a good idea to check past yearly statements to see what some of these periodic expenses are so you can be better prepared for them and not let them come as a surprise.

Most of the expenses related to running your business will fall under one of these categories and can be deducted. However, more personal expenses, such as country club memberships where you may wine and dine customers and potential customers are not deductible. Neither are gifts over $25. There’s a legal difference between advertising and schmoozing, so be sure you know the difference.

There are some personal expenses that occasionally can be deducted, at least in part. If you used your own vehicle for work, you can deduct it partially, as long as you keep detailed records of mileage and fuel costs.

It’s important to keep track of every penny coming in and going out of your business if you want it to succeed and definitely if you want to be able to make deductions come tax time. Keep detailed records, receipts, and invoices, keep separate bank accounts, and make sure you have a system in place for logging everything in and make sure you update it frequently, even daily, if necessary, when it comes to car usage or even internet usage at home, if you’re using it for work purposes.

To be sure you’re keeping track of your expenses and claiming the right ones and not missing out on possible deductions, consider hiring a San Antonio CPA like Gonzales Group CPA. We can help you get organized and on track to better understand your finances, ultimately helping your business run more efficiently and hopefully successfully.

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This post was written by Gonzales Group CPA