Beginner’s Guide to Business Expenses

Introduction

Starting a business is exciting — the first sale, the first client, the first time you feel like it’s real. But with that excitement often comes confusion: what counts as a business expense, and what doesn’t? If you’re a sole proprietor, small LLC, or brand-new business owner, understanding expenses isn’t just about tax savings — it’s about protecting your business, managing cash flow, and staying on the right side of the IRS.

Getting this right can save you money on taxes, keep your records clean, and help you avoid headaches if the IRS ever comes calling. This post is the first part of my Small Business Finance & Tax Series, where we’ll walk through the basics of expenses and tax deductions and strategies that can help small businesses produce profits and save money on taxes.

What Are Business Expenses?

Business expenses are the ordinary and necessary costs of running your business. “Ordinary” means common and accepted in your industry. “Necessary” means helpful and appropriate for your work.¹

Think of it this way: if you need it to run your business or to generate income, it probably counts as a business expense.

Why Business Expenses Matter

Business expenses reduce your taxable income, which directly lowers your tax bill.

Here’s a simple example:

Your business earns $60,000 in revenue.
You record $15,000 in deductible expenses.
You’re only taxed on $45,000.

At a 22% tax rate, that’s roughly $3,300 in tax savings — just by tracking expenses properly. Certainly, we don’t want to spend money to save money on taxes, because that’s just playing a losing game – spending a dollar to save 22 cents doesn’t make much sense. That said, if you already incurred the expense–whether you know it or not–we should take every opportunity we can to deduct it. Now that we understand why tracking expenses matters, let’s go over some common and uncommon known business expenses.

Commonly Known Business Expenses:

Chances are, if you own a business, you’re familiar with the list of expenses below, but just in case you aren’t, let’s go over them real quick:

Rent – Office rent, land rent, equipment rent, coworking space
Utilities – Internet, electricity, propane, water
Bank Fees – Monthly bank account fees, credit card processing fees.
Supplies – Everyday items like pens, paper, or packaging materials.
Equipment & Furniture – Computers, printers, desks, chairs, power tools. For larger operations, tractors or other heavy machinery, vehicles, medical devices, and so much more.
Advertising & Marketing – Paid ads, website hosting, business cards, social media campaigns, and event sponsorship.
Payroll & Benefits – Employee wages, salaries, and benefits, and taxes.
Insurance – Liability, health insurance (for employees), property insurance, and crop, hail, and livestock insurance for the farmers out there.
Repairs & Maintenance – Fixing equipment, maintaining office space.
Property Taxes – On property owned by the business.
Cost of Goods Sold (COGS) – For product-based businesses: raw materials, packaging, direct labor, and manufacturing costs.

Less Commonly Known Business Expenses:

These often get overlooked, but they’re just as legitimate to the operations of your business:

Software & Subscriptions – QuickBooks, Canva, Microsoft 365, Zoom.
Legal & Professional Fees – CPA services, attorney consultations, consultants.
Travel & Vehicle – Flights, lodging, business mileage (tracked by IRS standards–there are lots of apps out there that can help with the tracking of business mileage).
Home Office – A dedicated space in your home used exclusively for business.
Training & Education – Courses, certifications, industry-specific conferences.
Meals – Business-related meals, like taking a client to lunch or a dinner meeting with colleagues, or snacks and other goodies provided on site for clients to have at no charge to them.

What NOT to Expense

Expense Category	Deductible Example	Not Deductible Example
Meals	Lunch with a client, snacks for customers	Your own dinner after working late
Travel	Flights & hotel for a client meeting	Family vacation with a little work on the side
Home Office	Dedicated office room used only for business	Kitchen table or shared living space
Property Taxes	On commercial office property	On your personal home or car
Personal Expenses	Specialized uniform or safety gear	Gym membership, daily coffee, normal clothes
Software & Subscriptions	Quickbooks, Zoho, Wix, Square, etc	Audible, spotify, youtube, etc*
Legal & Professional Fees	Entity creation, tax preparation, product lawsuit, etc.	Estate planning, creation of will, trust, or estate, etc.

*Depending on business industry some of these may be considered deductible.

Some items feel “gray area” but are not deductible as business expenses. Here are common mistakes:

Meals – Grabbing takeout for yourself isn’t deductible, even if you were working late.
Travel – A family vacation doesn’t count, even if you checked emails while away.
Home Office – The IRS requires the space to be exclusive for business — your kitchen table doesn’t qualify.
Property Tax – You can’t deduct personal property taxes (like on your home or car) unless they’re tied directly to business use.
Personal Expenses – Gym memberships, personal clothes, or your daily coffee run don’t qualify unless directly tied to your business (and even then, it’s rare).
Legal & Professional Fees – Creating a trust or a will are legal expense, but unfortunately, it doesn’t qualify for business deductible expenses.
Software & Subscriptions – Audible, Spotify, cable, YouTube, and many other streaming or audio platforms do not count as business deductions. Depending on the industry you are in, there’s a chance a portion could be deductible, but generally, there’s not a 100% deduction for these unless they are on a business account and solely used for business

This isn’t an all-inclusive list of expenses, as there are many other expenses that fit under each of these categories and just more expenses in general, but hopefully these provide you comfort that you are recording the proper expenses or spark ideas for expenses that you should be including. Again, anything that is ordinary for your industry and necessary for operations can be deductible for tax purposes, but if personal reasons are the primary reason for the expense, then in the IRS’s eyes, it is not deductible. If you’re ever unsure, the best defense against the IRS is documentation — keep receipts, notes about the business purpose, and clear separation from personal spending.

How to Track Business Expenses

Keeping track of expenses doesn’t have to be complicated:

Separate accounts – Open a dedicated business bank account and credit card to collect your income and pay your expenses through.
Keep receipts – Digital copies are fine (apps like Expensify, Wave, or QuickBooks help).
Stay organized – Use accounting software or spreadsheets to log expenses monthly. There are a lot of useful accounting software available for reasonable prices–we’ll go over some of these in a future post.

Good record-keeping makes tax season smoother and gives you a clear picture of your business’s health to help you make smarter financial decisions for the future of your business.

Wrap-Up

Understanding what counts as a business expense is one of the most powerful tools for new business owners. Not only does it save you money on taxes, but it also gives you confidence that you’re running your business the right way.

This is Part 1 of the Small Business Finance & Tax Series. In Part 2, we’ll dive deeper into some tax planning tips, including advanced deductions like depreciation, Section 179, and how to handle large purchases.

– Brendan Tiedeman, CPA

1 – IRS Publication 535 was discontinued after tax year 2022. Many of its topics, including what are “ordinary and necessary” business expenses, are now found in IRS Publication 334 (“Tax Guide for Small Business”) and related IRS “Business Expense Resources.” The legal standard still comes from Section 162 of the Internal Revenue Code. All these are readily available on the IRS website.