As a self-employed taxpayer, you’re allowed to deduct expenses that are ordinary and necessary for your business.
Ordinary business expenses: common and accepted in your industry
Necessary expenses : helpful and appropriate for your trade or business.
Example: Lumber for a carpenter
Why? The expense is common and accepted for the industry, and the expense is necessary for this trade or business because lumber is both a helpful and an appropriate expense.
Generally, many business expenses are clearly business expenses. Businesses need to pay rent for their office, pay for inventory to sale, and pay taxes and required business licenses. Clear cut business expenses can usually be adequately documented with a receipt, a cancelled check, or the expense on businesses credit card statements. Further documentation like tax documents or physical business licenses can be helpful as well.
Keep good records! Include all your business income, expenses, and activities!
Receipts, bank statements, canceled checks, and credit card statements prove what money was earned and the expenses that were paid.
Business mileage as well as meals and entertainment expense activity logs prove that your expenses were business related.
Photos, work appointment schedules, and business address records can help document your home office expenses.
You should consider using accounting software, mileage log smartphone apps, and scheduling software to make your record keeping as organized as possible.
Look at how to track different common business expenses in the articles below:
How to Take Advantage of Home Office Expenses
How to Track Business Meal or Entertainment Expenses
How to Track a Personal Vehicle as a Business Expense
