Business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business is operated to make a profit.
|What Can I Deduct? |
|To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary |
|Cost of Goods Sold |
|If your business manufactures products or purchases them for resale, some of your expenses may be included in figuring the cost of goods sold. |
You deduct the cost of goods sold from your gross receipt to figure your gross profit for the year.
If you use an expense to figure the cost of goods sold, you cannot deduct it again as a business expense.
The following are types of expenses that go into figuring the cost of goods sold.
The cost of product or raw materials, including the cost of having them shipped to you.
The cost of storing the products you sell.
Direct labor costs (including contributions to pensions or annuity plans) for workers who produce the products.
Factory overhead expenses
You must capitalize, rather than deduct, some costs. These costs are a part of your investment in your business and are called capital expenses. There are, in general, three types of costs you capitalize.
Going into business.