All expenses should be itemized by the department.

Many business expenses are tax deductible — that is, they are deducted from your taxable income. For example, if I spend $500 to fly to and attend a marketing conference, I owe $500 less in taxes that year. What’s the catch? To claim a deduction, you must keep a record of the expense.

Keeping, filing, and reviewing paper receipts was a time-consuming task in the past. Entrepreneurs today have it much easier. Software, apps, and cloud-based bookkeepers have simplified expense tracking and eliminated the need to keep hundreds of receipts on hand.

Now, let’s talk about the expenses and supporting documentation you’ll be in charge of. While we can’t cover every possible deduction, here are a few that you should keep track of. (Why? Because they are easily confused with personal expenses… and the IRS is well aware of this.)

  1. Marketing and advertising costs, such as business cards, website hosting fees, and paid social media ads.
  2. Business travel expenses, such as airfare, lodging, and rental vehicles.
  3. WiFi, equipment, and mobile phones are examples of home office expenses.
  4. Expenses associated with the vehicle, such as gas and mileage.
  5. Meals and entertainment like visits to restaurants, bars, or concerts (unless you don’t go to these events, in which case they would be considered Gifts).

We advise keeping the following records just in case you need to prove that you were responsible for these costs. (It’s best to keep everything.)

  1. Receipts both paper and digital
  2. Bank and credit card statement
  3. Bills (rent, utilities, mobile, wifi, etc.)
  4. Checks that were canceled
  5. invoices and paperwork proving payment
  6. Financial statements generated by your bookkeeper or accounting software
  7. Previous year’s tax returns
  8. Forms W-2, W-4, W-9, and 1099-MISC

Another common method is to separate operating expenses from selling, general, and administrative (SG&A) expenses.

SG&A and operating expenses

Some businesses combine operating (OPEX) and SG&A expenses, while others keep them separate (they can be combined on an income statement). It comes down to personal preference.

OPEX vs. SG&A costs: Here’s what you should know:

  1. The majority of a business’s expenses are typically operating costs, which include costs for your daily expenses (which is why many companies combine these expenses).
  2. The costs incurred in the production of goods and services, such as rent, utilities, insurance, inventory costs, salaries or wages, property taxes, or business travel, are known as OPEX and are not included in COGS.
  3. SG&A costs are incurred as part of routine business operations and are shown in income statements under “expenses”.
  4. Since they aren’t connected to a specific product, SG&A costs aren’t included in COGS and aren’t deducted from your manufacturing costs.
  5. Accounting and legal costs, ads and promotional materials, marketing and sales costs, utilities and supplies unrelated to manufacturing, corporate overhead—all of these are covered by SG&A if it is separated from OPEX.

The tax laws are very complex. Our short blog articles cannot cover in full all the nuances of the rules. Your specific facts may hold various opportunities and possible risks that only trained, experienced, and highly qualified tax specialists can spot. We encourage you to find such help, rather than trying to figure it all out on your own. Consider giving this marketplace a try by posting your project and signing up here.

If you are a licensed tax professional and are interested in helping others either part or full-time, or ad hoc, come on in! Happy to have you. Our marketplace has the full suite of tools to communicate with clients including compliance calendars, task and message management, and billing. You can also quickly connect to knowledgeable colleagues who can complement your services with the ones you do not provide. Register here.