"Ordinary and Necessary" Business Expenses

Typically, all "ordinary and necessary" business expenses can be deducted from your business income when filing your business tax return. Such deductions may include business travel, office and/or computer equipment, attorney and accounting fees, delivery costs, utilities, and rent. These are items that are necessary to properly conduct your business. Mileage accrued for business-related travel can also be deducted at the current rate of $0.445 per mile.

Keep a careful record of your expenses, and have backup material on hand for documentation whenever possible. If you have incurred expenses that are both business and personal in nature, such as a trip that was for both business and personal reasons, you can deduct a portion of those expenses. Use discretion when determining what portion of the total expense was business-related. Make sure to document all such expenses.

The steady rise in home-based businesses has created some gray areas regarding business deductions. As is generally the case, you need to be able to justify each deduction in the event a tax auditor should question it. If you conduct business from a home-based office, for example, you can claim a deduction for the portion of your home that's being used for business purposes. Accordingly, you can also claim a percentage of your utilities, phone bill, and other related costs such as Internet service used for business purposes. Save your bills, and show the percentage you used as a business expense.

For all deductions you'll want to maintain a paper trail including receipts listing the date, name of the person or business receiving the payment, the total amount paid, and the category of business expense.