Every cost associated with your business is likely to fall into a credit, deduction, or other category. But it can all be difficult to differentiate which goes where. Even your office coffee can be confounding to categorize. To help we offer this bookkeeper’s guide on how to categorize business expenses.

1. Learn About Schedule C

IRS Form Schedule C is for “profit or loss from business” if you are sole proprietorship, which many of our clients are. You can download the form here: https://www.irs.gov/pub/irs-pdf/f1040sc.pdf. A Schedule C form is divided into five parts:

  1. Income: from sales, gross receipts, and more.
  2. Expenses: About two dozen lines for how to categorize business expenses, which we will review more below.
  3. Costs of Goods Sold: costs for inventory, purchases, cost of labor, materials and supplies, and other items.
  4. Car or Truck Expenses: Business mileage goes here.
  5. Other Expenses: Costs from your business not covered by #2.

Did you know? Over 25 million tax returns per year are filed using Schedule C? Those who use this form include freelancers, rideshare drivers, consultants, contractors, and other small business owners. Source: Allied

2. Interest on Your Business

Many businesses pay interest on a regular basis. This includes for mortgages, loans, credit cards, equipment, and other lines of credit. It can be difficult to keep track of it all, and especially how much to claim on your Schedule C. You may use your statements, but we recommend a professional bookkeeper to help you get the maximum deduction for your interest costs.

3. Insurance – Health and Other

Any insurance associated with your business may also be deducted. This includes insurance such as automotive for company vehicles, property insurance, worker’s comp, and many types of liability insurance. However, health insurance is categorized differently – whether it is for yourself or your workers. Other employee benefits may also be categorized and deducted in a number of different manners.

4. Business Expenses Associated with your Office

This is line 18 of schedule C and most likely where you would categorize your office coffee, as well as your coffee maker (as long as it costs less than $200). It also includes pens, paper, postage, cleaning supplies, and any other small items you may find at an Office Depot.

5. How to Categorize Other Random Business Expenses

And this just begins to cover it. You can also deduct when properly categorized costs associated with promotional items such as online or print advertising, promotional materials, business cards, signage, and even your website. You can also deduct certain costs from your workers such as fees, commissions, and even work done by contractors. Professional services from legal to cleaning may also be categorized, as well as repairs, maintenance, license fees, travel, and even other taxes as allowed. As before, be sure to utilize your bookkeeper to make sure you are properly categorizing everything.

More on a Bookkeeper’s Guide on How to Categorize Business Expenses in Houston

Does your Houston business need help categorizing business expenses? Feel free to contact us to get a run down on what is and is not allowed, as well as much more.