Tax Deductions for Businesses

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By Travis Hill
eHow Contributing Writer

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Tax deduction falls under two categories: business expenses, and capital expenses. Business expenses involve money spent to keep the business running. Examples of this involve business travel, employee expenses and rent expense. Capital expenses involve money spent to purchase items needed to help the company make money. For example, a restaurant owner purchases a new dishwasher and grill. These items end up as assets that depreciate. This becomes depreciation expense, which is tax deductible.

Basic Requirement

A company's expense has to be normal and needed before the company tries to get it deducted. For example, if a car-wash business orders a Jacuzzi for the employees, the company won't be able to deduct its cost. This isn't a normal expenditure that a car-wash business gets involved with, and it's not something that improves car-washing. If that car-wash operation purchased carpet shampoo, that's a needed expense and they'll be able to deduct it. Personal expenses aren't tax deductible.

Home Office Deduction

People working from a room in their apartment or home can use the home office deduction. There are two types: regular and exclusive place of business, and principal place of business. Business owners using a room in their home just for their business can get tax deductions for that room. That includes that room's share of the light, water, heating, air conditioning and rent. If the person has an outside home office, but uses the home as the primary business location, they still get a tax deduction.

Travel

Businesses receive tax deductions for business-related travel. Travel covered includes transit to the business location; commute from the destination lodging to the business function and back; and meals. Tax deduction for meals is 50 percent. Business people can't take tax deductions for portions of their "trip" that have nothing to do with their business.

Other Expenses

If the car is only used for business, the business owner can get tax deductions for the car's expenses. If the business owner uses a personal car for both business and personal use, he can get a tax deduction on a percent of the car's expenses resulting from business use. Education (business-related), insurance, tax, employment, rent, interest and retirement expenses are tax deductible.

Capital Expenses

Two ways to deduct these expenses is through annual "depreciation" until the cost is depreciated, or through one-time cost deduction. To qualify for depreciation, the business owner has to own the equipment. The business has to need this equipment, and it has to last for more than a year. These items need a "life span" that ends in decay, shows signs of wearing out or becomes obsolete.