Where to Report Your Business Tax Deductions

The answer to the question “Where do I report my business tax deductions?” depends on three factors:

1. The legal structure of your business
2. The tax form(s) you file
3. The type of expense you’re reporting

Since most small business are either unincorporated sole proprietorships or single member LLCs, I’ll answer the question for those entities. For both of these legal structures, owners report the results of their business operations on Schedule C and file it along with their personal Form 1040.

Schedule C is divided into different parts. If you sell any kind of products (physical or digital), you report the expenses of purchasing raw materials or items for resale and the costs of getting those items ready for sale in Part III Cost of Goods Sold. You can include the cost of labor you pay others, but not anything you “pay” yourself.

After you calculate your cost of goods sold, enter the amount on Line 4 in part I Income.

In Part II Expenses, report your general and administrative expenses. Some of the typical things to include here are:

1. Auto expenses
2. Advertising
3. Office supplies
4. Insurance
5. Taxes
6. Licenses
7. Utilities
8. Travel
9. Meals and entertainment

Use line 27 Other Expenses to report items that don’t fall into any of the pre-printed categories on lines 1-26. Don’t stress out over the exact line to use. For example, it doesn’t matter too much to the IRS whether you report your Internet hosting fees on line 25 as utilities or include them as other expenses on line 27. As long as you get them in Part II and not Part III, you’ll be OK.

If you’re going to claim a deduction for business use of your home, calculate the amount using Form 8829, then enter the total on line 30 of Schedule C.

If you have automobile expenses, be sure to complete the information on your vehicle in Part IV.

In the next post in this series on business tax deductions, I’ll be answering readers’ questions. If you have a question about whether something is deductible on your business taxes, you can ask by leaving a comment below or sending me an email.