Entrepreneurs and small business owners in Seattle already have a lot on their plate. Understanding what qualifies as a business expense can add to the challenges. Seattle has various taxes, including the Business and Occupation (B&O) tax, which applies to gross revenue before any deductions for expenses. This can be upsetting for some businesses.
Seattle’s municipal code outlines which expenditures qualify as business expenses. Common business expenses include wages, utilities, rent for business premises, and materials directly related to operations. However, with items such as goods purchased for resale, the rules can be much more complicated. Misclassification can lead to unnecessary tax liabilities.
One mistake can result in costly fines. This is why hiring a CPA in Seattle, WA, is highly recommended. An experienced CPA knows what deductions you can get while remaining completely compliant with local regulations. Meanwhile, take a look at this quick guide to understand what qualifies as a business expense.
What is a business expense?
Business expenses are any costs that you incur during the operations of your business, which include activities done to generate revenue. The Internal Revenue Service (IRS) states that an expense qualifies as a business expense only if it is considered “ordinary” and “necessary.”
Now, one may ask, what exactly do “ordinary” and “necessary” mean in this context? An ordinary expense is one that is common, accepted, and expected in your business. A necessary expense is helpful for your business. It may not be essential, but it must contribute positively to your business or profits.
Common categories of business expenses in Seattle
The following are the common categories of business expenses in Seattle businesses. In each category, there are various other expenses that an owner should keep track of.
1. Operating expenses.
Operating expenses refer to the costs a business incurs through its normal operations. This may include the rent or lease payments for the commercial space. This category includes expenses for essential services such as electricity, water, internet, and sewer. Costs associated with office supplies, such as paper, pens, and other materials, are also operating expenses.
2. Employee-related expenses.
Employee-related expenses include all costs associated with employing staff. The most obvious example is their salary and wages. Anything you pay to your employees in exchange for their work counts. Apart from the fixed salary, employee benefits such as health insurance, retirement plans, etc., also come under the same category.
If you are providing development training to your staff through professional programs, the costs you incur to improve their skills and business productivity are also business-related.
3. Marketing and advertising expenses.
Marketing and advertising expenses are when you promote your business to attract customers. This category includes expenditures on digital, print, and local media advertising campaigns. If you have a website or social media platforms, the costs you incur to maintain your online presence can also be deducted.
4. Travel and transportation expenses.
If you have a business where you or your employees have to travel frequently, it can significantly impact your company’s budget. Business-related travel expenses include flights, accommodations, and meals during business trips. If you are using your personal vehicle, fuel, maintenance, and mileage reimbursement are also counted.
5. Professional fees.
Since you own a business, you may hire professional services to achieve the best for your organization. These may include legal fees for hiring attorneys, accounting fees for accountants or tax consultants, as well as licensing and permit fees. There are specific permits and licenses that you require to operate a business in Seattle that can incur some costs.
Are you confused about your tax liabilities?
If you are a business owner in Seattle who is confused about your tax liabilities, you are not alone. It is not uncommon for a business owner to try to handle the taxes alone, only to end up making costly blunders. Do not make that mistake; hire a CPA today!
