💰 Money School
Business Tax Deductions
Learn what a business tax deduction is, which everyday costs may count, and how to track them so you keep more of what you earn without crossing the IRS.
What you will learn
- 1Beginner: What a Deduction Actually IsFree 6 min
- 2Intermediate: Common Deductions and How to Track Them🔒 9 min
- 3Advanced: Deduction Strategy Without Crossing the Line🔒 10 min
Beginner: What a Deduction Actually Is
Deduction, defined
A deduction is a business expense you subtract from your income before your profit is taxed. Remember, you are taxed on profit. Deductions shrink the profit number, so they shrink the tax.
It is not free money and it is not a dollar-for-dollar refund. It just means that legitimate cost is not treated as profit you get taxed on.
The ordinary and necessary rule
The general test the IRS uses is whether an expense is "ordinary and necessary" for your kind of business. Ordinary means normal for your field. Necessary means helpful and appropriate for running the business.
A graphic designer's software subscription passes easily. A personal vacation dressed up as a business trip does not. If it is not really for the business, it is not a deduction.
No receipt, no proof
A deduction you cannot prove is a deduction you can lose. The habit that protects you is keeping records: receipts, invoices, and a note of what each expense was for.
Start this on day one. Recreating a year of expenses from memory in April is miserable, and you will miss real deductions you earned.
Do this before lesson 2
- ✓Say it back: a deduction lowers taxable profit, it is not free money.
- ✓Start saving receipts for anything you buy for the business, starting today.
- ✓For each expense, jot one line on what it was for and why it is business-related.
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