Starting Your Business/Keeping Records
What are Business Expenses
Taxes

You can deduct as business expenses various federal, state, andlocal taxes directly attributable to your business.

Income taxes. You can deduct on Schedule C or C-EZ a state taxon gross income (as distinguished from net income) directly attributable to your business.You can deduct any other state and local income taxes if you itemize deductions onSchedule A (Form 1040). Do not deduct federal income tax.

Employment taxes. You can deduct the social security,Medicare, and federal unemployment (FUTA) taxes you paid out of your own fundsluxury hotels in Bordeaux asan employer. These taxes are explained in Chapter1 of Publication 334 Tax Guide for Small Business.

You can also deduct payments you made as an employer to a stateunemployment compensation fund or to a state disability benefit fund.

Self-employment tax. You can deduct half of yourself-employment tax on line 26 of Form 1040. Self-employment tax is explained in Chapter 1 of Publication 334 TaxGuide for Small Business.

Personal property tax. You can deduct as a business expenseany tax imposed by a state or local government on personal property used in your business.

Registration fees for the right to use property within a state orlocal area are also deductible as a business expense.

Real estate taxes. You can deduct as a business expense thereal estate taxes you pay on your business property. Deductible real estate taxes are anystate, local, or foreign taxes on real estate levied for the general public welfare. Thetaxes must be based on the assessed value of the real estate and must be charged uniformlyagainst all property under the jurisdiction of the taxing authority.

Sales tax. Sales tax you pay on a service or on the purchaseor use of property is treated as part of the cost of the service or property. If theservice or the cost or use of the property is a deductible business expense, you candeduct the tax as part of that service or cost. If the property purchased is merchandisefor resale, the sales tax is part of the cost of the merchandise. If the property isdepreciable, the sales tax is added to the basis for depreciation.

Excise taxes. You can deduct on Schedule C or C-EZ all excisetaxes you pay or incur as ordinary and necessary expenses of carrying on your business.Excise taxes are discussed briefly in Chapter1 of Publication 334 Tax Guide for Small Business.

Fuel taxes. Taxes on gasoline, diesel fuel, and other motorfuels that you use in your business usually are included as part of the cost of the fuelitself. Do not deduct these taxes as a separate item.

When to Deduct Taxes

Important References

Publication 334                  Tax Guide for Small Business
Publication 535                   Business Expenses
Form 1040 Schedule C     Profit or Loss from Business