What are Office Expenses? Are Office Expenses Tax Deductible?

Definition of Office Expenses

Office Expenses are the costs related to the office operations of the business. These are the costs that are associated with day to day operations of the business. Office expenses are categorized as normal operating expenses of the business, and they are considered to be important in terms of determining the expense threshold of the company.

In this regard, it is also important to understand that office expenses differ across various organizations, depending on the scope of operations of a given company. It is imperative for organizations to scrutinize these expenses because if uncontrolled, they might eventually lead to a decline in the profitability of the company.

Office expenses also hold tantamount value when it comes to tax-related issues. This is because several of these expenses can be claimed in the form of tax deductions.

Examples of Office Expenses

As mentioned earlier, office expenses greatly vary from organization to organization. It is mostly contingent on the scope of work within an organization, and the extent to which this can be resolved at the earliest.

Common office expenses include the following:

  • Repairs and Maintenance related expense
  • Rent
  • Utilities
  • Office insurance
  • Bank Charges and Fees
  • Internet bill
  • Phone lines
  • Stationery cost
  • Taxes
  • Website maintenance

The list mentioned above is not exhaustive. It entirely varies across organizations, and hence, it should include several other parameters.

Difference between Office Expenses and Office Supplies

Office expenses are expenses that are incurred in the running of an office. Since these are the expenses that are used for operations of the office, they are referred to as “operating office expenses”.

On the other hand, office supplies are the expenses that are incurred on traditional office items, including stationery, and other material that is used within the office. Examples of office supplies include:

  • Record keeping documents
  • Janitorial and other cleaning supplies
  • Cutlery for office use
  • Beverages for employees
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What are Home Office Expenses?

Home Office Expenses are defined as expenses for those individuals that operate their office from the premises of their houses.

Working from the home office still allows the taxpayers to file for certain deductions. However, it should be ensured that these expenses are properly segregated so that there is a distinction between expenses relevant to the household-related expenses, as well as expenses related to the office.

There are some home office expenses that are fully deductible. Examples of these expenses include computer equipment, phone lines, as well as office supplies. The deductible expenses are determined using a multitude of factors, including the overall earnings, as well as tax remittance.

On the contrary, there are certain expenses that are not tax-deductible. For example, utilities cannot be deducted in full when it comes to home office expenses. This is because the utility bill includes both, the household usage as well as the usage pertaining to the office. Hence, it needs to be divided into proportions. Only the utility bills relevant to the home office can be deducted thereon.

Personal Use of Office Supplies and Expenses

In order for office supplies and expenses to be deductible on the business tax return, it is imperative for the taxpayer to show that these business expenses are ordinary and necessary expenses that could not have been avoided. Personal expenses are not supposed to be included under business expenses, and hence they cannot be deducted.

Therefore, when filing for tax deductions, it is rudimentary for taxpayers to realize that only those expenses need to be included that are exclusively for business use, and no other personal use.

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Office Expenses – Points to consider

Taxpayers are allowed to deduct up to 100% of the cost of office supplies and materials that are kept on hand, and have been used across the year. The cost of stamps and postage charges can also be deducted as office expenses for the current year. However, in order to deduct any expense from the tax return, certain IRS rules need to be met. These rules are as follows:

  • The items and expenses that are incurred are not expensed perpetually. In other words, there is no record of when these expenses were actually incurred and used.
  • There is no inventory of these items.
  • Deducting these items does not distort the income significantly. This implies that these office expenses, although are significant, do not greatly impact the profitability of the company.

Office Expenses – Allowable Deductions

There are several different categories of office expenses that are allowed to be deducted during the given period. These categories are as follows:

  • Supplies: The cost of office supplies can be deducted for tax related purposes. The office supplies that can be deducted include stationery, lighting expenses, printing papers and cartridges, etc. However, in order to claim for these office supplies, it is important for companies to keep a proper record from all office supply stores, catalogs, or even other variety stores when the office supplies are purchased. In the same manner, the full cost of supplies in the given year can also be duly expensed.  
  • Rent or Mortgage Interest: The money that is spent on rent and mortgage interest is also considered to be a deductible expense for tax related purposes. In case of a home office, it is imperative to calculate the percentage of the house that is used for the office, before claiming the respective expense.
  • Utilities: Utility bills for electricity, gas, telephone, and water can also be claimed for office related purposes. In case of home offices, the percentage rule is in place under which the percentage that is allocated to the home office is used for distribution of electricity.
  • Office Furniture: Office Furniture, is purchased, or maintained can also be claimed for deductions under the IRS rules and regulations.
  • Computers and Software: Computer software purchase and renewals can also be written off from the business as a tax deduction of the IRS software.
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Office Supplies and Expenses on Business Tax Returns

Depending on the type of business arrangement, there are different rules pertaining to office supplies and expenses deduction, as stipulated by the IRS.

  • For Sole Proprietors and single-member LLCs: Office expenses (and office supplies) are categorized as deductible expenses up to a value of $2500. Under this stipulation, office expenses less than $2500 can be claimed. Alternatively, Office expenses can also be separated from office supplies, and can further be merged together with “Other Expenses”.
  • For partnerships and multiple-member LLCs: For this type of business organization, business expenses are supposed to be categorized under “Other Deductions” section of Form 1065. There is a need to attach a separate statement that breaks down different deductions that are included in the particular line item.
  • For Corporations: For Corporations, business expenses are categorized under “Other Deductions” section of the Form 1120. There is a need to make a statement listing these deductions, which are then added on to “Other Deductions”.
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