Part 4: Operating Expenses You Can Deduct — Everyday Costs That Reduce Your Taxes

Operating Expenses You Can Deduct — Everyday Costs That Reduce Your Taxes (2025)

Once your home business is up and running, you’ll incur everyday expenses to keep it operating.
The IRS calls these operating expenses — and they’re among the most valuable deductions for home-business owners.
This guide explains what qualifies, what doesn’t, and how to deduct these expenses correctly under 2025 rules.

1️⃣ What Are Operating Expenses?

Operating expenses are the ordinary, day-to-day costs of running your home business.
Unlike startup costs (Part 3), these expenses occur after your business begins operating.
(Defined in Chapter 4 of the course material.) :contentReference[oaicite:1]{index=1}

Examples include:

• ✔️ Supplies and materials
• ✔️ Phone and internet used for business
• ✔️ Software subscriptions
• ✔️ Advertising and marketing
• ✔️ Local transportation
• ✔️ Repairs and maintenance
• ✔️ Professional services (legal, tax, consulting)

These expenses are fully deductible in the year they are paid — no amortization or multi-year rules needed.

2️⃣ The “Ordinary and Necessary” IRS Standard

To be deductible, an operating expense must be:

• Ordinary — common in your industry
• Necessary — helpful and appropriate for your business

This rule comes directly from IRC §162 (summarized in the course text). :contentReference[oaicite:2]{index=2}

3️⃣ Common Operating Expenses You Can Deduct

Here are IRS-approved deductible categories (Chapter 4).

• Advertising: website hosting, Google ads, flyers, branding
• Office supplies: paper, ink, notebooks, shipping materials
• Software & apps: bookkeeping tools, design tools, CRM systems
• Utilities: business portion of phone and internet
• Repairs & maintenance: fixing business equipment
• Professional fees: EA/CPA fees, legal consultations
• Travel & transportation: business mileage, taxi, parking
• Education: training courses to improve business skills
• Insurance: liability, business property insurance
• Bank fees & interest: business account fees

4️⃣ Expenses You Cannot Deduct

According to IRS rules (Chapter 4), the following do not qualify as deductible business operating expenses:

• ❌ Personal living expenses
• ❌ Clothing — unless it’s protective gear
• ❌ Fines or penalties
• ❌ Political contributions
• ❌ Commuting from home to another workplace
• ❌ Expenses for a business that never officially began

5️⃣ How to Report Operating Expenses on Schedule C

Home-business owners report their operating expenses on Schedule C, Part II.
The IRS provides specific lines for:

• 📌 Line 8 — Advertising
• 📌 Line 18 — Office expenses
• 📌 Line 21 — Repairs and maintenance
• 📌 Line 22 — Supplies
• 📌 Line 23 — Taxes and licenses
• 📌 Line 27 — Other expenses (detailed on a separate statement)

These line numbers are consistent with IRS Schedule C instructions and match the tax-reporting guidance in the course material.
(See “How to Report Operating Expenses” in Chapter 4.) :contentReference[oaicite:3]{index=3}

6️⃣ Real-World Examples

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