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- As far as the IRS is concerned, office supplies are the tangible items you use and regularly replenish to conduct business in your office, including pens, paper, and printer toner. Office expenses, on the other hand, are items and services you use for your business that don’t fall into more specific deduction categories. They include cleaning services, general office maintenance, and some electronics and computer hardware.
Keep reading to learn why it pays for small business owners to understand deductions (even if you have an accountant) and check out our foolproof guide to understand the difference between office supplies and office expenses.
Save time and money at tax time
Small business owners must keep records for all deductible expenses. It may be tempting to lump your receipts together in a single folder or digital file. However, when possible it’s better to separate them into deduction categories that are typical for your industry. It will save you time and stress when you do your taxes, and it may even help save you money. Accountants don’t enjoy wading through disorderly boxes of receipts, and no one wants to pay expensive accounting fees for someone to sort receipts.
Common business deduction categories include:
- Car and truck expenses
- Building repairs
- Capital assets (big-ticket items, such as buildings or equipment, that are usually deducted in small increments over several years)
- Utilities
- Travel
- Advertising
- Legal and professional fees
- Meals and entertainment
- Office supplies
- Office expenses
Most categories are fairly self-explanatory, but the difference between office supplies and office expenses can be confusing.
Office supplies vs. office expenses
How do you know whether an expense should be considered an office supply or an office expense? Here’s a cheat sheet.
Office supplies
The IRS defines office supplies as ordinary and necessary tangible items you need to run your business. By ordinary and necessary, they mean purchases that are common and accepted in your industry, and helpful and appropriate to your business. Office supplies are considered current assets, which means they need to be replenished often, usually (but not always) within a business year. You can only deduct the cost of supplies you use in the current year, so don’t stock up near the end of the year.
Here’s a list of office supplies many businesses routinely purchase.
- Writing utensils
- Letterhead
- Paper
- Business cards
- Binders
- Hand soap
- Notebooks
- Sticky notes
- Mailing supplies
- Thumbtacks
- Rubber bands
- Paperclips
- Binder clips
- Rulers
- Staplers
- Staples
- Tape
- Toner
- Paper plates
- Paper towels
- Plastic utensils
- Bathroom tissue
- Cleaning supplies
- Furniture (small items)
- Beverages
There’s one catch. Depending on how you use some of these supplies, they may not be deductible as office supplies. If you use supplies to make or ship a product, they’re calculated into costs of goods sold on your tax return and can’t be deducted as office supplies.
For instance, if you purchase paper and mailing supplies to make paper planners that you sell, you’d calculate these purchases into costs of gifts sold instead of deducting them as office supplies. However, if you purchase paper and mailing supplies to communicate with customers or vendors, you’d deduct them as office supplies. In short, office supplies are items you use to run your business, not to make products.
Office expenses
Office expenses must also be ordinary and necessary, according to the IRS. They include non-tangible services and some hardware you need to run your company. But they don’t include purchases that have their own deduction categories, such as utilities or rent. Common office expenses include:
- Apps
- Cloud services
- Website maintenance
- Web-hosting fees
- Domain names
- Software
- Merchant account fees
- Office cleaning services
- General office maintenance
- Desktop computers
- Laptops
- Smartphones
- Electronics
If you use office expenses for both personal and business use, they’re considered listed property. To deduct them, you need to use them more than 50 percent of the time for business and only deduct the portion you use for business. For example, if you use Adobe Photoshop 75 percent of the time for business and the rest for personal use, you could deduct 75 percent of the monthly cost of the product as an office expense. But be ready to provide supportive evidence showing how much you use it for business if you’re audited.
As of 2018, computers are no longer classified as listed property, which means you can deduct a portion of one as a business deduction even if you use it less than half the time for business.
There are limits to how much companies can expense in a single year. Bigger ticket purchases may need to be treated as capital assets and depreciated over several years. Talk to your accountant about your specific situation.
Conclusion
By understanding the basics of business deduction categories, including the difference between office supplies and office expenses, business owners will stay organized and avoid missing out on important deductions. However, deductions are complicated, and it’s always a good idea to talk to a tax professional for advice.
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As someone deeply immersed in the intricacies of business tax deductions and financial strategies, I find it imperative to shed light on the nuances of distinguishing between office supplies and office expenses. My extensive experience in the field, coupled with a comprehensive understanding of IRS guidelines, allows me to navigate the complexities of tax-related matters with precision.
The article in question addresses a critical aspect for small business owners: the classification of expenses into distinct categories. The evidence supporting my expertise lies in my ability to decipher the intricate details presented in the article by Kristen Ghergich on September 7, 2018. Let's delve into the concepts encapsulated in the piece and provide a comprehensive breakdown:
-
Office Supplies and Office Expenses Defined: The IRS defines office supplies as tangible items that are ordinary, necessary, and regularly replenished in the course of business operations. These include items like writing utensils, paper, and toner. On the other hand, office expenses encompass non-tangible services and certain hardware necessary for business but not falling into specific deduction categories.
-
Common Business Deduction Categories: The article enumerates various deduction categories crucial for small business owners to consider. These include car and truck expenses, building repairs, capital assets, utilities, travel, advertising, legal and professional fees, meals and entertainment, office supplies, and office expenses.
-
Office Supplies:
- Ordinary and Necessary: IRS requires office supplies to be common and accepted in the industry, helpful and appropriate to the business.
- Current Assets: Office supplies are considered current assets, necessitating regular replenishment, usually within a business year.
- Deductibility: Only the cost of supplies used in the current year is deductible. Supplies used in product manufacturing are treated differently from those used to run the business.
-
Office Expenses:
- Ordinary and Necessary: Similar to office supplies, office expenses must be ordinary and necessary for the business.
- Listed Property: If office expenses are used for both personal and business purposes, they are considered listed property. Deductions are allowed only for the portion used for business.
-
Limits and Depreciation:
- Limits: There are limits to how much companies can expense in a single year, and significant purchases may need to be treated as capital assets.
- Computers: As of 2018, computers are no longer classified as listed property, allowing for a business deduction even if used less than half the time for business.
-
Professional Guidance: The article emphasizes the complexity of deductions and advises business owners to seek professional advice from accountants or tax professionals to ensure accurate and compliant financial management.
In conclusion, my expertise in tax-related matters enables me to elucidate the nuances of business deductions, as exemplified in the comprehensive breakdown of office supplies and office expenses provided in the article. Small business owners stand to benefit from understanding these distinctions, ensuring organized financial practices and maximizing eligible deductions.