Several business expenses are eligible for tax deductions. But does buying land as a business expense qualify? This guide has the answers.
Is buying land as a business expense qualify as a tax-deductible? Can you write it off if you are planning to use it for business purposes?
Buying land as a business expense doesn’t qualify for tax deductions, even if you are planning to use it for business purposes. However, this piece of land may qualify for some investment-related expenses like interest accrued for money borrowed to buy it and property taxes.
In this guide, we will walk you through some of your business expenses that you may be eligible for tax deductions. We will also take a closer look at whether buying land as a business expense qualifies for tax deductions.
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Tax remains one of the biggest expenses in a business. And as a business owner, it’s highly likely that you may be looking for ways of legally lowering your tax liability. One of the most effective ways of achieving this is by taking advantage of business expenses that are tax-deductible.
Also known as write-offs, tax deductions are businesses expenses that you can subtract from your taxable income. You will take this expense and deduct it from your taxable income. And consequently, you will end up paying a lower tax bill.
However, it’s worth mentioning that the expense that you deduct from your taxable income will have to align with the IRS criteria of business expenses that qualify for tax deductions.
Business Expenses that are Tax Deductible
According to the IRS, for an expense to qualify as a deductible, it should be ordinary and necessary. So, what exactly does this mean? For instance, if you are running a coffee shop, the cost of sugar, coffee and other inputs will be considered an ordinary expense.
At the same time, if you were to travel to attend a coffee-industry convention, it would be considered a necessary expense, meaning it qualifies as a tax deduction. With that said, let’s take a closer look at some of the business expenses that qualify as tax deductibles.
Marketing and Advertising
There’s a high chance you use advertising and marketing to promote your business. The good news is that, the expenses you spend on marketing and advertising are 100% deductible.
So, whether you spend money on launching a new business website, running social media marketing campaigns, printing business cards, sponsoring an event, placing ads on TVs or radios, influencer marketing or online ads, you should deduct these expenses from your taxable income.
Business meals for your staff, clients as well as prospects are also tax-deductible. But to qualify for this deductible, the meals must be ordinary and necessary. For instance, if you have a lunch date to showcase your merchandise to a potential client, the money you spend on this meal will be considered a necessary expense in running your business. As a result, it qualifies to be a deductible.
The deductible amount can be 50% or 100%, depending on the nature of the meal. In the example given here, the deductible will be 50%. On the other hand, if you hold a company party, the deductible will be 100%.
Using Your Car for Business
If you use your car strictly for business purposes, the associated expenses qualify as a tax-deductible. In case you use your car for both business and personal use, you will only need to subtract the expenses spent while on business.
To take advantage of this deductible, you will need to keep accurate records of all your business-related car expenses during the tax year such as oil and gas costs, licenses, repairs and maintenance, lease or rental payments, vehicle insurance as well as parking and toll fees, among others.
However, vehicles used for hire like airport shuttle vans and taxis as well as those used as equipment like dump trucks, or agricultural machinery don’t qualify for this write-off.
Business Insurance Premiums
Most businesses have insurance coverages. And this coverage can include things like business vehicle liability, business interruption, workers’ compensation insurance, general liability insurance and data breach insurance. In case you pay for any of these types of insurance coverages, then they will qualify for a 100% write-off. However, it’s important to note that for insurance to qualify as a business expense tax-deductible, it needs to be ordinary and necessary. If it fails to qualify under this category, then it will not be approved.
The IRS also allows business owners to deduct office supplies from their taxable income. These can include things like computers, printers, printing paper, pens, work-related software, and cartridges, just to name a few. So, as long as you use these supplies strictly for business purposes during the year you bought them, you can write them off. However, make sure you file all their receipts for accurate documentation.
Salaries and Benefits
If you have employed some people to help you run your business, the IRS allows you to write off their salaries, benefits as well as vacation pay. The percentage deductible for this expense is 100%. However, the employee shouldn’t be a partner, proprietor, an LLC member or personal acquaintance.
Phone and Internet Expenses
Phone and internet are vital when it comes to running a business. In fact, it’s almost impossible to run any type of business without them. So, if you use them strictly for running your business, you can deduct them from your taxable income. However, if you use them for a mix of business and personal reasons, you are only allowed to deduct the percentage that you use for business purposes.
Business-related travel expenses are also eligible to be written off from the taxable income. So, whether you are traveling to attend a conference, meet a client or attend to any other business-related activity, you can write off these expenses from your taxable income.
The percentage deductible for travel expenses is 100%. Some of the travel-related business expenses that you can deduct here include bus, plane, or train tickets, accommodation costs, fares for taxis, as well as toll and parking fees.
But for a business trip to qualify under this category, it needs to be necessary, reasonable and ordinary. Also, it needs to be away from the state where your business is based. Also, if you happen to spend the majority of your travel time attending to personal things as opposed to business-related work, the IRS will consider this a vacation, meaning the expenses you spend don’t qualify as a deductible.
Professional Service Fees
Professional service fees integral to the running of your business like accounting, bookkeeping and legal services also qualify as write-offs. Also, if you use bookkeeping, accounting or any other business management software, it will qualify as tax-deductible.
Holiday gifts for your customers, clients or even business associates are also considered tax-deductible business expenses. But unlike other deductible business expenses, you can only deduct $25 annually per individual. However, promotional items like calendars or pens don’t come with this limit, as long as each item costs a maximum of $4.
If you are involved in CSR projects such as giving back to your community, then such expenses may qualify as tax deductions. For this expense to qualify as a deductible, the money you donate should benefit the target organization. Also, the charitable donation should be in cash. Some examples of charitable donations that qualify to be written off include donations to religious organizations, donations to civil defense organizations as well as donations given to organizations that take care of war veterans.
Educational-related expenses that you incur in an attempt to enhance the performance of your business are also considered deductibles. For education-related expenses to qualify, they must boost skills at your business or help to enhance or maintain professional expertise. Some of the educational-related expenses that you may be allowed to write off include webinars and seminars, fieldwork, purchasing books related to your niche, or business-related publication subscriptions.
Is Buying Land as Business Expense Tax Deductible?
Buying land as a business expense is not tax-deductible, even if you are planning to use the piece of land that you’ve purchased solely for business. Also, land is not considered a depreciating asset, meaning you will not receive depreciation deductions. But, if you are a real estate investor, you may qualify for deductions of owning a vacant piece of land that you purchase and sell. And this can cover things like taxes, interest as well as various other carrying costs.
Wrapping It Up
As you can see, most of your business-related expenses qualify as tax deductibles. However, buying land as a business expense isn’t one of them. So, if you are planning to buy land to expand your operations, it will not qualify as a tax-deductible business expense.
About THE AUTHOR
Brittany has been in the land business since 2020 when the world was starting to shut down. Since then, we’ve sold to dozens of people from ATV weekend warriors to camping enthusiasts to retired truck drivers. Our inventory spans mostly in the western United States. We’ve been trained by experience, land acquisition courses, and hundreds of hours meeting with county assessors and clerks, zoning officials, realtors, and land investors. We’ve answered hundreds of questions from people regarding the buying and use of land.Read More About Brittany Melling