Can You Deduct Business Expenses and Take the Standard Deduction?
Uncover the relationship between business expense write-offs and the standard deduction for smarter tax planning.
Tax deductions are an important part of managing your financial obligations, as they reduce the amount of income subject to taxation. This can lead to a lower tax bill or a larger refund. Generally, a “business expense” refers to costs directly related to operating a trade or business, while the “standard deduction” is a fixed amount set by the government that taxpayers can subtract from their income.
Defining Business Expenses
A business expense is a cost incurred in the ordinary course of operating a trade or business. To be deductible for tax purposes, an expense must be both “ordinary” and “necessary.” An ordinary expense is common and accepted in a particular industry, while a necessary expense is helpful and appropriate for the business, though not necessarily indispensable. These criteria ensure that only legitimate business costs are claimed.
For self-employed individuals, such as sole proprietors, independent contractors, and gig workers, many common expenses are deductible. Examples include office supplies, a portion of home expenses for a dedicated home office, vehicle mileage for business travel, professional fees, and advertising costs. These deductions directly reduce the business’s taxable income. In contrast, employee business expenses, which were previously deductible as itemized deductions, are generally no longer deductible for most taxpayers after the Tax Cuts and Jobs Act (TCJA) of 2017, a change effective through 2025.
Understanding the Standard Deduction
The standard deduction is a fixed dollar amount that taxpayers can subtract from their adjusted gross income (AGI) if they choose not to itemize their deductions. Its purpose is to simplify tax filing for many individuals by providing a straightforward way to reduce taxable income without needing to track and report specific expenses. Most taxpayers choose the standard deduction because it is often larger than their total itemized deductions, or simply due to its convenience.
The amount of the standard deduction varies based on the taxpayer’s filing status, such as single, married filing jointly, or head of household. For the 2024 tax year, the standard deduction is $14,600 for single filers and married individuals filing separately, $29,200 for married couples filing jointly and qualifying surviving spouses, and $21,900 for heads of household. Additional amounts are available for taxpayers who are age 65 or older or blind, further increasing the deduction. This deduction directly lowers the amount of income subject to federal income tax.
How Business Expenses Are Claimed
Self-employed individuals report their business income and expenses on Schedule C, Profit or Loss from Business (Sole Proprietorship), which is filed with their Form 1040. This process is significant because these business expenses are considered “above the line” deductions. This means they are subtracted from gross income to calculate Adjusted Gross Income (AGI) before the choice between the standard deduction and itemized deductions is made.
Due to this “above the line” treatment, self-employed individuals can deduct their qualifying business expenses on Schedule C and still claim the standard deduction on their personal tax return. The profit or loss calculated on Schedule C directly impacts their AGI, and then the standard deduction further reduces their taxable income. This allows business owners to benefit from both their business-related write-offs and the simplified tax reduction provided by the standard deduction.