Schedule C Expenses

Supplies

The cost of supplies (line 22) can be deducted if they are not included in inventory costs. Deduct the cost of supplies only to the extent the supplies are consumed and used during the tax year. Incidental supplies kept on hand with no inventory or record of use are deductible in the year purchases.

Taxes and licenses

Taxes and licenses (line 23) directly related to your business are deductible. Treat any sales tax you pay on a service or use of property as part of the cost of the service or property.

If the service or cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost.

If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise.

If the property is depreciable, add the sales tax to the basis for depreciation (unless deducting sales tax on Schedule A).

Do not deduct state and local taxes imposed on the buyer that you must collect and pay over to the state or local government.

You can also deduct:

• real estate and personal property taxes on business assets,

• employer's share of FICA taxes,

• Federal and state unemployment tax paid,

• Federal highway use tax, and

• business permits and licenses.

The employee's share of FICA taxes and withheld income taxes are deducted on line 26 as part of the wages.

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