So it’s tax time and you’re trying to figure out how to distinguish a direct expense and need examples of direct expenses. What a debacle! While trying to figure out how to distinguish between direct and indirect expenses can be difficult, it doesn’t have to be. A direct expense is, quite simply, an expense that relates directly to your business, or if you work from home, to the part of your home that you use for your business. This article will give some examples of direct expenses.
- Painting or repairs for the part of your home used for business. Any expenses you incur when painting or making repairs to the business part of your home are deductible. For example paint, paint brushes and and rollers are all deductible if used only for repairs to the business part of your home.
- Phone line or cell phone used exclusively for business calls. Any expenses you incur if you have a phone line or cell phone that you use for business purposes is considered a direct expense if you pay the bill yourself. However, if the phone is paid for by your employer, or you get reimbursed for paying the bill, then it is not considered a direct expense.
- Rent or mortgage payments for the business part of your home. If you work from home, a part of the rent or mortgage payment is deductible as a direct expense. You would figure how much is deductible by multiplying the total amount of rent or mortgage payments you made for the year by the percentage of your home that you use for business – this percentage is figured by figuring out the size of your office or work area, and dividing it by the square footage of your home. For example, if you have a 5,000 square foot home, and your office is 1,000 square feet, the percentage of your home that you use for business would be 20%. This number would then be multiplied by the total amount of your rent or mortgage payments for the year. As an example, if your total rent or mortgage payments for the year were $3000, then the amount that would be a considered a direct expense would be 3000 x 20%, or 600.
- Qualified Mortgage Insurance Premiums. According to Publication 587 from the IRS, qualified mortgage insurance premiums are also considered a direct expense. To figure the amount you can deduct as a direct expense, use the same formula as the one mentioned above for calculating the amount you can deduct for rent or mortgage payments.
These are just some examples of things that can be listed as direct expenses on your income tax return. For more guidance, refer to the IRS website, or call the IRS directly for assistance. Be warned though, they have long wait times during tax season!