If you've ever been in business, the crucial importance and the tax liability impact of the business expense you incur over the course of a year are tremendous. In fact, many businesses only succeed for the first few years because of the massive impact of business expense on their bottom line. This article will take a look at some of those expenses by category, and the necessary record-keeping that must be done.

The major categories of expense are utilities, insurance, interest, labor, and depreciation. In operating your own business, there are certain necessary, an unavoidable, operating expenses; the utilities you pay each month are examples of those unavoidable expenses. The most often incurred utility expenses would include water, electricity, waste removal, telephone, and cable expense. It would be impossible to operate a successful business, without access to the above listed utilities. These costs on a monthly basis will normally run into several hundred dollars, if not into the thousands of dollars; the ability to deduct these expenses, on the income tax return is a way to recoup some of the expense and avoid high tax liability.

Insurance expense can be a tremendously expensive business expense, but a necessary one. Not one lending institution will all money for a business to operate without being assured that there will be general liability insurance, renter's insurance, or Worker's Comp. insurance purchased by the business owner. Carrying insurance is just a continuation of the need for assurance that in the event a disaster should strike, the business will not be a complete loss. It should be noted here however that insurance expense can be an insurmountable roadblock if the business has not properly anticipated the expense associated with the purchase of the insurance; quite often, they insurance expense will depend in part upon the revenue generated by the business. Greater revenue you and profitability levels often increase the amount of insurance, you're required to purchase each year, and it also affects the premium that you pay each year.

Interest expense, is sometimes an optional expense; however, if you have a loan against your business you're going to pay interest expense. If you operate your business and purchase products own credit from a vendor and you don't pay the bill you will pay interest there, also. As with homeowner's mortgage interest, business credit interest is completely tax deductible to the business, but the business must be able to survive until the year's end in order to reap the benefit.

Labor expense will be the most money consuming expense, a business will ever incur. When you account for the wages paid, the taxes pay, and a liability associated we of the need to meet payroll expense on time. This can be listed as the single greatest contributor to business bankruptcy or failure. Of course, this is a two-sided coin. A business cannot stay open and operate without the necessary labor; the necessary labor will not stay and work without necessary pay. So if you are able to pay, your employee's wages, you will be able to retain employees. It should be noted here, however, that most often it's not the employee's paychecks that the business owner has trouble covering, if the tax liability that must be paid by the 15th day of each month. The tax liability has managed to accrue over the period of a month and often the business owner does not anticipate the enormity of the tax that will be due.

The last expense of business owner is able to deduct is known as depreciation. Depreciation is not a direct dollar paid expense for the business, it is however, and expense the benefits the business owner greatly during tax season. Any equipment fixtures or other capital investment, the owner has made in their business, will have what's known as a "useful life". The length of the useful life of the equipment will determine the amount to be depreciated each year. There are two different methods for depreciation, there's the straight-line method and there's the modified accelerated cost recovery system that used by most accountants for business owners to their benefit.

About the author:

Tony Robinson is a Webmaster and International Author. Visit http://www.tax-portal.com/ for his tax tips.