What Are Non-Deductible Expenses?

Non-deductible expenses are any type of personal or business expenses that are not recognized as being eligible to provide a tax break or deduction on annual tax returns. Tax agencies typically provide guidelines that help taxpayers ascertain which expenses are eligible as deductions and which ones are not. In addition, taxpayers typically have to qualify the reasons for an expense before it can be classed as anything other than non-deductible.

One of the more common examples of individual expenses that are considered to be non-deductible includes the use of personal property for business purposes. This means that employees generally are not able to claim mileage to and from a place of work as a deduction, or declare the use of a privately owned cell phone for business calls on their tax returns. While there are some exceptions, any use of privately owned goods in a manner that is remotely connected with work is likely to be considered non-deductible expenses. In addition, those expenses may even be taxable if the employer chooses to reimburse the employee for their use.

On a corporate level, non-deductible expenses will include a number of costs that are incurred during the basic operation of the company. Capital expenditures are commonly understood as business expenses, but may or may not be tax-deductible, depending on the current state of tax laws and the nature of the expenses involved. In most instances, any business expense that can be classed as a capital expense is unlikely to qualify for some sort of tax break or deduction.

Businesses will also find that any expenses that are carried in the accounting books as the cost of goods sold will also likely be classed as non-deductible expenses. This is because the costs are considered to be part of the standard operation of the business model and are offset by the revenue that is produced by that business. For example, expenditures to maintain a physical inventory of parts necessary to keep the manufacturing process going will usually not be considered deductible.

Since tax laws are subject to change, it is important to consult tax agencies when considering whether certain costs may be classed as deductible or non-deductible expenses. With some types of deductions, there may be some gray area, making it necessary to consider the circumstances surrounding the costs before it is possible to use them for a tax deduction. Companies operating in multiple international locations will find it necessary to adhere to the tax laws relevant to each of those sites, meaning that what is and is not considered non-deductible expenses in one jurisdiction may have a completely different classification in another.