What Are Business Expenses?

In general, business expenses are costs that are "ordinary and necessary" for your trade or business. However, this tool does NOT interpret or apply this concept. Many specific rules and limitations apply, and whether an expense is deductible depends on many factors including whether it's used exclusively for business, whether it's a capital expense (which may need to be depreciated), and many other IRS rules.

Why Track Income vs Expenses?

As a freelancer or self-employed person, you typically report your business income and deduct business expenses on Schedule C (Form 1040). Your net profit (income minus expenses) is subject to both income tax and self-employment tax. Tracking expenses helps reduce your taxable income, but you must follow IRS rules about what is deductible. This tool helps you visualize rough numbers, but it does not replace proper bookkeeping or tax preparation.

Limitations of This Tool

This tool is very simplified and does NOT include:

• Self-employment tax (15.3% on net earnings)
• Depreciation schedules and rules
• Actual vs simplified home office deduction methods
• Standard mileage rate vs actual expenses for vehicles
• Meal deduction limitations (50% rule)
• Section 179 expensing and bonus depreciation
• Many other tax rules and complexities

This Tool is for Early Planning Only

This tool is designed for early planning and ballpark numbers. It uses very simple math: it sums your expense categories and applies a rough marginal tax rate to estimate potential tax savings. It does not track receipts, produce tax forms, or replace a tax professional or actual bookkeeping. Real tax returns and accounting software handle all the complex rules that this tool does not.