What Business Expenses Are Tax Deductible?
Disclaimer: I’m not an accountant and this isn’t tax advice.
Alright, alright, alright. Nothing signals the start of tax season like a bunch of creative freelancers emailing me questions about what they can write off on their taxes. But first, maybe you’re wondering, “What is a tax write off? And what’s the difference between a tax write off and a tax deduction? Is there a difference?”
What is a tax deduction? What is a write off?
A deduction is an expense you have as a result of doing business that usually helps reduce your taxable income. And most people would agree (I’m sure some would disagree) that reducing your taxable income is mad sexy because you reduce your tax liability. In other words, a deduction should help you pay less in taxes.
Reporting The Deductions
For most deductions, tax payers are only required to give the amount and the description of the deduction. Proof of a deduction only happens when the IRS or state department decides to audit you and/or your business.
There are different schedules that your accountant will file to report the different deductions. For example, itemized deductions (Schedule A), business deductions (Schedule C) and deductions related rental real estate (Schedule E).
If you’re self-employed, the IRS says you can deduct “ordinary and necessary expenses” that relate directly to your self employment income. It doesn’t matter if you are a sole proprietorship or if you’ve established an LLC, the same types of deductions are available to you.
Let’s unpack the “ordinary and necessary expenses”. Ordinary means the expense must common in your industry. For example, if you’re a screen writer, then it’s common for those in your industry to watch movies for research, so you may be able to write off your movie theater tickets for research (check with your accountant).
Necessary means that the expense helps you generate revenue for your business. For example, if you make leather goods, the cost of the leather to make the said goods is a necessary expense that helps you generate revenue. Cool?
Always check with your accountant about what they think is appropriate to write off. In general, you can’t write off personal expenses that have nothing to do with your business. You generally can’t write off all of your rent expense.
Possible Deductions for Taxes
Here’s a pretty standard list of deductions for business owners:
Accounting and bookkeeping feesAdvertisingAmortizationAuto expensesBad debts that you cannot collectBanking feesBoard meetingsBuilding repairs and maintenanceBusiness association membership duesBusiness travelCharitable deductions made for a business purposeCleaning/janitorial servicesCollection ExpensesCommissions to outside partiesComputers and electronicsConsulting feesContinuing education for yourself to maintain licensing and improve skillsConferences, conventions and trade showsCosts of goods soldCredit card feesDepreciationDining during business travelDiscounts to customersEducation and training for employeesEmployee wagesEntertainment for customers and clientsEquipmentEquipment repairsFamily members’ wagesFranchise feesFreight or shipping costsFurniture or fixturesGifts for customers ($25 deduction limit for each)Health insuranceHome office (if it’s your primary place of business)InterestInternet hosting and servicesInvestment advice and feesLegal feesLicense feesLosses due to theftManagement feesMaterialsMaintenanceMortgage interest on business propertyMoving expensesNewspapers and magazinesOffice supplies and expensesOutside servicesPayroll taxes for employees, including Social Security, Medicare taxes and unemployment taxesParking and tollsPension plansPostagePublicityPrizes for contestsReal estate-related expensesRebates on salesRent for your office Research and developmentRetirement plansRoyaltiesSafe-deposit boxStartup costs for your businessSoftware, online services and applicationsStorage rentalSubcontractorsTaxesTelephoneUtilitiesWebsite design
Workers’ compensation insurance
Originally published at thehellyeahgroup.com.
Call to action
If you liked this blog, please hit the HEART button below. I would be so grateful. — Paco