As the daughter of tax accountants, I have heard about tax deductions and business expenses for my entire life. Now, as a small business owner, I am more aware of them than ever. Which is why I am often face-palming or head-desking when I hear someone (incorrectly) talk about what is and is not a business expense.
I’m so excited to have Karin back this week to talk about what is and is not a business expense (with real-life examples) when it comes to online small businesses!
Don’t miss the rest of her #SmallBizTaxTips Series:
- How to Make the Most of Your First Tax Appointment
- Choosing the Best Business Entity for Your Business
Business expenses are a common topic of discussion amongst small business owners of all kinds. But so many times you only hear about the business expenses that are tax-deductible versus the ones that are not.
Because EVERYTHING is tax-deductible, right!?
Not necessarily, no.
The business expenses that are not tax-deductible are just as important as the ones that are and should be talked about just as much. Especially if you want to do business the right way.
5 BUSINESS EXPENSES THAT ARE TAX-DEDUCTIBLE
- Workshops (in-person and online)
- Conferences (in-person and online)
- Online Courses
- Business/Inspiration Books
These expenses must all be specific to your industry, blog, or business.
If you are traveling to a workshop or conference, your travel expenses including airfare, mileage, rental car, taxi and/or Uber fees, and hotel are all tax-deductible. Meals are only 50% deductible so make sure you keep all of those receipts separate (especially room service or meals eaten in a hotel restaurant that are often charged to the room).
- Facebook Ads
- Pinterest Ads
- Instagram Ads
- Google Ads
- Print Ads
- Various forms of blog advertising including sidebar ads and sponsored posts
3. Online Specific:
- Domain Names
- Hosting Fees
- Site Design and Maintenance
- Site Security and Backup
- Software Subscriptions
- Email Marketing (i.e. MailChimp, ConvertKit, etc.)
- Course Development (i.e. Teachable, WebinarJam, etc.)
- Stock Photography
- Sticky Notes
- Items specifically used for recipe or stock photo development
- Tripod (for your iPhone, too!)
- Other Photography Equipment (i.e. Reflectors, Flash, Lights, Lenses)
- Filing Cabinets
These expenses must be used exclusively for your business.
5 BUSINESS EXPENSES THAT ARE NOT TAX-DEDUCTIBLE
- Health Insurance
- Other out-of-pocket medical expenses
These are not direct business expenses for Sole Proprietors, Partnerships, LLCs, or Sub-S Corporations. They may, however, be deductible elsewhere on your personal Form 1040 with limitations depending on your total income and benefits derived from other wages (W2s).
- Mommy Helpers
These are not a direct business expense. When you are running your own business, a qualified daycare expense may be deductible elsewhere on your personal Form 1040.
- the “killer blazer and heels” you only wear during client meetings
- the “black dress and Tieks flats” you only wear while shooting weddings
- the “distressed jeans and smock” you only wear during a DIY project
- the “Anthropologie apron” you only wear when recipe testing
- the “yoga pants” you only wear during office hours
Sorry, ladies. None of these are business expenses. Nope. Not even the yoga pants you’ve classified as your boss lady uniform. Only the items embroidered or emblazoned with your company/business name are considered a business expense.
The full loan payment is not a tax-deductible business expense. Only the interest paid as part of the full loan payment is tax-deductible.
5. Home Office:
You cannot deduct (even a percentage) of your kitchen, dining room, living room, closet, bathroom, or bedroom as your home office.
Your thought process on this cannot be, “Well, I watched that Leadpages webinar in the living room, I made that recipe in the kitchen, I shot that stock photo in the dining room, I type up my blog posts in my bedroom, and I had to use the bathroom twice during all of that!”
Nope. Not gonna fly.
A home office must be exclusive and regular use. In other words, choose a specific area to work and stick with it! You could deduct a percentage of your mortgage interest, house insurance, real estate taxes, utilities, and even some maintenance based on the business usage of your home office. But that’s a lot of information to gather and keep track of…
A simple option would be to take advantage of the Simplified Option for Home Office Deduction, which is a standard deduction of $5 per square foot of home used for business (maximum of 300 square feet).
The maximum deduction benefit should be weighed between both options to figure out what is best for your business. Make sure you discuss both options with your tax accountant!
(Important Note: You cannot take the maximum if your designated area is less than 300 square feet. This deduction is not a “gimme” just because the maximum amount is set at 300 square feet. You still have to substantiate the usage. If you do your homework and gather all the information correctly, you may actually receive a larger deduction using actual figures.)
As with anything pertaining to your business, asking questions of a professional is always a good idea! And hey, the fee that you pay that professional is a tax-deductible business expense! That’s what we call a win-win situation!! 😉
Were you surprised by any of these business deductions? Which one(s) surprised you the most? The ones that are or the ones that aren’t? Do you understand them better now? Share your business expense questions below and I’ll answer them!
And remember, sharing is caring!
Please bookmark, pin, and share this post with your business-owning friends!
Disclaimer: The above business deductions are available in the United States of America and as such qualify under the Federal Income Tax laws. International taxation and laws are not discussed here. Other applicable business laws and taxes vary by state and local governments as well as taxing authorities. This summary is for informational and discussion purposes only. Please consult with a tax or accounting professional as well as legal counsel for your specific needs, business, and state.