Every year you do a lot for your business, and much of it costs money. You can use those expenses to save money on your taxes. The IRS lets you take deductions, which are business expenses that are legally permissible to deduct from your income on taxes. Below I talk about some common deductible expenses: what you can claim and what you can’t.
Professional education is a great deduction. Did you take a workshop online? Go to a conference? The cost of those great education opportunities is deductible. Investing in your education through courses (in person or online), books, and other ways can really pay off, in more ways than one. It doesn’t have to be something that’s directly related to your business. If I take a course on how to manage my social media, it’s not directly related to bookkeeping, but it IS related to me running my business, so it’s definitely a deductible expense.
Those Monthly Charges
Make a list of the monthly software charges you find in your business bank account: email, website fees, Slack, project management, Canva, Buffer, printing fees, and more. So many services can be used to automate and run your business now! If you use it to get things done and manage your business, it’s deductible. Paying for some of those personally? Move then to the business account! Otherwise you might be questioned about whether they really are a deductible expense.
Getting Out There
Advertising and promotions are necessary for business, and they’re a main deductible item. That includes social media ads, the copywriter that you hired to help, keyword advertising, and other types of paid advertising. Did you sponsor a podcast or a newsletter? That’s deductible too.
I call this travel PLUS because I’m talking about travel that’s around your home. Did you take a Lyft to a business meeting? That’s deductible. Did you drive to the post office to drop off orders and the bank for a deposit? Both of those are business trips, so those miles are deductible as well (just don’t turn it into a personal trip). Don’t forget tolls and parking, if you have to pay those while taking your trip.
People think of travel as long-distance trips to meet clients or go to conferences. Definitely, hotels and airfare count toward travel. But don’t forget about the small stuff. One great mileage tracking app is MileIQ if you drive for work.
Fees, All The Fees
Do you accept credit card payments for services or good? Those fees are deductible. Do you pay the bank a monthly fee for your account? Also deductible! Whether the fees are to Paypal, Stripe, Square, Quickbooks or one of the many other payment processors and banks out there, they’re all a write-off.
One mistake that I’ve seen is that people don’t count their full income PLUS fee in their books. If they have a $50 sale, and they pay $2 fee, they only count $48 as income. This isn’t the right way to do it. You count the entire fee as income, and $2 as a merchant fee! The merchant fees are just a deductible expense, not a reduction of your income.
Coffee with Clients
Having a Monday coffee meetup with a client? Maybe a lunchtime discussion with a business development contact. Both of those meals are deductible. Keep your bill and write down on it who you met and why so you don’t forget. Meals and Entertainment (that’s the category) is only 50% deductible, but why not get as much deducted as possible?
Simply having lunch during the workday? Working at a coffee shop to get out of the house? Even if you work all the way through lunch and coffee, those expenses are NOT deductible, according to the IRS.
Receipts or It Didn’t Happen
For all of these expenses, KEEP YOUR RECEIPTS! The rule is that a deduction isn’t deductible if you don’t have some kind of documentation about it, proof that it actually happened.
Don’t Deduct This:
Mileage from Home
The IRS says that you can’t deduct the miles you drive from your home to your office! It doesn’t matter if you don’t go anywhere else, it’s still not deductible. If you’re going to the airport for a trip from your home, that IS deductible, but not to your office.
Did you get a special logo shirt to wear to a presentation? Sorry, not deductible. The only clothing that can be deducted is clothing that simply can’t be worn for anything other than the business purpose it was purchased for. Think beekeeper’s outfit, it’s so specific. If it can be worn out on the street as regular clothing, those items aren’t deductible expenses.
So what clothing can be deducted? Think uniforms – specialized healthcare clothing, a UPS uniform, something like that.
That Coffee Shop Is Great
But your coffee isn’t deductible. I mentioned this already, but it bears repeating. Working at a coffee shop isn’t deductible. Eating out for lunch and working isn’t deductible. It’s only deductible if you’re there to meet someone and do something that’s going to produce paying work.
The IRS says we can only deduct our Starbucks addiction if we’re meeting with a client to discuss business. If you just needed to get out of the office and are working at Starbucks, those drinks are a personal expense. Sorry, Charlie!
This isn’t an exhaustive list of deductions, by any means! Many expenses related to the running of a business are deductible. Insurance, payroll taxes, legal and CPA fees all come to my mind when I talk about deductions. Have a question about a particular expense? Just ask!