As a small business owner, you wear many hats. Well, let’s be honest probably all of the hats. One of those hats is your bookkeeping. If you just sighed, grunted or rolled your eyes because you can hardly stand to even hear the word bookkeeping – trust me, you are not alone.
You started your business because you were passionate about what you were doing, not because you wanted to sit in front of a computer and record your income and expenses. Some people like to refer to bookkeeping as a “necessary evil” in their business and I agree with the part that it’s necessary.
Whatever it was about the word “bookkeeping” that brought on the sigh, grunt or eye roll – whether it be time constraints that keep you from doing it or fear that you’ll do it the wrong way, I hope this list of things you can expense in your business helps you feel a little more confident the next time you sit down to conquer your books.
These are items that are accepted by the IRS as business expenses. It’s best to keep track of them in an accounting software like Quickbooks Online as well as keeping copies of receipts (electronic copies are acceptable):
– Professional Fees. This could be legal advice, outsourced bookkeeping, tax prep or business consulting.
– Dues / Memberships. Professional organization memberships, chamber of commerce memberships or any type of dues you pay to an org specific to your trade – these can all be expensed.
– Taxes & Licenses. Business license, property tax for your business, any type of business license required by your state – those are covered.
– Insurance. Business liability insurance, health insurance (if not available to you through spouse or otherwise), Workers Comp.
– Commissions. Paying a sales person to bring in customers and giving them a percentage of sales? Expense that.
– Payment Processing Fees. Paypal, Square, Stripe, Intuit – if you are collecting online or credit card payments, you’re being charged a processing fee that you can expense as a Cost of Goods Sold. Tip: Don’t pass this fee on to your clients – that’s not allowed. If your CRM for solopreneur has a built-in online payment software, this fee will be separate as well.
– Online Services. Domain hosting, Web hosting, Website security – they’re all necessary to keep your website running.
– Education/Workshops. E-Courses, Conferences, Workshops, there are so many options out there to increase your knowledge and soak in tips from industry leaders and they can all be expensed!
– Travel Costs. Going out of town to meet a client? Traveling to one of those conferences? Using uber to get you to your photo shoot downtown? Expense it.
– Mileage. Anytime you drive to meet a client, vendor, pick up supplies – track your mileage. In 2016, every mile you drive can be expensed at $0.54 per mile. Parking and tolls can also be expensed. Tip: Use the MileIQ app to easily track every single drive you make and then easily categorize as a business or personal drive.
– Postage/Shipping. People still send snail mail, right? Of course! It’s so much fun!
Office Supplies / Expenses. Paper, pens, staplers, paper clips, folders, art for the walls, a mouse for your computer, you get the point.
– Phone. Your phone can be expensed but you do have to be careful here. If you are utilizing your cell phone for both business and personal use, you’ll need to figure out the percentage of business use and that’s what can be expensed. If it’s 100% business it can be 100% expensed.
– Computer and accessories. If you use your computer 100% for business that can be expensed. Same goes for an external hard drive, new battery or other required accessories.
– Rent / Utilities. If you lease office space, studio space or even a warehouse – that monthly fee can be expensed along with any utilities you have to pay along with it. If you use your home office, these expenses will be calculated at the time of filing your taxes.
– Interest on Loans. If you had to take out a loan whether it’s from a bank, friend or family member – if you are paying interest, that can be expensed.
– Meals / Entertainment. Coffee with a client or vendor, taking an employee out for lunch, dinner with business partners – these can all be expensed as long as the purpose of the meal or event is to talk business. These are 50% deductible but that will be figured out when filing your taxes. Some meals are 100% deductible though – meals for employees during a working lunch, snacks for the office or catering for a company outing can all be 100% expensed.
– Bad Debt. I listed this one last because I hope it never happens to you…but if you have a client that has refused to pay their online invoice, you can expense that amount owed as a bad debt and essentially write it off.
Now that you see a good list of potential expenses, I want to bring up to the two expenses that I am most often asked about that can’t be expensed.
Clothing. Even if your client has requested that you wear all black to the event or you need a nice dress – unfortunately they can’t be expensed. IRS has strict guidelines on this and basically unless you need a uniform (like a postman or pilot would wear) you can’t expense it because they view it like you could wear it on an everyday, regular basis and not just for your business. Bummer, I know.
Meals that have nothing to do with business. Coffee on the way to your studio, drive-thru on the way home after a long day at a wedding….those cant be expensed. IRS is going to view those as personal expenses.
My advice to you is don’t overthink it and don’t go overboard. If it’s necessary to run your business it can likely be expensed, if you are questioning whether it’s a legit expense or not, it’s probably not.