When you sit down to do your taxes, thinking of all the write-offs that apply to your business can be overwhelming. There are so many deductions available to small businesses, and it’s easy to overlook some of them. While you’re working on your taxes this year, keep this list in mind so you don’t miss out on any savings.
Let’s walk through the common expense categories you’ll use on your tax return.
Advertising expenses includes Facebook ads, traditional print ads, sponsorships, and any other expenses incurred to promote your business.
Car and Truck Expenses
This category is where you’ll report either your business mileage or the business percentage of all your auto expenses.
Commissions and Fees
This is where you’ll put affiliate payments, commissions, and merchant processing fees.
If you pay contractors (such as second shooters, virtual assistants, and subcontractors), the total amount paid to them goes here.
When you buy business equipment that will be used for a year or more, you’ll usually want to classify these purchases as assets. A few examples of assets are computers, cameras, lenses, and printers—they are all a substantial expense and will usually last quite a few years. For these items, you can report the asset’s depreciation as a deductible expense.
Legal and Professional Expenses
Attorney and accountant fees will go into this category. This includes fees for tax advice and the preparation of the business portion of your taxes.
Repairs and Maintenance
Any expenses related to repairing or maintaining your equipment or office space would go into this category. For example, if you’re a photographer and you send your camera to the shop to get calibrated and cleaned, the maintenance cost should go in this category.
In addition to business miles traveled or auto expenses, you can deduct business travel expenses. These include things like taxi fare, airline tickets, hotel costs, and luggage fees.
Meals and Entertainment
Within reason, food or drink expenses incurred while having a business meeting are deductible business expenses. You should record the expenses at their full cost in your bookkeeping, and on your tax return, report them at 50% of the total cost.
However, if you’re just going to a coffee shop to get out of the house and get work done, those expenses are not deductible.
In this category, you can make up your own sub-categories. The following are common expenses used in the Other Expenses section.
Cell Phone Expenses
Most small business owners have one cell phone they use for both business and personal purposes. The cost of the phone and the monthly charges can be split up based on an estimate of how much you use the phone for business purposes.
Education and Conference Expenses
Any expenses incurred to educate yourself and improve your business can be deducted as a business expense. This includes e-books, physical books, online courses, in-person conferences, coaches, and any other educational expenses.
A common question I hear is whether or not clothing and shoes purchased specifically for work can be deducted as a business expense. It seems logical that you should be able to deduct an outfit you only wear for shooting weddings or speaking at events, but unfortunately that isn’t good enough for the IRS.
Most clothing won’t qualify as a business expense. However, if your clothing purchase satisfies these requirements (also found in the IRS Publication 17), then it can be deducted. If not, consider it a personal purchase.
-Clothing must be specifically required by your employer.
-It is not enough that you do not wear your clothes away from work.
-The clothing must not be suitable for taking the place of your regular clothing.
If you purchase fonts, stock photos, and other digital images for business use, you can lump these together and call the expenses Digital Downloads.
This category can include any software you pay a monthly or annual fee for. Some examples include your cloud accounting program, Google Apps for business, and Adobe Creative Suite.
Try not to get too hung up on what category to choose for each expense. The IRS is most concerned with making sure that you’re reporting all of your income and you aren’t over-reporting your expenses.
There are many more deductions available to small business owners, but these are the ones most commonly asked about. When trying to decide whether or not something is a business expense, think about whether it helped you to run your business or make your business better. And don’t be afraid to ask for help from an expert when needed.