This post is for informational purposes only.
Coming up with that perfect business idea and launching your new business is a lot of work! Once your business is off the ground and you’ve begun to make some money, however, you quickly learn that making money is only half of the battle. To maximize your profits, you’ll want to contain your operating costs as much as possible. At the same time, you’ll want to capture as many deductible business expenses as you can in an effort to save on your taxes.
Most of us recognize the standard business expenses that we can deduct, including:
1. Office Supplies
Be sure to hang onto your receipts for office supplies, as the “Staples” charge on your credit card statement is not adequate documentation. You’ll need a receipt that shows the vendor name, date, and a line-item listing of each item purchased along with an amount.
2. Furniture, Computers & Peripherals
Most furniture or equipment purchases will actually be deducted through a depreciation expense. If your business is showing a profit, you will be able to write off 100 percent of the cost of the item through the “Section 179” deduction. If your business is not showing a profit, you’ll have to stretch the write-off over three, five, or seven years.
3. Software & Computer Supplies
When you purchase off-the-shelf software, you can deduct it in the year of purchase through the “Section 179” deduction or you can write it off over three years through normal depreciation expense. Monthly subscriptions for online services, though, can be written off as they are paid.
4. Insurance Premiums
For professional liability insurance or product liability insurance.
5. Telephone and Internet Access
Be sure to claim long-distance charges and Web hosting costs as business expenses. The IRS prohibits you from deducting the primary phone line into your home, but an extra line dedicated to your business would be deductible.
6. Dues and Subscriptions
Industry association dues and industry-related magazine subscriptions are fully deductible.
7. Advertising Costs
Whether it’s banner ads, Google AdWords, Facebook ads, or a yellow pages listing, advertising is fully deductible.
8. Bank Fees
Monthly service charges on your business checking account, merchant service charges and even PayPal fees are deductible business expenses. If you use a credit card exclusively for business purchases, the finance charges and annual fees on that card will also be deductible.
9. Postage & Shipping
The cost of shipping your product to your customers is deductible, as well as postage stamps and shipping supplies.
10. Professional Fees
Your accountant, legal fees, your Virtual Assistant or any type of consultant are fully deductible. Be sure to obtain the provider’s Tax Identification Number, however, as you’ll need to issue them a 1099-MISC at year-end if you pay them $600 or more in a calendar year. However, if you pay independent contractors via third-party payment processor like, PayPal, you do not need to issue a 1099-MISC as these payments are covered on the 1099-K form. See the IRS website or contact your accountant for any questions regarding this matter.
11. Business License and Permit Fees
12. Training and Education Costs
If you attend any type of training course for your business, be sure to keep receipts to prove that it’s business-related. Whether it’s an online webinar or an in-person seminar, it will be deductible if it helps you run your business.
There are some other deductions that are often overlooked, however:
13. Home Office Deduction
Stay tuned for my next blog post on all the gory details on how you can write off a portion of your home’s costs. The key to this deduction? Documentation, documentation, documentation!
Every time you drive somewhere for your business, you can deduct fifty cents per mile. Even if you operate your business out of your home, you can still claim mileage for trips to the post office, the bank and the office supply store. Mileage to client meetings or to networking events is deductible, as well. Just be sure to log the date, miles driven, and purpose of each trip!
You can deduct up to $25 per person for a direct gift to a client or other business associate.
16. Small Fees
Did I mention that PayPal fees are deductible? Etsy and eBay listing fees, as well as other transaction fees, are also deductible.
17. Accounting Fees
If you hire a professional tax preparer at tax time, a portion of your bill will be a deductible business expense. If you ask, your preparer should be able to tell you the portion of the bill that’s attributable to your Schedule C business income.
With a little bit of diligence and a few file folders, you should be able to claim all the business deductions to which you are entitled. Nobody wants to pay too much on their tax bill and these tips will take you a long way to limiting Uncle Sam’s share of your hard-earned profits!
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Deb Howard Greenleaf is a virtual accounting & bookkeeping provider who helps consultants, solopreneurs and small business owners with their financial management, taking care of the books so they can focus on their business. She shares tax tips and accounting pointers through her blog, the Small Biz Numbercruncher. A lifelong resident of northwestern Pennsylvania, Deb shares her home with five pets, two young kids and one very patient husband!