The small expenses of running a business can add up quickly, so be sure you keep track of the expenses you can deduct (i.e., subtract from your profits for the year when determining your tax situation).
In order to deduct business expenses these expenses must be ordinary and necessary. This means that they are common to people in your line of work and necessary for you to do business. Keep in mind that business expenses that are ordinary for one person may not be for another, so be sure to evaluate your specific situation.
Below are some common business expenses that many business owners may overlook.
Internet – Your deduction for your internet connection cost depends on your specific situation. For those who work from home, the IRS knows we are not using the internet connection for business all the time (we’ve got to take Pinterest breaks, right?) so you aren’t going to be able to deduct the entire cost of getting your home office connected to the web. However, you can deduct a portion – the “business portion”. This requires you to evaluate how you use the internet at your home. Let’s say you work from 9 to 5 and watch Hulu with your family from 6 to 10. Eight of your twelve total hours of internet use each day are for business, so your business percentage and related deduction is eight-twelfths.
Website – Have a business website? The costs of domain hosting, registration, and graphic design are all deductible.
Cell Phone – Your phone deduction depends on how you’ve set up your communication plan. If you have a separate phone line for business, it’s completely deductible. If you use the same phone for business and personal, you need to determine the percentage the phone is used for business and deduct that percentage.
Transaction Fees – Doing business online can wrack up a lot of fees. Fees associated with your sales platform (shopify, Etsy, Big Cartel, Cargoh, etc) and payment methods (Paypal, credit card fees) are all deductible.
Professional Associations – Any dues to join professional organizations are deductible. If you pay to maintain a license or other certifications, those costs may also be deductible. You may also deduct the cost of subscribing to a professional association’s magazine or newsletter.
Shipping – Whether you regularly ship products you create or this is a one-time shipment of samples to a potential sponsor, postage and shipping supplies are part of the “office expense” you report on your Schedule C.
Business Events – If you attend events such as conferences, trade shows, fairs, or other events, your cost of attending may be deductible. Keep track of admission ticket prices, booth fees, and other associated costs.
Business Use of your Car – Record the miles that you travel in your personal car for business reasons. This does not include the cost of driving to and from a regular office space you maintain, but, rather, miles traveled to conferences, trade shows, or client visits.
Keep in mind that It is your responsibility to keep proper documentation to maintain all your business expenses, so be sure you have a good system in place to file and retain receipts!
