10 Overlooked Tax Deductions for Small Business Owners
Welcome to Home Biz Tax Talk, my name is Lissandra Everett, I am the Home Business Tax Lady where I help home business owners win the tax game. There is no question that a business from home, with an office you operate out of is THE BEST tax strategy for everyone living in the United States. Many of the expenses you have every month can become legal tax deductions with simple documentation. I have always believed that anyone who lives in the United States and is not operating a business from home simply doesn’t get it!
I understand that most Save Your Bucks readers understand and are taking advantage of this for deductions and profits, so I am not going to try to sell you on what most of you already understand.
Today, I want to share with Save Your Bucks Readers The Ten Overlooked Tax Deductions For Home Business Owners, this is going to be really key for this year because with tax reforms some of this stuff might be going away. All right, so let’s go with number one.
1. Bank Fees Write-Offs for Small Business Owners
If you have a business bank account any fees associated with that bank account is tax-deductible. Now, what most people don’t know is fees that, you know, like for PayPal, that takes a percentage and different payment processing, so lots of different companies use lots of different payment processors like an e-wallet or something like that.
The fees that you pay for your e-wallet or whatever kind of payment processing that your company uses, those fees are tax-deductible so make sure you add them up and deduct them.
2. Subscription Fees Write-Offs for Small Business Owners
I’m particularly talking about fees that you pay to maintain tools for your business. So, for my eCommerce people that have an Amazon store. Amazon charges $39.99 a month for you to have your store so that fee is tax-deductible. If you pay a monthly fee for an affiliate product that you might be an affiliate for, those fees are tax-deductible. So, any type of fees that you need to pay to maintain a business product, tool or education, those fees are tax-deductible.
SaveYourBucks.com is a free website, but if a membership area with advanced training was offered, that monthly fee would be deductible.
3. Samples Write-Offs for Small Business Owners
This is one of those categories, especially for my folks that have a physical product that you don’t need to overlook! If you give samples to people, then those costs are tax-deductible.
However, you must keep records. You don’t just go give your samples all willy-nilly. You need to document the information. You need to have the date, the customer, their email address, phone number, some way that you can contact them to be able to follow up, but you have to document this in order for your samples to be tax-deductible.
You’d be able to substantiate that deduction and so, one of the tips that I give my network marketing friends that have physical products is that for your samples you don’t get volume on, you only get volume for full-size products.
So, if you’ve got a full-size product then you can give samples away. If you give a lotion to your host if you market skincare products or the bottle of wine you use. If you host wine-tasting parties. As long as you use the entire product for samples.
Just remember, you have to use that entire product for samples. So if you have a full-size product that you can divvy up among people. I don’t care if you squirt lotion on 50 people, if you use that full-size product that way you can write off the cost which is what you paid for it, not the retail value. So you get the tax deduction and you get the volume from your network marketing company, are you following me? Network Marketers, use that tip! It can make a significant impact on your bottom line.
4. Mileage Write Off for Small Business Owners
So your mileage, if you’re going to networking events & you’re traveling to and from the airport, if you are delivering a product, or attending a local meetup group, those miles are tax-deductible. Again, your documentation is the key. The date from and to, the customer, why you went there, to deliver a product, and the number of miles. If you just go to one customer and come back, you get that round trip mileage. But if you’re out making your rounds then it’s the total of the miles that you run for the day. Even if you are delivering products to your relatives in another state during the Thanksgiving Holiday!
So, if you leave your house and you go to James’ house, and Sue’s house, and then come back to your house, then it’s that round trip mileage that’s deductible.
That’s the mileage thing and if you do it right, when you’re going out doing your errands and shopping, you can really maximize this, it’s an efficiency thing and with a little planning you will be able to maximize that deduction. So if you happen to have to go get some office supplies from the store that’s right next door to the grocery store, you know… Yay you! All right? Okay, mileage number four.
5. Contract Labor Tax Deduction for Small Business Owners
If you go on Fiverr, for instance, and you hire somebody to do graphics or whatever, that can be deducted. There are lots of valuable services provided on Fiverr. for all small business owners. Services start at only $5.00 and most of my tax clients. use outsourcers from Fiverr every week.
If you hire someone to write a blog post for you, if you hire someone for video editing, if you are dealing with a specific person, you know, then that is deductible under contract labor, or even if you use any other outsourcing service websites.
Totally an aside…
But if you use a site like that to hire independent contractors to do work for you, that fee, that cost of labor is tax-deductible to you. Now, if you’re using someone in the United States, and you pay them over six hundred dollars in the year, you do have to issue them 1099.
So if you have a VA that’s in the United States or a graphics person that’s in the United States, and they are an independent contractor and you pay them over six hundred dollars so, number one, you need to collect a W-9, okay? And number two, if you pay them over six hundred dollars in one year. It doesn’t have to be at a time, just an aggregate over a year. Then you have to issue them a 1099 and the deadline for that is January, 31st.
But if you have people overseas, you may or may not need to issue 1099. It really just depends on the country that they’re from, so get with your tax person if you are unsure.
Most of the small business owners use Fiverr but use various providers for many different tasks. I don’t recall any of our tax clients paying a US citizen more than $600 in a year, but it could happen.
Why we are on the topic, if you have not checked out the over 3,000 services offered on Fiverr, you really should. JUST CLICK HERE TO TAKE A QUICK PEEK!
6. Commission Fees Tax Write-Offs for Small Business Owners
Let’s take Uber for instance. So, with Uber, they keep a certain percentage of whatever they pay you, right? This is what I’ve seen, I think that’s how it works. I don’t drive for Uber, but some of my tax clients do. I do believe they keep a certain portion of what they pay you, so what you have to do, and this goes for my eCommerce people as well, what you have to do is claim the total amount earned as your income and then you deduct whatever part that Uber keeps.
The same goes for Amazon sellers. Track what Amazon keeps as commissions, or whatever kind of fees, okay? So that is completely deductible and if you have affiliates, for instance, you have a product that you’re selling and you have affiliates that sell for you, then you claim the total amount of income from the product and then you deduct what you paid to affiliates as commission fees. So for our e-commerce sellers, this is really important for e-commerce people, because I want you to get this right because it really is a sticking point.
So Amazon, Shopify, or whoever… what they pay you is not what you claim. You claim the total amount of your sales, your gross sales and then whatever part that they keep that is deductible as commissions and fees, okay? So if you sell a $500 product and let’s say Amazon keeps $30, then you would claim a $500 sale and then $30 as their fee, so that the rest would go to your incomes. I hope that makes sense to you guys. I don’t want you to pay more than you actually owe.
7. Business Gifts Tax Deductions for Small Business Owners
At the time of this writing, it’s the holiday season. So gifts are tax-deductible. Gifts to your clients or potential clients. Now, you have a limit of $25 per year, per person and a husband and wife count as one person, so it doesn’t matter what you spend. If you spend a thousand dollars you get to deduct twenty-five dollars. So twenty-five dollars per person, per year, husband and wife count as one person.
You need to document who you gave the gift to, the total amount spent, and what your deductible portion is, okay? So that’s it for gifts.
8. Home Office Tax Deductions for Small Business Owners
All right, so the part about the home office is this: is that you don’t have to own a home to claim a home office deduction. If you rent a home, apartment, whatever, you can claim your home office deduction. The key is that you have to have a space that’s dedicated to your home office. I don’t care if you partition it off with one of those dividers.
Whatever is going to separate your home office as your dedicated workspace, okay? And that percentage of your total square footage, that is how much you can deduct. So that also includes utilities, any repairs related to your home office. So if you’ve got to paint your home office then that is a deductible expense. If you paint your whole house and your home office is included then you deduct the percentage.
9. Lawn Care, Snow Removal, Trash Pick Up can be Deducted
Now, one sticking point is that a lot of people want to try to deduct their snow removal and lawn care: If you don’t see customers at your home then, deducting lawn care and snow removal is not tax-deductible for you. You have to be seeing your clients regularly in your home, as a regular part of your business, okay? Of course, you all know me. I’m a tax professional but I don’t meet clients in my home. So even though I have a lawn dude, I can’t deduct my lawn care because I don’t see clients in my home.
Along with the Home Office Deduction is Office Equipment.
If you had to buy a new desk if you’ve got to buy a file cabinet, even if you can’t claim the home office deduction, but you can still deduct your office equipment. So, like I said if you’ve got a file cabinet, if you’ve got to buy a desk, a table, whatever you’ve got to use as office equipment, you can deduct that. Depending on what it is, it may have to be depreciated over a certain number of years, but it is deductible. Again, documentation is key.
10. Tax Preparation & Accounting Fees
So, with the tax reform, this may be something that’s going away. I’m not exactly sure because they mentioned it for individuals. That you can’t deduct your tax preparation fees if they itemize.
That is no longer a deductible expense, but I’m really not sure about the language for business. But nuts and bolts is your tax prep fees, bookkeeping fees, accounting fees, those fees are tax-deductible. That includes your software, so if you file your own taxes and you use TurboTax, or one of the other ones, then fine. If you pay for QuickBooks, whether it’s the desktop version, online… FreshBooks, Wave, whatever… I think waves are free, but anyway. If you pay fees for bookkeeping software that is tax-deductible as well.
So, you want to make sure that you go through and you make sure you deduct everything that you’re entitled to deduct and have that documentation, because dude, it’s the law. Take advantage of the law, right? Because you want to reduce your taxable income.
Now, the one thing I will tell you is that your home office deduction cannot create a loss. That means, let’s say you show a thousand dollars in profit before your home office deduction. If your home office deduction makes you show a loss of five hundred dollars, then you can’t take the full home office deduction. But it can be carried forward for the next year. So, you definitely want to make sure that you claim your home office expenses because even if you can’t use it this year you might be able to use it for next year. And if you really want to be extra careful, take a picture of your home office every year and put it with your tax return, because a picture is worth a thousand words. When the IRS is trying to say “this is not a home office” and you’re like “Pow!”
Those are 10 Overlooked Tax Deductions For Home Business Owners. A lot of people don’t know that fees that they pay are tax-deductible, and how you need to keep documented records. That’s the important thing. So what you get paid from… Again, I use Amazon because I sell on Amazon, and they pay you a certain amount once they deduct their fees and stuff, but you’ve got to report your gross sales, and also for third-party payers like Amazon, like PayPal, like Uber, or whatever. If you have over 200 transactions and $20,000 in 200 transactions and $20,000 they issue a 1099 K, though that 1099 K shows the gross amount of your sales, they do not report what their fees are. So that’s why it’s important for you? When you’re reporting to make sure that you are reporting your gross sales. Because that’s what they’re reporting to the IRS on your 1099 K.
I think that is it. So, guys we’re here, we’re at the end of the year, right? We have 11 days until the end of the year. So take this time to go through everything. Again, maximize those deductions, start putting in the legwork now, because on December 31st, 11:59 59 seconds, once that clock turns, and it starts all over again.
