Friday, March 11, 2011

Business Write-Offs

Taxes are often a big concern for many new business owners.  They are usually unsure of what they can or can't write-off for their business.  Here is what I know about acceptable write-offs and deductions over the years to the best of my knowledge.  Of course, you should always consult with your tax professional for the final word!

  • Office equipment necessary to run your business: phone, computer, laptop, printer, fax, etc...
  • Utilities that you use towards your business: phone and internet
  • Office supplies: paper, ink, pens, file folders, envelopes, post-its, etc...
  • Other supplies necessary to operate your business: give-a-way items for parties, order forms, tickets, clip boards, display items, rolling carts, organizational totes
  • Marketing materials: catalogs, pamphlets, advertising costs
  • Samples
  • Postage: stamps, and any postage paid to mail documents, product, catalogs, invitations, or fliers to customers, companies, or other business professionals
  • Mileage:  keep a mini calendar or log book in your car to record all mileage for business related appointments.
  • Other auto expenses: tolls and parking.
  • Meals: for business trips or for business meetings
  • Travel expenses: flights, hotels, taxis, buses, trains, etc...
  • Professional fees: start up fees, training or conference fees, credit card processing fees, vendor event fees, website fees, banking or credit card fees
  • Books (education expense)
  • Health Insurance and Medical expenses
  • Donations- items or money
  • Uniforms
  • Child Care expenses
  • Tax preparation fees including research publications and software costs

Appropriate write-offs should always be for business use!  There is a fine line on some write-offs or deductions.  Here are some you should tread carefully with.

  • Child care "expenses" are only allowed if they qualify for the child care credit - which is a separate form (2441), not just a line item.  (See below for a link.)

  • No clothing deduction is allowed if the clothing is ordinary street wear - regardless of a requirement by your profession to look a certain way.  In other words, painters are not allowed to write-off painters pants, because they are ordinary street wear.  Only uniforms and safety equipment are deductible clothing items.

  • Looking professional is important but you cannot write-off any personal care items such as manicures, hair cuts, and pedicures.

  • Writing-off a percentage of your home as a "home office" will raise a red flag.  Many professionals recommend this for people who have separate entrances to the office, meet with clients in this office, and do not store any non-business effects in the room.  (Check out one of my earlier posts on Audit Risks.)

  • Business meals are also a red flag item.  You are required to keep the receipt along with a record of the business purpose of the meal.

Small home businesses could easily file their own taxes by completing the Schedule C form and the self-employment tax form in addition to the normal 1040.  However, using a tax professional, especially one accustomed to working with home-based businesses, can save you time and money.  Most tax professionals would not recommend using a tax preparation software.  (Stay tuned for more on this soon!)

Here are some tax document links:

1040  form                                                               
1040 instructions  

Schedule A: Itemized Deductions form                         
Schedule A instructions

Schedule C: Profit or Loss from Business form              
Schedule C instructions

Schedule SE: Self Employment Tax form                      
Schedule SE instructions

Form 2441 Child and Dependent Care Expenses            
Form 2441  instructions

A special thanks to Dawn Pettiglio, CPA, for helping me clarify a few details.

As always, if I've missed something you feel is important, or you have something to add, please leave a comment.


1 comment: