- 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
- 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
- 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:
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.