If you have formed an LLC, there are a variety of items you may be able to claim as tax deductions. Entrepreneurs and contract workers can receive a substantial amount of tax savings by claiming expenses like their home office, mileage, and even meals.
Here’s a list of some every day expenses you should look into claiming:
You can start deducting expenses as soon as you incorporate, meaning the moment you become an LLC or Sole Proprietorship. The IRS allows new businesses to claim the state and legal fees associated with becoming an official business within the first year of operation.
Use of Home or Dwelling
If you work from a home office, you can claim this on your taxes! Those who qualify meet at least one of the below requirements:
Your home office (or a structure on your property) is your principal place of business.
You regularly and exclusively use your home office for administrative or management activities for your business.
You meet clients or customers at your home.
You store inventory or product samples at home.
Expenses that fall under “Use of Home or Dwelling” can include phone lines, Wifi, and even utilities such as gas, electricity, and air conditioning. The percentage of your home that’s occupied by your office is the same percentage of your utility costs that are eligible for tax deduction. Please note that you cannot deduct the cost of utilities if you option to claim the “Simplified Home Office Deduction.”
The simplified home office deduction is just that. Keeping track and calculating all of your home office expenses can become complex, so the IRS offers a more simplified process. The simple method allows you to deduct $5 for every square foot of your home office. This deduction is capped at $1,500 per year, so it can only be used for offices up to 300 square feet. Using the simple method, you won’t have to complete a Form 8829 or keep a record of all your home office expenses.
I encourage you to calculate and compare which method would be most beneficial for you.
If you drive for business (this could be to a photoshoot or consultation), you can keep a log and file that expense in gas or mileage. The IRS assigns a mileage rate that changes year to year. If your vehicle is strictly used for business, you can file actual car expenses such as registration, insurance, parking, repairs, and toll fees.
Travel and Hotel
While we’re on the topic of transportation, you can also claim travel expenses such as flights and Uber rides when visiting a client or attending a business related event. Hotels or Airbnbs you purchase during business trips are also deductible.
Meals and Entertainment
An example of a business meal or entertainment expense would be dinner with a client or potential investor. It could also be the lunch you purchased for yourself while on a business trip. You can deduct up to 50% of the meal cost inclusive of the tip.
Gifts to Customers or Clients
It’s nice to show appreciation to a loyal client and even nicer that you can claim this as a deduction. Gifts are only deductible up to $25 per person, but in some situations you can actually raise that deduction. Say you would like to give a $200 bottle of wine to a client as an outright gift. $25 would be deductible, while the remaining $175 is on you. However, if you treat a client to a $200 bottle of wine over a business dinner, you can actually claim $100 as a deduction since the IRS allows you to claim 50% of business meals and entertainment costs. In this situation, now only $75 fall on you.
Property and Equipment
If you’re a photographer, you can claim the equipment needed to do your job such as cameras, lenses, editing programs, and lighting equipment. Similarly, if you’re a DJ you can claim your mixer, speakers, and software. As long as the entrepreneur owns the equipment and uses it to generate income, it is tax deductible. In addition, certain repairs on the equipment are also deductible. Your property and equipment must also have an estimated useful life span of over one year to qualify, so this cancels any equipment that would be purchased and disposed of within the same year.
I’m going to throw clothing under this category as well. Perhaps you have uniforms or branded T-shirts your team wears during events or while on the job. The costs of the clothing items can be claimed in addition to the cost of laundering them.
You can claim books, workshops, classes, webinars, and other material related to the improvement of your business as tax deductions. You can also claim memberships or subscriptions to professional organizations and publications. Your continued education is essential to the growth of your business, so claim it!
Advertising and Marketing
Many entrepreneurs hire contracts to create flyers, promotional videos, etc. These costs can be claimed as tax deductions. Similarly, social media ads, business cards, and even the costs associated with your website or editing apps can be claimed.
If you hire hair stylists, makeup artists, or other types of contract/freelance workers for business reasons, you can claim these expenses on your taxes!
If the bank you use for business charges annual or monthly service fees, transfer fees, or overdraft fees - these are tax deductible! You can also deduct merchant or transaction fees paid to a third-party payment processor, such as PayPal or Stripe.
What are some commonly unknown tax write-offs you feel entrepreneurs should know about? Let us know in the comments!