and 2 things that are not!

If you’re like me, you’re googling everything that you don’t know. When it comes to taxes and categorization, it can be overwhelming all the information you find.

Did you buy something for your business? Just “write-it-off”, they say. Everyone is doing, they say…

“Jerry, all these big companies they write off everything” – Kramer

Do you even know what a write off is?

via GIPHY

An expense that you can “write-off” it means that it is tax-deductible. Expenses that are tax-deductible you can deduct them from your taxable income. IRS defines a business expense anything that is necessary and ordinary to run your business: “An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.”. You can see more info on Publication 535.

With tax-season in mind, here’s a list of 13 most common tax “write-offs” for entrepreneurs

  1. Start-Up Costs
  2. Home-Office
  3. Cell-Phone + Home Internet
  4. Advertising
  5. Education
  6. Legal + Professional Fees
  7. Bank + Merchant Fees
  8. Subcontractors
  9. Business Travel
  10. Meals
  11. Gifts
  12. Co-working space
  13. Subscriptions

Let’s take a deep dive into those categories:

Start-Up Costs

Start-Up Costs are the costs related to starting your business – from legal fees, market research, insurance, licenses, and permits. All this is a “write-off”. To simplify, if your start-up costs are up to $5,000.00 you can deduct all of it on that year. If it’s more, it’s a good bet to talk with your financial professional to help you out (read: depreciation)

Home Office

Most entrepreneurs, start working out of their homes. If you have a dedicated space for work and work only (your kitchen counter is not a dedicated workspace), you can “write it off”.

There are 2 ways to calculate the deduction – the Simplified Method or the Percentage of Home Method. For details, you can refer to this blog post.

Cell Phone + Home Internet

Assuming your office is at home, you can deduct a portion of your home internet for your business. The same applied to your cell-phone.

Emphasis on portion. You’ll need to calculate an average (%) of the usage that is for business. For your cell-phone, the best way is to get the past 3 months’ bills and highlight what was business-related calls, then you see what % that is from the total usage and that is what you’ll be able to write-off. You can use a similar method for your home internet as well.

Advertising

This is a good one – one of my favorites TBH. So many necessary expenses fall over this umbrella (you can read all about it here).

A few items included: business cards, online ads, promoted listing, promotional items (items with your brand – such as pens, cups, etc).

Education

Heck yeah! This is MY FAVORITE deduction, for sure. Investing in our business is important, but investing in our knowledge is invaluable. Cost to add value to your business and increase your expertise are 100% deductible.

A few items that are considered under the education umbrella:

  • Seminars
  • Subscriptions to professional publications
  • Courses and workshops to improve your skills in your field

Legal + Professional Fees

The cost of a lawyer, that much-needed contract are tax-deductible. Your accountant, your bookkeeper (🙋🏽‍♀️) are tax-deductible as well.

The person that can help you with write-offs is a write-off!

Bank + Merchant Fees

If you’re like me, you strongly dislike fees. Bank fees, credit card fees and, now, the inevitable merchant fees. Those are all considered tax-deductible. So… not that bad anymore, right?

Subcontractors

Your virtual assistant, your social media manager – those expenses are tax-deductible.

Business Travel

All those times you travel for a conference, to meet a client (for business reasons only) – oh well, those are tax-deductible.

For conferences and events, transportation, accommodation, and meals are write-offs.

Meals

When you meet your client for coffee, take them out for a lunch of dinner, those expenses are 50% deductible. If the said lunch was $50.00, you’ll be able to “write-off” $25.00

Gifts

If there’s one thing I love more than receiving gifts is giving them! You can “write-off” up to $25.00 per gift (for client, contractors or employees). Pretty neat, huh?

Co-Working Space

If you graduated from home office to a co-working space, the fee you pay is a tax-write off.

Subscriptions

This one is so general, yet so helpful. Any subscription you need for your business: Adobe, Canva, Toggl, Asana, MS Office, G-Suite, etc. Those are all tax-deductible. “Just write them off!!”

2 things that are not write-offs

  1. Your coffee when not meeting with a client: If you, from time to time, work our of a coffee shop, those coffees are not tax-deductible. They are not necessary to run our business. Truth be told, if we’re home, we’d probably brew our own cup.
  2. Clothing: If you buy clothing for your branding photoshoot, or even to work, those are not tax-deductible. The only “work-around” is if you added branding to your clothing – your logo or your tag-line – then it’d fall under advertising expenses.

Things to remember

  • Keep your receipts – having the receipt is the best way to prove what the expense what for and when it was incurred.
  • Maintain a system to keep track of your finances. It can be a ledger book (old school), a spreadsheet or an automated system. Having a system makes tax season so much easier.
  • When in doubt, ask a professional.
  • The best system is the system you use.
  • Sign up to our freebie library for bookkeeping tips and resources.