Update: This post has been updated to reflect changes made by the Tax Cuts and Jobs Act.
Is it totally nerdy to admit that I have favorite tax write-offs? Like I actually have tax write offs that I like better than others?
I’m the mean girl of tax write-offs !
But in all seriousness, being self-employed means that we get some juicy write-offs for our business that can be pretty great. These write-offs help lower our tax bill, while also keeping our business thriving.
Every business is different and what you can write off varies based on your business. Always consult a tax professional before doing your taxes. This blog post is for educational purposes and not intended to be tax, finance, or legal advice.
Here’s a list of my MVP write-offs for my small business:
I have no idea why, but for some reason, self-employed folks always forget to write off a percentage of their cell phone bills. If you are one of those folks- listen here! You can write off a portion of your cell phone bill based on how much you use it for your business.
I love this. With the advent of smartphones and needing to buy data packages, cell phone bills can get PRI-CEY.
Also, because my phone is so smart, I use to for all things business: checking and responding to emails, scheduling my clients, social media marketing, and I even have an app that records my coaching calls.
How much of your cell phone bill can you write off? That depends on you and your business, but here’s a tip: Don’t write off 100% unless you have a cell phone dedicated exclusively to business use.
Spend a week tracking how often you use your phone for business versus personal use. Grab a notepad and on one sheet write “Personal” and another “Business”. Make a tick mark every time you use your phone on one of these pages. At the end of the week, you’ll have a clear sense of what percentage you can write off.
I’m so obsessed with learning new things and because I’m kinda obsessed with my business too, I love learning new things that can grow my business.
Lately, I’ve been really into taking online courses, but last year I invested in a pretty hefty 9-month certification program.
The cherry on top of all this learning? That I can write it off.
Education can come in a lot of different formats:
Online courses or workshops
In-person training and workshops (including long-term programs)
Books and ebooks
Audio Books or courses
Reference materials (magazines, journals, newspapers)
Of course, the education has to connect to your business somehow. It doesn’t have to just be in your industry, but it does have to have something to do with your business.
So, if you are a photographer and take a social media marketing class- that would count. If you take a knitting class- not so much.
Gifts might actually be my favorite write off because I love that I can write off being thoughtful!
You can write off gifts if you give something to someone that has to do with your business.
Common examples are:
Gifts to colleagues and clients as a thank you for referrals
Gifts to clients as a thank you for hiring you
Gifts to clients or colleagues for a special occasion
Gifts to subcontractors that you hire as a token of gratitude
One very very very important thing to keep in mind is that you are only allowed to write off $25 per person per year in gifts.
So, if you buy your colleague Skyler a $50 bracelet as a thank you for sending clients your way, you can only write off $25.
I looooooooove me some home office write-offs! Okay, but before we get stoked on home office, let’s go over the IRS rules around home office.
Home office is defined as an “exclusive and regular place where you do you business”.
Exclusive means it has to be somewhere that is specifically for business use. That means it cannot be somewhere in your home that is used personally as well. If you work on your dining room table, couch, or on a desk in your living room- it doesn’t count.
If you have a room in your home that is set up for business use- read on!
The next part is regular- this means you have to use it on an ongoing basis. You can’t have a home office that you use once a year to host a party.
Now, if you meet these two requirements, the home office write off means you get to write off a portion of your rent or mortgage and bills associated with your home.
The amount you can write off depends on the square footage of your home office in relation to the square footage of your entire home. Talk to a CPA about calculating this number. Don’t try to DIY it- seriously, find a good CPA and ask them to help you calculate your home office write off.
The reason I’m so enamored with the home office write off is because you also get to write off 100% of the repairs, furniture, and decor that go into that room. So, if you’re newly self-employed and just getting your office set up, you can write off the costs associated with that.
I’m sure you’ve heard about people writing off business trips, and that’s all fine and dandy, but what I really love is writing off travel within my city!
You see, sometimes I don’t want to (or can’t) drive. And sometimes I splurge on a Lyft or taxi to a business meeting or function. And all the time I write these splurges off because, guess what, they are deductible!
The deal with local travel is that you have to be traveling to somewhere business related. Think meetings, functions, and events. Don’t think picking up your cat from the vet- that’s not an example of business travel.
Local travel is more than just taxis and Ubers, you can also write off public transportation within your city.
Meals are actually not one of my favorite write-offs (I just don’t eat out a lot), but it is a fan favorite of practically every other person I know, so I’m giving it a spot on my list!
Meals are any professional meal you eat with another person where you pay for yourself and the other person.
The most common scenarios are:
Eating out with a colleague or someone related to your industry
Taking a client out to eat
Eating out with someone who you have hired or plan to hire
Eating while traveling for work (this is the only scanario where you don’t have to pay for another person’s meal for it to be deductible)
Only 50% of meals are deductible, which is the other person’s portion. This means that you only get to write off half of the total of the meal. So if you go out with a potential partner in a new venture and the bill is $100- the deductible portion is $50.
Note: As of 2018, client entertainment is no longer deductible and this blog post has been edited to reflect this change.
When I was a kid I used to spend hours playing DOS Tetris while my dad taught classes in his computer lab. Since then, I’ve always loved teaching myself new software and seeing how it can boost my productivity. (I already told you, I’m a nerd)
Since I love software sooooooooo much, getting to write it off is the most rad gift the IRS could give me!
Obviously, the software you write off has to relate to your business, but software is no longer limited to applications on your computer. Cloud-based software (like Dropbox and Google Apps) and apps both are deductible if you use them for your business.
iTunes is one of the biggest culprits for missed deductions because most people still have their personal card linked to their account. If you are one of these people and regularly buy business software and apps, consider changing the card on file to your business card.
Are you swooning over your tax write-offs yet? Let’s chat in the comments:
What write-offs have you been missing? What do you need to do to level up your write-off game?