It’s that time of the year again. Tax season is coming up! If you’re fairly new in business, this might all be totally new to you.
In this post, I want to share with you 8 small business tax write offs. These are things you can deduct from your taxes. The goal is to deduct as much as possible so you can get the most of your tax return earnings.
Hey, my name is Mei and I help makers, artists and designers create a consistent income selling their handmade products online.
Before I share with you my list of tax deductibles, I need to say that I’m not a tax expert or accountant. I have, however, been doing my own taxes since I came here to the United States 10 years ago, so I’m very familiar with this kind of stuff.
I also have a math degree, so you can trust that you’re in good hands.
1. Qualified Business Income Deduction
This is a fairly new rule as of 2018 called the Qualified Business Income Deduction, which says that you can now deduct 20% of your income.
That’s pretty nice, right?
The requirement is that you must make under a certain amount of income in order to qualify for this deductible. The number is pretty high, but it also changes every year, so if you want the most updated figure, definitely check out the IRS website.
Here’s an example of this. Let’s say you made $20,000 last year in sales, and $8,000 were business expenses. That means you had a profit of $12,000. You can deduct 20% of that profit, which is $2,400. Just like that. You have a $2,400 deductible.
2. Housing Deductible
You probably work from home, right? If you have a space in your house or apartment that’s exclusively dedicated to just your business, you can deduct that.
You can deduct things like:
- your mortage interest
- utility bills
There’s a simplified method for how you do this, and that’s by taking $5 multiplied by however many square foot is the size of your home office.
So if your craft room is like 15 ft by 10 ft, that’s 150 square feet. You take that and multiply by 5, and from that, you can deduct $750.
Just keep in mind that you can only deduct up to a maximum of $1500.
Did you know that you can deduct mileage for driving to craft shows and markets and other trips you might take that’s business related? For example, driving to the craft store to buy materials and supplies.
This is why it’s a good habit to start tracking or writing down every trip you make to where and when so you can easily calculate this during tax time.
I keep everything for wherever I go in my Google Calendar.
When you know where you’ve been, you can bring up Google Maps to figure out the miles you’ve driven for that specific craft show.
You’re going to total up all the miles you’ve driven in the last year. Once you have that number, there are 2 ways to deduct this, and I like using the first way which is using the standard mileage rate.
It’s so easy.
You just take all the miles you’ve driven and multiply that by the IRS’ standard deduction rate for the year. The rate for this year is 57.5 cents per mile. If you’ve driven 100 miles, you can deduct $57.50.
This is especially impactful for you if you do a lot of craft shows and events and if you travel to do certain shows, you definitely want to deduct your mileage.
This is one of my favorite things to deduct because I love taking courses and learning from other people.
If you’re like me, whatever courses you signed up for, maybe it’s my signature course, A Sale A Day Business System, you can deduct the price of the course from your taxes.
This also works if you got coaching from someone, or if you’ve bought business books. Even if you have something a Creative Live subscription, these are all tax write offs for your business.
Your website, whether that’s on Shopify, Wix, Squarespace or whatever it is you use, that’s deductible along with any apps you’ve got installed on your website that you pay for.
If you pay for an email service like Mailchimp or MailerLite or if you have a shipping service like ShipStation or Endicia, those are deductible. If you have social media software like Planoly or Later for scheduling Instagram posts and bookkeeping or inventory management software, that's all deductible.
We use so much software these days to keep our business going and they can all be deducted.
Did you know that even taxes themselves, can be deducted?
That’s pretty meta.
I always thought this was kind of a weird thing you could deduct, but I’m not complaining. Remember, the more you deduct, the more money you get back from tax returns.
When you’re in business for yourself, you have to pay what’s called a self-employment tax. This tax includes social security and Medicare, which you would normally have to pay for anyway if you have a job and you’re employed by someone else. Just because you’re self-employed, doesn’t mean you can avoid paying for those things.
When I say that taxes can be deducted, you can deduct part of your self-employment tax and even your sales tax or state income tax.
7. Marketing & Advertising
Whatever you spend on in your business that has the purpose of promoting your business, like business cards, postcards, paid Facebook ads, those can all be deducted.
For me, I spend a lot of money on paid ads, so I can deduct A LOT from this category.
Your business related meals can be deducted. Say, for example, you’re traveling for a multiple day craft show and it’s a 10 hour show so you buy lunch from the food truck at the show. You can deduct 50% of the cost of your lunch for being at that craft show.
Generally speaking, if you bought something that was used to benefit your business and you can document the reasons for it, you can deduct that off your business income.
For example, if I’m about to speak at an event, I might get my hair, makeup, and nails done. Normally, you wouldn’t ever deduct those, but, the fact that this was done for the business event, I can deduct those costs for that specific occasion.
So that’s my list of eight things that you may not know about that you can write off. Of course, there’s so much more you can deduct, like your materials, supplies, equipment, if you’ve hired help from freelancers or independent contractors. Those are all deductible.
Don’t panic if all of this sounds super confusing.
I highly recommend using tax software to help with all of this because it can often help you spot deductions that you otherwise wouldn’t know to make.
We use TurboTax and we love it. Before using software, we were filling everything in digitally using PDF’s and calculators and it would take us an entire weekend to do this. With the help of software, we can often finish doing our taxes in less than a day.