You asked and Mazuma is delivering–we’re talking business expenses today!
What business expenses are tax deductible?
The broad answer to the often asked broad question comes from IRS Publication 535 “To be deductible, business expenses must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. 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.”
So as you think about your business, ask yourself, “What do I need to pay for, in order to produce the income my business generates?” Or another way you might word it, “What do I pay for that helps my business succeed in producing income?”
The areas that get a little “gray” and confusing are the things you pay for that benefit your business AND you personally. Such as food, entertainment, or travel. For example, did you have to buy that nice steak at Ruth’s Chris Steakhouse for your client in order to keep your business doors open? Probably not, but did it benefit your business? Yes, filling a client’s belly with melt in your mouth steak increases the chances that they will stick around a little longer. Because of the nature of this “business meal” expense, in that it benefits you personally to some degree, results in the IRS saying you can deduct 50% of the business expenses on your tax return.
Another example, what about your car? Certainly if you didn’t have means of transportation, your business would not be able to operate. Therefore, the amount of your car expenses you can write off depend on the portion of time it is being used for business, versus used for personal purposes. Again, the car benefits you personally at times, so the IRS will not let you take a deduction for all of the expenses. If you drive 10,000 miles during the year, and 8,000 are used for business meetings, and necessary business travel, then 80% of the total car expenses would be for business expenses and thus deductible on the tax return. Or, in order to meet the same objective, the IRS will allow you to deduct 56 cents for each business mile traveled during the year, instead of a percentage of actual expenses.
Here is a list of some examples of deductions that might be applicable to bloggers, but any business that incurs these costs could likely deduct them:
– Advertising and promotion
– Blog templates or designs
– Books, magazines, online subscriptions
– Cell phone
– Cell phone services
– Computer accessories
– Computer purchase
– Computer software
– Conference fees
– Contest prizes
– Crafts for display on blog
– Credit card fees
– Data storage
– Design services
– Domain name registration
– Education costs
– Entertainment related to business
– File cabinets
– Food during business meetings
– Health insurance
– Home improvements
– Home maintenance and repairs
– Images or stock photos
– Internet access fees
– Internet hosting fees
– PayPal fees
– PO Box
– Printer ink
– Professional associations
– Professional services (CPA, Attorney)
– Search Engine Optimization
What constitutes a “home office”? How do I factor that into my taxes?
According to the IRS, a home office is only a “home office” if the space is used “regularly” and “exclusively” for business activities. This means the are of your home needs to be segregated from other common use areas, like in a room or area separated by furniture. Primarily business activity, such as meetings with customers or working on your computer, happens in this area. The area can’t double as a play room for your kids when you are not there. It can’t be where your kids come to do their school work when you are not there. It’s a designated space used for your business activity, and if an IRS agent walked into your house unannounced, you would be able to point the area out and demonstrate that it is office space and indeed part of your business expenses.
The IRS recently issued a “safe harbor” rule that allows you to take $5 per square foot of home office space, up to 300 square feet.
If you don’t use the safe harbor method, you take the office space square footage and divide it into the whole square footage of the house to get a ratio. Then you multiply that ratio by the total utilities, maintenance, mortgage interest or rent, expenses you paid during the year to get your home office deduction.
Ben Sutton is the founder of Mazuma USA, an accounting firm providing tax, bookkeeping and payroll services to small businesses. Since founding Mazuma, Ben has established himself as an expert in the small business world. He’s still driven by that same desire to provide accounting help to all small businesses – from photographers, bloggers and creatives to lawyers, doctors, and dentists, everyone needs affordable accounting help. Ben is a Certified Public Accountant, and a member of the American Institute of Certified Public Accountants. But Ben considers his greatest achievement and credential to be his happy wife and four children.
Mazuma is a licensed accounting firm (CPA) based in Orem, Utah, and members of the AICPA. We provide professional accounting services to businesses and individuals, with a focus on small business bookkeeping and taxes.