Once tax time rolls around, us business owners start asking, "What the heck can I deduct?"
Because we own our own businesses, we have the ability to deduct purchases that go towards the operation and improvement of our businesses. The more you're able to deduct, the less tax liability you'll have (meaning lower taxes!).
Most business deductions are pretty obvious - like home office expenses, mileage, and office supplies - but some less so. Keep reading to learn about six little-known deductions you can (and should!) be making this tax season.
Little-Known Tax Deductions You Can Make in Your Business
1. Professional Development
You know that course you invested in this year to help you scale your business? You can deduct that!
Purchases like...
Business coaching
Educational courses
Marketing courses
Educational subscriptions
Professional development books/audiobooks
Courses related to improving your craft
... can all be deducted so long as they directly relate to what you sell and how you sell it. So go ahead and deduct that business coaching program!
Bookkeeping Tip: Anyone you pay more than $600 (like a coach or consultant) needs a 1099 form at year-end. Request a form W-9 when you first start working together so you'll have it ready at tax time.
2. Merchant Fees
If you use a payment processing software like PayPal, Square, Stripe, Shopify, or Quickbooks, you already know merchant fees are a pain. Good news is you can deduct them!
You can do this one of two ways:
If you calculate your income based on how much money is deposited into your business checking account, congratulations! You're already deducting merchant fees.
If you calculate your income based on the total sum of your invoices, deduct the merchant fees as a business expense. For example, if you send an invoice for $1,000 but Stripe only deposits $950 into your bank account, you can count the $50 merchant fee as an expense.
Either way, your payment processing software is necessary to your business, and those merchant fees are a necessary evil. Make sure you take them into account!
3. Your Cell Phone Bill
Are you constantly scrolling Instagram for new clients? Or maybe you take business calls on your personal cell phone? If so, you can absolutely deduct a portion of your cell phone bill.
If this applies to you, calculate what percentage of time on your personal cell phone is used for business purposes. Then, you can deduct that percentage of your cell phone bill as a business expense.
For example, if you pay $1,000 per year for your phone plan and use your phone for business purposes 25% of the time, you can deduct $250. Score!
Bookkeeping tip: Do a time audit for a day or week to decide how often you're on your phone for work versus business. Unless you have two separate phones, it can't be 100% (even though sometimes it feels like we're always working).
4. Client Gifts
If you're one of those super sweet business owners who sends flowers on their clients' birthdays, 1) let's work together and 2) you can deduct those!
This one comes with a hard-and-fast rule, though. You can only deduct up to $25 worth of gifts per person per year. If that bouquet was $40, you'll be deducting $25 and eating the remaining $15. (The referrals from happy clients are worth it, though!) The per person per year rule means that if your client has 5 employees, your gift can be up to $125.
Bookkeeping Tip: The same rule applies to employee gifts!
5. Clothing With Your Company's Logo
Rocking a branded t-shirt or hoodie? If you purchased clothing with your company logo on it, you can deduct that as well.
As long as the logo is clearly visible and easy to read, you can deduct branded clothing purchases. My rule is this: If you wore that t-shirt into Starbucks and someone approached you, would they be able to tell what you do? If so, deduct it.
Unfortunately, you can't deduct unbranded clothing you used while working. (Sorry, fitness coaches, but those Lululemon leggings are a personal expense. I don't make the rules.)
6. Getting Your Hair Done For A Brand Photoshoot
This one's very specific, but every deduction counts! If you had your hair or makeup done professionally for a brand photoshoot, you can deduct that purchase (including the tip!).
You cannot, however, deduct any clothing you purchased for your photoshoot since you can wear the pieces multiple times.
Bookkeeping tip: Make sure to deduct the photoshoot itself, too, and get a commercial release from your photographer. The release gives you express permission to use the images for business purposes.
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