It’s the end of the year and that means it’s time to start thinking about our favorite season of all – tax season. *That was sarcasm.* Taxes are inevitable but they don’t have to be painful. Our friends at Mazuma want to help you make sure you’re saving everything that you possibly can on your taxes which is why they wrote this post about commonly missed business tax deductions for you. They cover everything from home office expenses to credit card processing fees and everything in between. Mazuma is a certified bookkeeper and tax accountant service that makes it easy for you to get your finances and taxes in order so you can focus on what you love about your business. Happy Reading!
When it comes to accounting and small businesses, tax deductions are a hot topic. We work with small business owners and entrepreneurs who are running successful businesses and side hustles in a variety of fields – no matter their expertise – questions about tax deductions always come up.
What can I deduct? How much can I deduct? What deductions am I missing?
With most of our clients, we find that most of the missed deductions come because they didn’t know the details of how much or what they could deduct or they didn’t have records of what they spent and finding them was too much of a hassle.
So we’re sharing the details on the most common missed deductions with the hope that it will save you a bit of cash and make tax season a little easier on you and your small business.
Before we give you our list, take it from a tax expert, save your receipts, track everything, and you won’t regret it come tax time!
Now to our list of the overlooked deductions for creative businesses:
Home Office, Internet, & Personal Cell Phone
It’s probably not a surprise that home offices, the cost for internet and your personal cell phone can be deductions for your small business. The trick is to figure out how much of these items are being used for your business. The IRS has two strict requirements when it comes to home office space.
- Regular and exclusive use
- Principal place of your business
If you meet each of these requirements then you’re good to make the deduction and can do so in one of two ways:
- Take a simple home office deduction of $5 per square foot.
- Or you can calculate the percentage your office is of your home and then apply that to home-related expenses such as electricity, heating, mortgage payments and home depreciation. (It takes a bit more time putting pencil to paper, but it often works to your advantage because it allows for a bigger write-off).
To figure out the amount to deduct for items like internet costs and the use of your personal cell phone you’ll need to first establish Personal versus Business Expenses on the items in question.
Education, Workshops & Conferences
Education, workshops and conferences can also be used for write-offs come tax time. And it can be much more than just the amount of money you spent to purchase your course or register for your conference.
You can read about all the particulars of what you can count as a deduction, but what is most often missed in this category is more of a mindset than a particular write-off… we’ll explain.
We find that many of our creative clients easily claim deductions for workshops, materials, and conferences that pertain to their artistic skills but often hesitate (or forget it completely) to claim the classes and events they attend to network, and build their business skills.
As creative small business owners you wear many hats. You’re not only the artist but you’re also the chief officer of marketing, finances, and any other portion of the business that needs tending. Even if you think it doesn’t directly pertain to your business (like that class you took on how to get better at creating Instagram Stories) it probably can be used to better your business in some way and can be used as a tax deduction.
Tip: if you’re not sure if what you’re doing can be used for a legitimate tax deduction, still record it and keep the receipt. We recommend storing any info that you’re unsure of in a separate folder so that you’re ready to ask your accountant or tax expert about it come tax time.
Credit Card Processing Fees & Shop Fees
We know that many creative businesses run an online shop on a third party platform like Etsy, Spoonflower, Amazon Handmade or Big Cartel; participate in craft fairs and holiday boutiques, and even sell their items through Instagram, Facebook, or their own websites.
This allows for access to a greater audience and it also means that you’re established with at least one payment gateway that allows you to accept credit cards and other forms of electronic payment.
If you’re not tracking the amount you pay to list your products in online marketplaces, you should. These incremental payments add up over time and are considered a business expense and many of these third party shopping sites provide some type of file line-iteming for the charges.
In addition, the credit card processing fee that seems to be less than a meaningful percentage of each sale adds up as well. Sometimes this is accounted for in the files you download from your third party site that hosts your shop, sometimes it’s not. To make sure you get the most accurate accounting, download the records for these charges from the backend of your payment gateway. If you’re not interested in sifting through the spreadsheets, that’s ok – simply hand them over to your accountant or tax preparer or get in touch – we’d love to help out!
Start Up Costs, Consultants and Bank & Loan Fees
For newer businesses there are quite a few deductions that are missed and we think it happens mostly because starting (and running) a small business is hard work!
When you’re first starting your business you’re laying out a lot of cash to subcontractors (that graphic designer who did your logo and marketing materials and the website guy, etc.) to get things up and running. These are expenses to run your business, so they count as tax deductions.
Additionally, you can count the state filing and entity set-up fees that make your business legal, any licensing and/or permits you’re required to keep current as business expenses, and therefore tax write-offs, as well.
Even taking a loan and keeping your business bank account can provide possible tax deductions. Most banks make incremental charges for a variety of services – new account setup, wire transfer, account maintenance and so on. If you’ve recently taken out a business loan, odds are that there was some sort of setup fee and that can be counted as well.
Finally, your business credit card and loan interest can help you pull in a few more deductions. The interest you pay every month can be counted as a tax deduction as long as it’s directly related to your business.
So there you have it – some of the most frequently missed deductions for small business owners and creatives like yourselves. No matter where you are on business taxes, we’ll repeat the advice we give to all our clients – save your receipts, track everything, and you won’t regret it come tax time!