Business Deductions
| Accounting | |
| Advertising, Marketing | |
| Bank Fees | |
| Business Gifts | |
| Cell Phone | |
| Commissions | Commission you pay to other |
| Contract Labor | |
| Desk Fees | |
| Dues & Subscriptions | |
| Education | Webinars, Seminars, Classes, Conferences, Conventions |
| Health Insurance Premiums | |
| Home Office | 1. Must have dedicated area. 2. Calculate Usage = Sq Ft of dedicated office area / Total Sq ft of House 3. Have W-2 Job and Business The deductions have to be related to your self-employed income rather than your employee work. You need to make sure your home office is only in support of your self-employment and not your job as an employee. Can Deduct: – Rent or Mortgage Interest – Utilities – Maintenance – Repairs – Property Taxes – Insurance – HOA – Office Furniture – Internet / Cable – Alarm, Security – Trash, Garbage Disposal |
| Insurance | E & O Insurance |
| Internet, Website | |
| Laptop, Computer | |
| Legal & Professional | |
| License | |
| Meals (NOT entertainment) | |
| Merchant Fee | For credit card processing |
| Mileage vs Actual Expenses | Actual includes -gas, oil change, car wash, repairs, insurance, parking, … Note: You can NOT deduct communing miles; drive from your house to your office |
| Postage | |
| Printing | |
| Rent | If paying to rent business location. If home office |
| Retirement Plans | IRA, Simplified Employee Pension (SEP) |
| Self Employment Tax | you must declare earnings on your tax return and pay a self-employment tax of 15.3% for Medicare and Social Security. You can also claim half of the tax paid as a tax deduction, as this half represents the employer’s share in a traditional employment situation. List this deduction on Line 15 on Schedule 1 to reduce your taxable income. |
| Software & Online Systems | |
| Start Up Costs | |
| State, Local Taxes | State income tax, property taxes, and other local taxes are deductible up to a limit of $10,000. Claim your state and local tax payments on lines 5-6 of Schedule A. Claim taxes paid on business assets (real estate and property), taxes withheld on behalf of employees, and sales tax paid on business income on line 23 of Schedule C “Taxes and licenses.” |
| Supplies | |
| Tax Preparation | |
| Travel | Air, Hotel, Meals, Taxis |
| Vehicle | Employees who are not a business owner Employees who use their car for work can no longer take an employee business expense deduction as part of their miscellaneous itemized deductions reported on Schedule A. Employees can’t deduct this cost even if their employer doesn’t reimburse the employee for using their own car. This is for tax years after December 2017. |
S-CORP DEDUCTIONS
| S-Corp | You Can Deduct – Accounting Fees – Advertising – Auto Expenses (see detail explanation next section 1. can deduct — car loan interest, gas, insurance, oil changes, repairs, parking, car wash, …) – Auto: Purchase / Own Vehicle 1. can deduct depreciation deduction (fixed asset) — will have depreciation re-capture when you sell vehicle, if there is a gain. 2. can deduct car loan interest payments 3. If vehicle is between 6,000 and 14,000 pounds (per gross vehicle weight rating – GVWR) and used for business 50% of the time, federal tax code section 179 allow you to deduct up to $25,000 of vehicle’s purchasing price. More info – Auto: Lease Vehicle 1. can deduct lease payments; according to business usage. if use 100% for business, you can deduct 100% or lease payment; otherwise deduct according to business usage. 2. cannot deduct / have depreciation cause you don’t own vehicle – Bad debt – Bank Service Fees – Commissions – Contract Labor – Credit Card Interest – Depletion – Depreciation – Dues – Education (books, classes, webinars, …) – Employee Benefit Programs – Equipment – Gifts – Home Office Expenses (see section below for how to deduct) – Insurance – Interest – Internet – Legal & Professional Fees – Licenses – Meals (business) – Office Supplies – Payroll Processing Fees – Pension, Profit Sharing Programs – Phone Office and Cell (cell for business use) – Rent – Repairs & Maintenance – Software – Subscriptions – Taxes – Taxes Payroll – Taxes State – Tools – Transportation (uber, taxi, rental car, …) – Travel – Uniforms – Wages (employees and shareholder) You CANNOT Deduct – Entertainment – Gym Membership – Monthly Car Loan Payments (when buying car) – Medical, Dentist, Prescriptions, .. Expenses for your kids – Life Insurance premiums Deductions – Added to Distribution more info Distributions are earnings by S corporations that are paid out or “passed through” as dividends to shareholders and only taxed at the shareholder level. Thereby shareholder pay taxes on distribution / dividends on their personal taxes. Enter Distributions – 1120S, p3, line 16d – Sch K1, input, 16 D – also flow to Schedule M2, line 7 ?? |
| S-Corp Home Office | Home Office Deductions – Mortgage Interest – Rent– Property Taxes (real estate taxes) – Home, earthquake insurance – Utilities (gas, electric, oil heat, water, sewer) – Trash, Garbage disposal – Alarm, Security Service – HOA – General Repairs Old Way to Deduct Home Office Expenses for S-Corp 1. Create a rental property on Schedule E of the individuals return, and include a portion of all expenses (rent, mortgage interest, property tax, insurance, utilities, etc). 2. You would then report an amount of income that’s equal to rent expense that you report on your S-Corp tax return. 3. Those two amounts will offset (the rent deduction on your S-corp return and the rent income on your individual return); and you will be left with the home office deduction. New Way to Deduct Home Office Expenses for S-Corp The IRS got tired of sifting through fake rental properties and instead recommends that the employee submit an expense report as part of what’s called an “accountable plan.” 1. Draft an accountable plan agreement for your company. It will outline what expenses are eligible for reimbursement, how they will be paid, etc. 2. A sample plan here. 3. Calculate the percentage of your home that is used exclusively for business purposes. Divide the square footage used for business by the total square footage of the home and multiply by 100. 4. Calculate the total amount of eligible reimbursable expenses (see Form 8829 above). 5. Multiply each amount by the percentage of business use calculated in the step above and enter the results on the expense form that you use for your accountable plan. 6. Prepare expense reports as the employee and turn them in to your company on a regular basis. Attach receipts or other documentation to the form to substantiate them. 7. Cut the check from the business account and deposit it into your personal account. Attach a copy of the check to the form as documentation that these were paid. 8. Enter the amount of the payment into your S corporation’s records as a reimbursement for employee expenses. Post each expense claimed to the appropriate expense account so that these expenses may be deducted from the corporation’s income on its tax return. 9. Shareholder do not have to report reimbursement on personal taxes. Therefore, reimburse expense is NOT taxable to shareholder/employee. And there you have it. You have now created a tax-deductible business expense for the S-corp, and you don’t have to report the reimbursement as income. |
| S-Corp Vehicle | Vehicle Titled In Corporation’s Name. Corporations, S-Corps, and Partnerships may only claim actual expenses for vehicles. Thus, your S-Corp may claim depreciation, fuel expenses, oil expenses, repairs, insurance, and so forth. But what about mileage? When the car is owned in the corporation’s name, it is not allowed to deduct mileage, just the actual expenses incurred for it’s use in business. Vehicle Titled Personally. To deduct the expenses of a vehicle that is owed personally by the business owner, the S-Corp can reimburse the employee expenses under an accountable plan or a non-accountable plan. The expenses are deductible under either methodology, but the rules are different. Vehicle Titled Personally – Accountable Plan When an accountable plan is used, the business only reimburses expenses that are substantiated (proved) by receipts and other documentation. The reimbursements are not taxable income to the business owner nor are they reported on their W-2. Accountable Plan – Mileage Reimbursement. The business can reimburse at the IRS standard mileage rate. This rate includes allowances for depreciation (i.e. wear and tear), maintenance, repairs, gas, insurance, and a host of other things. The proof the business owner would need to provide for reimbursement would be a mileage log. This log would need to show the date, business purpose of the trip, miles driven and should be submitted to the business on a routine and timely fashion (e.g. once a month). One important thing to note is that the standard mileage method only applies to passenger vehicles with a gross weight of less than 6,000 pounds. Accountable Plan – Actual Expense Reimbursement. Actual Expense Reimbursement. The business can also reimburse for the actual expenses the business owner incurs. The business does not have to reimburse for every expense, for example, you could reimburse gas and insurance and not tires and oil changes. However, for any expenses the business does reimburse, it must have adequate proof. Adequate proof means you need to see all the receipts for the expenses that will be covered. In addition to the expenses, the owner also needs to supply the total vehicle mileage for the year as well as the mile log. Why? So it can determine the number of business miles and the number of personal miles to compute the percentage of business use. This percentage is then applied to the total amount of expenses incurred to determine how much is reimbursed to the employee. Vehicle Titled Personally – N0n-Accountable Plan If a non-accountable plan is used, then the business does not need to keep or see any vehicle records. They can reimburse any amount, from below the IRS standard rate, or above the IRS standard rate. They can reimburse for gas and insurance but not oil changes, or anything else that it wants to pay for (that is vehicle related). But under this method, all the reimbursements get included in the employee’s box 1 W-2 wages and are subject to income and employment tax withholding. The non-accountable plan is less beneficial to the employee because of the inclusion of the amounts on their W2 as income. |
Restaurant Deductions – see here
Physicians Deduction – see here
Personal Deductions
| Education Expense for Teachers & Administrators | Form 1040, Schedule 1, line 11 Educators can deduct up to $300 of trade or business expenses that weren’t reimbursed. If two married educators are filing a joint return, the limit rises to $600. Teachers often buy classroom supplies with their own money. The Educator Expense Deduction helps them get some of that money back. Eligible teachers and administrators can deduct part of the cost of technology, supplies and training from their taxes. They can claim this deduction only for expenses that weren’t reimbursed by their employer, a grant or other sources. Educators can Deduct – Professional development course fees. – Books and supplies. – COVID-19 protective items to stop the spread of the disease in the classroom. – Computer equipment, including related software and services. – Other equipment and materials used in the classroom. |
YOU CANNOT DEDUCT
| Car Payment | When buying car |
| Commuting Miles | drive from you home to your office |
| Entertainment | |
| Gym Membership | |
| Legal Violation Fees | like parking tickets or court fees |
| Life Insurance Premiums | when you are the beneficiary, even if you take the policy out to secure a business loan |
| Medical for Your Kids | Medical, Dentist, Prescriptions,… for your kids. This should be deducted on Schedule A |
| Personal Hygiene Expenses | like haircuts, clothing that can be reasonably worn outside of work, and dry cleaning (unless it’s for a uniform) |