If you’re a small business owner, you might be wondering if there’s some way you can combine your personal life and business life to maximize your self-employed tax deductions and probably feeling like you’re missing out on some tax write-offs as well.
Unfortunately, you’re right. You probably are missing out on some of those deductions because many accountants will tell you no across the board. But instead, we should be asking how we can make it yes.
This question came to us from one of our clients who happens to be a professional athlete. Athletes are literally in “a league of their own,” as they themselves are the business. But the following basic guidelines will work for anyone.
“To be deductible, a business expense 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.” https://www.irs.gov/publications/p535.
Some deductions are more obvious.
In our example, as an athlete YOU are the business, then things like training equipment and gear would be deductions. Those are necessary expenses for you to perform and improve yourself as an athlete.
Below are some frequently asked, less obvious questions:
- Can I write off my home mortgage or rent as a business expense if I work from home?
No, your personal mortgage or rent is never a business expense.
Now that being said, download our Corporate Rent Packet; it could save you a few thousand dollars on your return.
- Can I write off my groceries?
Your personal groceries are never a tax deduction.
If you are buying groceries for a business event the answer would be yes.
Every year when tax season is over, we have a company retreat. We’ll rent a giant house somewhere and we’ll have a few classes, play some games, and feel inspired to make next year even better. Feeding 30+ people for 3 days takes a lot of groceries. Those would be a tax deduction.
This can get a little complicated when thinking about our athlete example. It’s possible that some groceries that are directly related to performance may be deductible. You’ll definitely want to consult with a competent accountant on the specifics in cases like these.
- Can I write off my mileage driving to and from the office?
Yes.
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- What if I go to the bookstore?
If you purchase a book that will help you improve your business, you can write off the mileage and the book.
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- What about the mileage for a family road trip?
Did you just say, “family road trip?” Of course not.
If you go on a business trip, for actual business reasons and happen to take your family along talk to your CPA about possible deductions for that scenario. The same goes for any travel, whether it’s planes, trains, or automobiles, if it’s strictly business, yes. If it’s a hybrid of business and personal talk to your CPA.
- Is my cell phone a write off?
Hmmm… If you did not own your own business, would you still use a cell phone? If the answer is no, then you might be able to write it off because you bought it for your business. But if you only have one phone and you’ve been using that same number since the 90’s then no. You can, however, purchase a 2nd phone specifically for your business and that would be a necessary business expense.
The simplest way to determine if you can write something off as a business expense is if you are spending a dollar and it is in ANY way related to your business, and you can explain how it is business related, then it should be a tax deduction.
That’s it. That’s all you need to know. My work here is done. *Insert hysterical laugh*
Uh, no.
The tax code is 76,000 pages long (and no I did not insert an extra zero). It’s full of exception after exception and exceptions to the exceptions.
These are just very general examples of possible self-employed tax deductions. You should always discuss your specific scenario with a CPA.
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