What Can You Write Off As a Business Expense on a Schedule C?
If you're self-employed, run a small business or just do some freelance work on the side, tracking the money you spend is just as important as monitoring how much you make. Entrepreneurs are eligible for several key tax deductions under Schedule C. This can be anything from the money you spend on advertising and transportation to the cost of dinner for a client. Keep a folder or box with all business-related receipts throughout the year. This way, you'll have easy access to this data when tax time rolls around.
If you've dedicated a part of your home specifically to your business, you can deduct a portion of your home's expenses. For example, if your home is 1,000 square feet and your office is 100 square feet, you can write off 10 percent of your insurance, heating and light bills. Make sure that this space is used exclusively for your business.
Getting to and from your clients is another expense that you can write off. For example, line 9 can be used to deduct either the actual cost of operating your car or truck (this includes things such as insurance, oil changes and repairs) or the standard mileage rate, which the IRS sets every year. There are complex rules about switching between the two, so pick one method and stick to it. If you use a car service or taxi, this can be deducted as an expense as well.
Day-to-day supplies, such as postage, paper, envelopes and pens, should be deducted on line 18. This includes all items used during the course of office activities. Equipment such as a copy machine or computer should be deducted on line 13. In general, large purchases such as a computer are assigned a life expectancy in years. You can deduct a portion of the cost over the course of the machine's life expectancy. Non-business supplies used by your business, such as toilet paper, coffee or a first aid kit, also can be deducted.
If you go on a business trip, you can deduct your hotel, plane ticket, taxi fares, parking and tips on line 24a. You must keep all receipts, because this item is frequently audited by the IRS. Travel to conventions or meetings outside of the United States cannot be deducted unless you have a clear reason for leaving the continent. You may deduct 50 percent of meals consumed for business purposes, as long as they aren't "lavish or extravagant." You or an employee must be present for the meal.
If your business sells products, you will calculate the cost of your inventory in a special section on Schedule C that determines the "cost of goods sold."
Any money you spend to find new costumers or increase sales can be placed under line 8. This includes the cost of promotional items like pens or notebooks, printing costs for banners and fees you pay for online advertising or to maintain your website.
You also can write off commissions and wages paid to employees or "independent contractors," payments made to employee benefit programs such as health and life insurance, legal and professional services from tax advisers, accountants, or lawyers, dues to any professional organizations, and any taxes or licenses required to conduct business. Keep clear and accurate records and receipts. Check with a tax attorney or consultant about any items of which you are unsure of their deductible statuses.