Sole proprietorship businesses have been on the rise since 1980. One reason for this is likely the internet, which has made it easy to sell goods and services from home.
And the good news for all these new small businesses is that there are many deductions that they can take advantage of. This is one way the government supports small businesses, and if you run one, you should know at least the basics about what you can deduct.
Not only will you save money on taxes, but there’s also a good chance you’ll get a significant amount of money back as a tax refund, which you can then put back into your business.
Need a quick explainer of how a deduction works? Let’s say you make $50,000.00 per year, but you have $10,000.00 in deductions. That means you will pay taxes on only $40,000.00 of income.
Here’s a not-quite exhaustive list of the business deductions you should be taking advantage of for your small business.
Your Self Storage Space
Yes, we’re in the self storage industry, and we know how people can overlook this one. A storage space can be a boon to your business. It frees up space at home or in the office whether you need to store inventory, paperwork, displays, or tools. It also rents for less per square foot than either residential or commercial space. That’s true even if you rent a space with climate control
, which we recommend.
If you use only part of the unit for business storage, calculate the percentage of space used for storage, and deduct the equivalent amount off your taxes. For example, let’s say you rent a 5x10, climate-controlled unit for $79.00 per month, and you use one-half of it, or 50%, to store business inventory and paperwork.
Convert the percentage, 50%, to a decimal, 0.5, and multiply that by $79.00:
0.5 x $79 = $39.50.
Then multiply that by the number of months in the tax year that you were renting the unit. Let’s say you rented it all year, which is 12 months.
12 x $39.50 = $474.00
That’s $474.00 you can list as a line-item deduction on your tax return.
We can use this same formula for other expenses, such as the amount of room you use for your home office and the time you spend online for business, which affects how much you can claim off your Internet and phone bill.
Your Home Office
Yes, you can deduct a portion of your rent or monthly mortgage from your taxes, too. Whether you use an entire room or a section of your living room as an office, you can deduct it from your taxes. Calculate how much of your home it takes up, and multiply that percentage by your monthly payment, then multiply that by 12, and you’ll have how much you can deduct for the year.
Internet and Phone Percentage Used for Business
This may be more difficult to calculate and can end up being more guesswork than exact, but you should have a sense of how long every day you use your Internet connection and phone for business. Let’s say you work an eight-hour day, and during that time all your calls and Internet activity are focused on your business. That’s approximately 33% of your Internet and phone bill. Calculate the amount the same way you did for your storage unit and your office.
Do you sell retail products? If you purchase products wholesale and sell them, you don’t have to pay taxes on what you bought them for. That includes the wholesale price and the shipping. You pay taxes only on what you resold them for.
The same goes for supplies if you make your own products. People make and sell many craft items these days. Want proof? Just visit Etsy.com
. You’ll find dolls; 3D printed terrain, miniatures, and dice; lingerie; stickers; games, and so much more. People make the items on there from the supplies they purchase. What you pay for your 3D printer, filament or resin, sewing supplies, cardstock, and anything else you use to produce your inventory is tax-deductible, so keep track of it.
Office Supplies, Postage, and Other Supplies
Everything from your computer to staples to notebooks that you use for your business count as tax deductions. Some items, like your computer, may not only count in the year you bought them but in subsequent years as they depreciate. This gets into more complicated tax territory, so ask your tax preparer about it. They’ll know how to handle this.
Do you purchase boxes, packing tape, bubble wrap, packing paper, and postage when you send items to customers? Of course, you do. Deduct the cost.
Did you pay for an online course or seminar for your business this year? Did you purchase books to learn more about how to run your business?
The cost of these, you guessed it, are tax-deductible, whether you took a course on Masterclass, Udemy, or elsewhere.
If you subscribe to a website or magazine that is related to your business, you can deduct the cost from your taxes. For example, if you’re an author, you can deduct the cost of literary magazines, magazines specifically for writers, and magazines on topics that improve your writing. If you’re a mechanic, you can deduct the price of your subscriptions related to mechanics and engineering. If you make craft items and sell them on Etsy or elsewhere you can deduct the price of your craft-related subscriptions.
Travel and Events
Do you sell your stuff at conventions? Guess what? You can deduct your expenses for those from your taxes. That includes your gas, mileage, hotel bill, and meals from your taxes for this year.
Speaking of meals, if you have a business meeting over a meal with someone, you can deduct that from your taxes. It’s all in the name of improving or promoting your business, after all.
There are many ways to advertise your business these days. Before the internet, advertising was limited to television and print media, including billboards. Today, you have all those options, but you can also advertise on YouTube, Facebook, Pinterest, Twitter, TikTok, Instagram, Etsy, and many other places. Google has its massive advertising and analytics system. You can start a mailing list, too. Whatever you pay for all that advertising is a tax deduction.
Downloads Used for Business
Let’s say you have a license to print and sell certain 3D models, you purchase and download sewing patterns online which you use to make and sell clothing, or you purchase books related to your business in digital format. Whatever you paid for those downloads is tax-deductible.
Payment Processing Fees
What if you accept payments via PayPal or credit card and the hosting companies charge a fee per business translation? You’ll be glad to know that you can deduct that from your taxes. That can add up, too! You may spend $100.00 in processing fees over a year, but by claiming them as a deduction, you’ll end up getting a bit of that back.
Even individual proprietors need to hire others for small jobs now and then. For example, indie authors who want to ensure their books are as professional as what you’ll get from any traditional publisher don’t work alone. They’ll hire a professional cover artist and editor and get each book polished before releasing it.
Someone creating an online course may need a video editor to improve the look and sound of each course entry, and to add video transitions. Someone with a lot of inventory, just moving their stuff into a storage unit, might hire a mover or two to help. Keep track of how much you paid your contractors so you can list it as a deduction.
That covers the major things! Keep in mind that if you itemize your deductions, you can’t also take the standard deduction. If you put a lot into your business, though, chances are your itemized deductions will come out to more, anyway.
Now, if you need a self storage unit for business or personal use, we have a massive database
of self storage properties across the U.S. and Canada. Again, we encourage you to consider a unit with climate control to protect your stuff, whether for sale or not. And when tax season rolls around next year, now you’re better prepared to guarantee a larger refund.