How to file business expenses on turbotax

You may be able to deduct the cost of work-related education expenses paid during the year if you're:

A self-employed individual
An Armed Forces reservist
A qualified performing artist
A fee-based state or local government official
A disabled individual with impairment-related education expenses

To be deductible, your expenses must be for education that (1) maintains or improves skills needed in your present work or (2) your employer or the law requires to keep your present salary, status or job. However, even if the education meets either of these tests, the education can't be part of a program that will qualify you for a new trade or business or that you need to meet the minimal educational requirements of your present trade or business.

Education expenses incurred during temporary absence from your work may also be deductible, but the education must relate to maintain or improve skills needed in your present work. After your temporary absence, you must return to the same general type of work. Usually, absence from work for one year or less is considered temporary.

Expenses that you can deduct include:

Tuition, books, supplies, lab fees, and similar items
Certain transportation and travel costs
Other educational expenses, such as the cost of research and typing

To determine if your work-related expenses are deductible, see Are My Work-Related Education Expenses Deductible?

Reporting the Education Expense

Self-employed individuals include education expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship) or Schedule F (Form 1040), Profit or Loss From Farming.

Armed Forces reservists, qualified performing artists and state or local government officials figure the cost of qualifying work-related education expenses on Schedule 1 (Form 1040), Additional Income and Adjustments to Income PDF and attach Form 2106, Employee Business Expenses to their return.

Disabled individuals figure the expenses on Schedule A (Form 1040), Itemized Deductions and attach Form 2106 to their return.

Additional Information

For more information on work-related education expenses, education tax credits, or information for specific types of employees, such as performing artists, refer to Publication 970, Tax Benefits for Education and Publication 463, Travel, Gift, and Car Expenses.

For additional information about education benefits, review Tax Benefits for Education: Information Center and Am I Eligible to Claim an Education Credit?

Read on to learn about the tax deduction write-offs and deductions you may be missing for your small business and some ideas on how to use them as a means to reinvest in your business.

Not long after launching The Loop Loft, Shopify seller Ryan Gruss saw his profit margin increase. But there was a catch.

“We’d have a pretty profitable year but then get nailed with income tax,” he says. “Looking back, we should have reinvested that money into the company.”

Even though those tax hits hurt, they inspired Gruss to put some of profits toward actual expenses he could write off—in this case, marketing—and help turn The Loop Loft into the steadily growing company it is today.

Every entrepreneur can benefit from Gruss’s experience.

What tax deductions can small business owners write off?

If you run an online store, putting some of your profits toward tax-deductible business expenses can help your business grow and give you a break come tax season.

Even day-to-day expenses—car trips to the post office or the electricity bill for your home office—could be saving you money, so long as they’re reported in your small business accounting records.

9 key write-off categories you can deduct from your qualified business income this tax year:

Shipping

Unless you’re running a dropshipping business, it’s your job to deliver the goods. Luckily, the IRS considers the cost of doing so “ordinary and necessary.”

Postage, shipping meter subscriptions, delivery charges—they’re all deductible come tax time. Still, you’re better off paying less for shipping in the first place.

1. Packaging

The cost of all ecommerce packaging and of getting your product delivered on time and in one piece can be deducted on your tax return. This includes envelopes, boxes, paper, packing material, tape, labels, markers, and printer ink.

Shipping… is not just Cost of Goods Sold. You need packing material, and there are postage costs as well. When I look at my credit card bill at the end of the month, it’s a huge expense.

Trisha Okubo, Maison Miru

Calculate Your Shipping Rates

Workspace

2. Home office

If you run your store from home, you qualify for a deduction. The size of this deduction will depend on how much of your home is devoted to doing business.

These are the requirements you need to meet:

Your work area is used only for business activities. (If you occasionally do paperwork at the kitchen table, your kitchen does not qualify as a home office.)
Your work area must be the principal place of business for your ecommerce company. You should be ready to prove this with a consistent, printed schedule.
The majority of the time you spend in your home work area must be devoted to doing business.

Also, you should have no alternative workspace. That means no external office or coworking space from which you run your business.

You have two options for calculating the home office deduction: the simplified method and the regular method. Unsurprisingly, one is easier than the other.

Using the simplified method, you deduct $5 per square foot of your home used as business property, up to a maximum of 300 square feet.

To use the regular method, you calculate the percentage of your home’s square footage that you use for business, then apply that percentage to your home expenses—rent or mortgage interest, property taxes, electricity, heat, water, and anything else that makes it possible to occupy your home.

For example, if you use 10% of your home’s square footage for business, you can deduct 10% of your mortgage interest on your tax return.

To use the regular method, report expenses on Form 8829. To use the simplified method, fill out the appropriate worksheet on Schedule C of Form 1040.

One of these methods may give you a better deduction than the other. It really depends on the nature of your business and your home office.

Heads up

The IRS has a reputation for carefully scrutinizing home office expenses. Make sure you have the info you need to back up your claim. Take pictures of your work area and maintain a copy of your schedule for working there. Each financial year, keep them filed with your tax records and receipts.

3. Utilities

If your home qualifies as a workplace, household utilities—heat, water, and electricity—can be deducted on your tax return.

Tax season is stressful for any business owner. This guide will go through the process of filing income taxes in America and provide you with checklists to keep you organized and prepared.

You get this number as part of the regular method of calculating home office expenses. So, if 10% of your home’s square footage is used for doing business, you can deduct 10% of your heat, water, and electricity payments.

4. Improvements and repairs

A necessary repair to your home office—for instance, fixing a broken window—can be reported as an expense on your tax return.

An improvement to your home office can also be reported, but it must be depreciated over a period up to 27.5 years. Work done on your home office is classified as an improvement if it involves “betterment, adaptation, or restoration”—for instance, installing a larger window.

Before paying for an improvement or repair, talk to your CPA to make sure you’re classifying it correctly.

5. Coworking space

If you rent coworking space where you contribute to the cost of utilities and office supplies, there’s a good chance those costs may be a tax deduction. Check with your CPA.

Banking, retirement plans, and insurance

6. Business interest and bank fees

If you have a business credit card or a small business loan, anything you pay in interest during the course of the financial year is tax deductible. The same applies to fees charged by your bank for maintaining or using your business checking account.

7. Business insurance

If you’re operating an ecommerce business—whether you’re an S corporation, self-employed, or an LLC—business insurance is tax deductible.

Some types of business insurance you can get a tax break on are:

Data breach insurance
Commercial property insurance
Professional liability insurance
General liability insurance
Workers’ compensation insurance

If you hold any of these insurance policies to help protect your business, you may be able to write the premiums off. If the insurance policies are common and necessary, you can write off the full amount.

8. Health insurance

If you’re self-employed, you may be eligible for a health insurance premium deduction.

In 2010, the Small Business Jobs Act created a new deduction. This applies to health insurance premiums paid by self-employed individuals. If you’re self-employed, you can deduct 100% of health insurance costs as an adjustment to your taxable income for these people:

Yourself
Your spouse
Your dependents
Your children under age 27 at the end of the tax year

You can claim the health insurance deduction as an above-the-line deduction on Form 1040, Line 29. Talk to your tax professional for more information.

Note, you can’t claim a tax credit for any month that you had a health insurance plan through you or your spouse’s employer.

9. Retirement plans

If you’re self-employed, you can deduct contributions to your retirement plans as an adjustment to taxable income. Plans include:

Simplified Employee Pension (SEP) IRA. A retirement savings plan established by employers—including self-employed people—to provide retirement benefits.
Savings Incentive Match Plan for Employees (SIMPLE.) A retirement savings plan for small businesses with less than 100 employees. SIMPLE IRAs work like traditional IRAs and are easier to set up than a 401(k) but the employee retirement plan contributions limits are lower, compared with 401(k)s.
Qualified plan: defined-contribution or defined-benefit. A defined benefit plan, also known as a pension, is a retirement account where the employer contributes all the money and promises you a set payout when you retire. A defined contribution plan, similar to a 401(k), requires you to put in your own money.

Professional services

10. Bookkeeper, accountant, and tax consultant fees

Interesting fact: You can actually deduct the cost of meeting with a tax consultant who advises you on which expenses you can deduct.

It’s known as a “professional services” deduction, and this deductible expense actually applies to a range of professionals who help with all things small business finance. When you hire a business lawyer, CPA, bookkeeper, online bookkeeping service, or tax consultant, their fees qualify as deductible business expenses.

I’ve had an accountant for my entire adult life but just recently switched over to a local one who specializes in small business. He’s saved me more money this year than my other accountant ever did.

Caroline Weaver, CW Pencils

11. Legal fees

If you hire or retain an attorney to prepare contracts, file trademarks and copyrights, negotiate leases, defend your business in court, or perform other services for your business, you can write off their fees.

12. Bad debts

Sometimes customers or clients simply won’t pay for the product or service you already provided. It doesn’t matter how many statement reminders you send, you may never get that money. These are known as bad debts.

Bad debts, or uncollectible accounts, are money owed to you by a customer or client that you are unable to collect. You can write off bad debts at the end of the first year if it turns out the debt is uncollectible.

Bad debts can include:

Loans to suppliers and clients
Business loan guarantees
Credit sales to customers

For more information on the bad debt reduction and tax law, refer to this IRS publication.

Workers

13. Independent contractors

If you hire independent contractors or freelancers for any purpose related to your business—for instance, taking photos of products for your online store—the cost of their services is a tax deduction.

Always be sure to collect 1099 forms from independent contractors before they start working for you, and file them properly (you’ll need to submit one copy to the contractor and another to the IRS before deadline).

Heads up

The IRS is often on the lookout for employers who try to avoid paying employment taxes by classifying employees as contractors.

Because ecommerce businesses are representing themselves online, the visuals tend to be so important. You want to invest in the right people to help you create and realize those.

Trisha Okubo, Maison Miru

14. Employees

If deemed “reasonable” and “necessary,” your business can take a tax cut on providing employee benefits, compensation, and perks, including:

Employee pay
Vacation pay and sick time
HSA employer contributions
Employee assistance programs
Life insurance coverages
Education
Meals and lodging

How you claim these business expenses depends on your business structure.

Sole proprietorships and single-member LLCs use the Expenses section of Schedule C.
Partnerships and multi-member LLCs use the“Deductions section of Form 1065.
Corporations use the Deductions section of Form 1120 or Form 1120S (for S corporations).

Marketing

15. Advertising

Help your business grow and pay fewer taxes while you’re at it. Whether you advertise your business on Instagram or in your local newspaper, the cost of advertising is a tax deduction.

This includes both the price of placing the ad and any fees you pay to have it written and designed. If you hire a designer, copywriter, or other marketing professional to produce ads for you, you deduct their wages as you would any 1099 worker.

16. Marketing tools and services

If you use tools like Klaviyo or AdEspresso to manage your email and Facebook campaigns, they count as “ordinary and necessary” marketing expenses. The cost of your subscriptions can be deducted.

Our best deductible expense goes into paid marketing—toward lead generation and filling the top of our funnel.

Ryan Gruss, The Loop Loft

Website fees

17. Shopify

Shopify gives you all the tools you need to run an online store. As such, for any ecommerce business, Shopify fees definitely qualify as an “ordinary and necessary” business expense.

18. Domain and web hosting

You can’t run an ecommerce business without an online presence. Domain and ecommerce hosting are tax deductible. If you purchase web design templates or stock images to use on your site, you can also deduct their cost. The same applies if you pay to upgrade your store’s theme in Shopify.

19. Services

Beyond operating an online store, the services you use to engage with current or potential customers can be deducted.

So, if you publish a newsletter, you can deduct the cost of your email marketing solution. If you schedule social media posts, you can deduct the cost of Hootsuite. Or, if you’re optimizing your site for search engines, you can deduct the cost of SEO tools, such as SEMRush.

Education

20. Classes

If you take classes to upgrade your skills in a way that is relevant to your business, you can deduct their cost.

The class qualifies for a deduction if you take it in order to obtain a certification—such as becoming a Certified E-commerce Consultant.

But even less specific forms of education—for instance, a photography class that helps you take better pictures of the products you sell—can be deducted. So long as the class directly improves your day-to-day business operations, it’s tax deductible.

Also, the cost of transportation to any business-related classes qualifies as a travel expense. Read Bench's guide on How to Deduct Education, Classes, and Workshops to learn more about reporting this expense.

I use the education expense quite a bit. One thing that’s important to me is the Japanese idea of kaizen, of continuous education—and of having an experimental mindset.

Trisha Okubo, Maison Miru

21. Magazines

Subscriptions to trade magazines related to your industry are tax deductible too. Make sure they’re specifically connected to your industry, though. General interest business magazines do not qualify.

Travel

22. Business travel and vehicle expenses

As an entrepreneur, you’re probably mobile.

If you use your vehicle to transport packages (to the post office, for instance), meet with clients, or carry out any other business operations, you have a range of business expenses you can choose to claim.

When your vehicle is used exclusively for business purposes, you can deduct the full expense of its operation. But if you use it for both business and personal purposes, you’ll need to calculate the percentage of the cost of operation that applies to business.

You have two options for claiming a business mileage deduction:

The standard mileage rate deduction, as of 2017, is $0.535 per mile. Track this throughout the year with an app like MileIQ, and check the relevant IRS page every financial year in case the rate has changed.
The entire cost of what you paid in vehicle costs over the course of the year—including fuel, maintenance, and repairs.

Other travel expenses you incur in the course of doing business—parking fees, cab fares, or conferences tickets, for example—can be claimed.

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What about other business expenses?

Depending on the nature of your business, there may be other expenses you can claim on your tax return.

The IRS deems a business expense to be tax deductible if it is “ordinary and necessary.” Meaning, it is an expense you would incur ordinarily in the course of conducting business, and it is necessary for your business to operate.

When in doubt, remember this guideline, and hang onto the receipts attached to any business related expenditure. That way you can (and should) double check with your CPA to confirm what is, and what isn’t, tax deductible before you file your return.

You may be tempted to get creative with tax deductions. Instead, focus on strategic tax planning for better cash flow management. The world of business expenses is full of grey areas, and it can be easy to overstep the boundaries set by the IRS. As always, talk to your CPA or tax adviser before claiming any expenses on your return.

All basic expenses needed to run a business are tax deductible, including employee salaries, equipment and supplies, rent, utility costs, legal and accounting fees, business cards, subscriptions to business publications, and online services.

Take as many tax deductions for small businesses as possible.
Plan ahead for the tax season.
Track and organize your business expenses.

Non-deductible business expenses are any expense that can not be subtracted from your tax bill. While non-deductible expenses vary by state and country, they typically include:

Taxes
Fines and penalties
Insurance
Capital expenses and equipment
Commuting costs
Personal expenses
Political contributions
Illegal expenses (bribes, kickbacks, salaries paid to workers who can't work legally)
Gifts over $25
Business attire
Business meals and entertainment expenses
Legal fees
Club memberships
Travel expenses for friends and family