If you’re an independent retailer, you may not be fully aware of all of the business tax deductions that are available to you. Some are obvious, like supplies and marketing costs, but there are many others that are easy to forget since they’re not always directly related to the main operations of your business. Here are some tax tips you should be aware of as an independent retailer.
Did you borrow any money for your business, either in the startup phase or later on, to start or expand it? The interest on the debt is tax deductible as a business expense. It’s best if business debt is maintained through an account dedicated to the business so you can make sure you get the related business tax deductions you are eligible for. If you also use a loan or credit line for personal use, you have to separate the business and personal portions.
A lot of independent business people shy away from the home office deduction, because of rumors that it’s a red flag, but it’s a legitimate tax deduction, as long as you use the space in your home for business purposes. To comply with IRS regulations, the area of your home that is used for business must be dedicated exclusively for that purpose. For example, you can’t use a corner of your family room for business purposes, and then deduct the entire room as an expense.
Make sure that your the home office deduction expenses are reasonable and directly related to the actual square footage of your home used for business. For example, if a room comprising 10% of your home’s square footage is used for business purposes, then your home office deduction should not exceed 10% of the home office deduction expenses allowed (10% of home mortgage interest, property taxes, utilities, etc.) for the home during the course of the year. You can always use the simplified option for claiming the home office expenses, sometimes called the “safe harbor” route. With the simplified option, you claim $5 per square foot of office space up to 300 feet.
You can write off the business use of your vehicle even if you also use the vehicle for personal use. You will need to separate your annual auto expenses between business and personal. To document this, you must keep track of your actual expenses and your mileage.
You will also have to separate out business and personal use. With QuickBooks Self-Employed you can track your business mileage year round and export that information directly to TurboTax Self-Employed at tax-time.
Alternatively, the IRS allows you to use a standard mileage rate rather than actual expenses. This is easier to do since all you need to do is to have a record of business miles for the vehicle. For 2017, the standard mileage rate is 53.5 cents per mile.
Internet and Phone
These are two expenses that independent retailers sometimes forget, and that’s easy to do, considering that both internet and cell phone also usually have a strong personal use. But at the same time, your internet connection and cell phone are usually critical to the operation of your business and represent valid business expenses.
You can deduct the cost of the use of each, based on the percentage of business use that it is dedicated to, but it’s always better to have dedicated accounts set up for your business in each category.
You can deduct any specific business-related insurance, such as insurance coverage on business assets or inventory, but there’s one major expense that all self-employed business people often overlook: health insurance. If you are self-employed and paying your own health insurance through a private plan, you can deduct the full cost of the premiums on your tax return. This will enable you to deduct the cost of your health insurance even if you don’t itemize deductions.
If you use any professionals to help you run your business, you can deduct these expenses as well. This includes fees paid for legal services, business advice and consulting. Nearly any expense that you pay for directly related to your business will be tax deductible, even if it also has a partial personal use. The key is being able to document what is personal and what is business. Never overlook any, as they can make a big difference in tax savings at tax time, which means more money for you and your business.
Don’t worry about tracking your deductible business expenses. With QuickBooks Self-Employed you can track your income, expenses, mileage, and capture your receipts year round and then export your information to TurboTax Self-Employed at tax-time.