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Post by PickyChicky on Mar 29, 2016 16:40:17 GMT -6
I'm currently working on my taxes and am, once again, having to question where certain expenses go that I know are deductible. Of course, IRS publications offer little to no help for eCommerce businesses and their forms don't take our businesses into account when it comes to having spots to enter deductible expenses. Well, in my search for answers, I came across an awesome article on eCommerce Bytes by Ina Steiner. While she has lost some credibility with me when it comes to her articles glorifying marketplaces and other services that we all know should not be glorified, I'm glad to see articles such as this one since it truly helps us: Guest Column: Categorizing Ecommerce Expenses on IRS Schedule CSince we all know how information found on the internet can disappear without notice, I'm copying the table and other bits of info provided within the article below (tweaking it where necessary): | Category | Expenses Include
| Notes | | Advertising | - Website Creation
- Domain Name Registration & Hosting
- Flyers & Brochures
- Blog Giveaways
- Business Gifts to Clients & Contractors
| Website costs are almost universal for small businesses today. While a website serves many purposes, the essential reason to have most websites is to promote the business, so I believe advertising is the most appropriate category.
| Capital Expenditures
| - Computer
- Camera
- Company Car
| - Computer purchases should be capitalized and can be written off as a Section 179 deduction. Small items such as parts and accessories can be written off as an office expense.
- Camera purchases should be capitalized and can be written off as a Section 179 deduction.
- Vehicles that are 100% owned by the business should be capitalized and depreciated.
| Commissions & Fees
| - PayPal Fees
- Marketplace & FVF Fees
| The article only lists PayPal fees, but I have always put marketplace and FVF fees under this section since they are actually commissions paid to eBay, Etsy, eCrater, Google Shopping, etc. Although, if you want to get technical about it, marketplace fees could be considered as advertising on a site's marketplace (separate from your actual store), but FVFs are definitely commissions.
Either way will work. I just put them all under this category since they get charged to me in one place at the time something sells. To go back through to determine what is what is time unnecessarily wasted.
| Don't Track
| Self-Employment Tax
| You do not track self employment tax as it is calculated as a part of figuring your total tax liability on Form 1040. You do however get to deduct 1/2 of your self employment tax from Adjusted Gross Income (AGI).
| | Insurance | - Home Insurance
- Business Insurance
| - Only insurance that you purchase just for your business is deductible on Schedule C.
- Your standard homeowners or renter's policy can be included with your home office expense on Form 8829.
| Keen in Own Category
| - Health Insurance
- Medical Expenses
- Home Office Deduction for Home Storage of Business Equipment & Goods
- Gas for Client Visits
- Home Office
- Office Furniture
- Parking Costs for Client Visits
- Online Tax Prep Fees
| - Health insurance is a unique deduction for the self employed. The expense actually is a separate deduction on Form 1040 and Schedule SE.
- Medical expenses are not deductible on Schedule C, but rather are an itemized deduction on Schedule A.
- Use Form 8829 to calculate the cost of using a portion of your home to store business equipment and goods.
- When calculating vehicle expenses, you must choose between tracking actual costs or taking the mileage deduction. You are free to choose the option which gives you the largest deduction.
- Expenses for a home office are included on Schedule C, but must be calculated separately on Form 8829.
- Office furniture should usually be capitalized and deducted as a Section 179 deduction on Form 4562.
- When calculating vehicle expenses, you must choose between tracking actual costs or taking the mileage deduction. You are free to choose the option which gives you the largest deduction. Parking costs are then in addition to whichever method you choose to calculate operating expenses.
- Tax preparation costs are deductible on Schedule A. However, it is appropriate to allocate a portion, but not the total cost, of tax preparation to Schedule C under the legal and professional services category.
| Legal & Professional Services
| - Accountant
- Lawyer
- Business Counseling & Coaching
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| Not Deductible
| Aspirin, etc.
| Over the counter medication are generally not deductible.
| Not Tracked on Schedule C
| Physical therapy for carpal tunnel syndrome
| Physical therapy costs would be deducted as part of your medical expenses on Schedule A.
| Office Expense
| - Post-It Notes, staples, pens and other office supplies
- Notebooks
- Printer Paper
- Printer
- Business Cards
- Programs to Help Business (Outright, Freshbooks, Shoeboxed, etc.)
- Necessary Software (Photoshop, InDesign, Excel, Quicken, Quickbooks, etc.)
- Costs Associated with Camera Film
- Books & Magazines to Help with Business
- Subscriptions to Job Boards
- Zip Drives
- External Hard Drive
- Data Backup
- Anti-virus for Work Computer
- Computer Upgrades
- Computer Peripherals
| - Many printers today are such low cost that they can be considered an office expense. If you spend significant amounts on a high price printer, you should write it off as a Section 179 deduction like computers above.
- Some software can be expensed in the year it is purchased. However, significant expenditure for software that is expected to last for several years should be capitalized. Off the shelf software costs that are capitalized can be written off as a Section 179 deduction on form 4562.
- Subscriptions to job boards are only deductible on Schedule C if it is a necessary expense to operate the business. Job board subscriptions that are primarily for finding a new job should be expensed on Schedule A as a job hunting expense.
- Some software can be expensed in the year it is purchased. However, significant expenditure for software that is expected to last for several years should be capitalized. Off the shelf software costs that are capitalized can be written off as a Section 179 deduction on Form 4562.
- If a computer upgrade is expected to significantly increase the life of the computer, the cost should be capitalized and depreciated using Form 4562.
NOTE: The article lists business cards under this category, but I have always put them under Advertising.
| | Other | - Cellphone
- Skype
- Conferences & Networking Events
- Professional Group Memberships
- Public Transport Costs for Client Visits
- Phone Cards
- Security Monitoring Subscription
- Publications (NY Times) or Databases (ERIC) required for research
- Public Internet Access
- Incorporation, DBA, etc.
- Postage
- PO Box Fees
- Storage Fees
- Groceries for Rented Office
- Groceries for Home Office
| - The cost of Skype is only deductible if it is an ordinary and necessary expense needed to operate your business and is not for personal reasons.
- Only $5,000 of organizations expenses are deductible in the year you start up a business.
- Only the cost of groceries that are directly used by clients and employees are deductible. You may not deduct the cost of groceries to provide meals for yourself while working at home.
| Rent - Other Business Property
| Rented Office
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| Returns & Allowances
| - Unpaid Invoices
- Customer Refunds & Discounts
| Only deduct these if you have included them in gross receipts. If you never reported the revenue from either of these, you do not get to deduct the value that was never received.
| | Supplies | - Protective Clothing, Goggles, etc.
- Shipping Supplies
- Trade-Related Educational Books & Magazines
| The article only lists the first item, but there has to be more included in this category -- like shipping supplies and trade-related educational books and magazines (marketing, web design, bookkeeping, crafting, sewing patterns, etc.). IRS Pub. 535 states that:
If you keep incidental materials and supplies on hand, you can deduct the cost of [those] you bought during the tax year if...:
- You do not keep a record of when they are used;
- You do not take an inventory of the amount on hand at the beginning and end of the tax year; and
- This method does not distort your income.
| Travel, Meals & Entertainment
| See IRS Pub. 463
| Refer to IRS Pub. 463 as deductible expenses vary according to specific situations.
| | Utilities | - Home/Office Internet
- Cable or Satellite TV
- Telephone
| - Only the cost of internet that is used exclusively for the business is deductible. If the internet connection is also used for your home (personal reasons), you can deduct a portion of the cost using Form 8829.
- The cost of Cable or Satellite TV is only deductible if it is an ordinary and necessary expense needed to operate your business. Even if the TV cost is used for your business, you may be required to allocate a portion of the cost if it is ever used for personal reasons.
- You cannot deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. However, charges for business long distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses. My 800 number service would be an example that is deductible.
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For additional information, refer to the following IRS publications: |
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