Have you been wondering if you’re deducting enough on your taxes each year?
Today, our Lead Account Manager, Kelsey, joins me to talk about some of the most common business deductions you can take on your taxes as an entrepreneur.
Join Kelsey and I for this informative episode to learn what you can deduct as a business expense so you can get the most out of your tax return.
In this episode Kelsey and I also discuss:
- Advertising materials and what can be included for your tax deductions 4:27
- Home office expenses for tax purposes 12:13
- Payroll and deductions 15:56
- What’s not deductible 24:47
Mentioned in this Episode:
50+ Tax Write Offs | https://kickstartaccountinginc.com/Taxwriteoffs
Get Started Ad | https://kickstartaccountinginc.com/get-started/
Connect with Danielle:
Website | Kickstart Accounting
Facebook | Kickstart Accounting Inc. – Home | Facebook
Book your FREE Discovery call: https://kickstartaccountinginc.com/book-a-call/
Test your Financial Health: https://kickstartaccountinginc.com/checkmyfinancialhealth/
Learn how to pay yourself as a CEO – https://www.kickstartaccountinginc.com/getpaid
Full Episode Transcript:
Welcome back to another episode of entrepreneur money stories. Kelsey, welcome back to the show. Thank you for being here.
Thank you. It's always such a good time. And I'm always so excited to be here.
Yeah, Kelsey is our lead account manager at kickstart accounting, Inc, and has worked with hundreds of our clients throughout the years. And so Kelsey is able to bring a really unique experience with a ton of real world experience working with business owners. Today, we're going to be talking about a question that we've been asked probably hundreds, if not 1000s of times over the years of, am I deducting enough from my business? Right? So not just not just Is this a tax deduction? But what am I not including as a business expense that I should be? Because I think those are really two different ways of looking at it. You know, sometimes we have people say like, is this a deduction? Like, the send us an email, like, should I be including this, but then there's things that we might not even be thinking of, that are really actually a business expense that we are missing out on those tax deductions, and therefore we're, we're paying more money in taxes than we need to be?
That's right. I always say, you know, paying tax is not always a bad thing, it means you're making money. The idea here is just that you don't pay more tax than you need to. So just making sure that we're thinking about all the deductions that you can take and thinking about the ones that are maybe a little bit less common.
The point, Kelsey, I'm glad you said that, it is a really good reminder. And I think something that people have a really difficult time with, especially early on in their business, is that they feel like they don't want to pay taxes. And look, I get it, I completely understand. However, we can reframe our mindset around it that we're paying taxes, when we're doing our part as citizens of the country we live in, and that means that we're doing well, and it's part of doing well in business. And when you are an employee working for another company, you aren't not paying taxes, you are still paying taxes. Right? So this is just a different way of looking at taxes. And so we're gonna go through our top tax deductions or things that we consider a business expense that you should be running through your business. Again, I want to give a caveat. Always talk to your CPA, Always talk to your money team, make sure you have a conversation with your bookkeeper. Have a conversation with your CPA, not all CPAs are comfortable with every single write off, so make sure you're having that conversation with them. This isn't legal advice, right? Do your own due diligence, but this is our guidance from our experience. Welcome to entrepreneur money stories, the podcast that will transform the way you think about business, finances, and money mindset. I'm your host, Danielle Hayden, and I'm thrilled to be here to help you take your business to the next level. On this show, we're going to explore everything you need to know about managing your business finances, building wealth, and most importantly, developing a healthy money mindset. Throughout the podcast, we'll share key insights and strategies that you can apply in your daily life as a CEO and business owner from identifying your financial goals to building a solid financial foundation will give you the no BS checkup on your business finances. So get ready to be inspired, motivated and empowered as we dive into the world of business, finances, and money mindset. All right, first and foremost, we're gonna go through this list in what we consider our financial framework. So we have a very specific financial framework that we use with all of our KSA clients. When we set up their QuickBooks, we use a framework and when we teach people how to read their financial statements, this is the framework that we use. And so you're getting a little bit of a peek behind the curtain, get to see what we share with our clients. So the first item on the list is advertising and marketing costs. So Kelsey, maybe walk us through what are the top advertising and marketing costs that we should make sure we're including as a business expense, so that we're getting that tax deduction?
Yeah, I'm going to group this a little bit. So we'll start with the first grouping of advertising materials. So this is really anything that you put out there into the world to market your business. So we're talking business cards, brochures, websites, things like that. All of those are business expenses. And then we can go to the media. So this is paid advertising, whether that be in a newspaper, or Facebook ads, Google ads, whatever it may be industry specific websites, ads on those sites. That is all advertising and marketing costs, social media promotions, all of those are definitely a 100% business deduction, kind of moving down the line here. So networking, networking groups, those are all in advertising costs that you can deduct for your business lists. So any mailing list, your client list, the cost to acquire your client list, email subscribers, the cost to acquire email subscribers, all of that are business deductions. And this one can be a significant expense. So we're talking about podcasting. It's no secret, if you have a podcast, it takes a significant amount of money to keep it running and to get the word out about it. And all of those are business expenses. So to edit your podcast, any editing software needed to run your podcast, a podcast manager, a booking agent, a podcast pitcher, all of those are in advertising costs for your business. Moving along from podcasting, we have public relations, expenses, and promotional items. So T shirts, mugs, pens, notepads, anything that you use for your employees are for events, conferences, all of those are marketing costs that you can use as a deduction for your business. Really, anything with your business, logo, business name, anything you use to get out there and promote your business is a business deduction.
Why don't we pause there real quick to talk about uniforms and, and purchasing clothing in order for us to be able to make it a business expense. So if you're going out and purchasing T shirts or shirts, pants, sweatshirts, jackets, in order for it to be a business expense, it needs to have your logo actually printed on the clothing, if your logo is printed on there, that is considered a uniform is considered advertising. And the IRS will allow you to deduct the cost of that and the dry cleaning associated with that. So this can be a big area. So you know, it's not the clothing that you would buy, if you can also wear those this clothing out this Friday night. That is not a business expense. But when we talk about promotional material, as soon as we put that logo on our on our clothing, it is now a business expense.
Great point. And I actually do get this question a lot. So if you have you know, and then I'm just using, for example, here, you know, a yoga studio, and you are buying workout clothes that you'd use that you were to teach in your classes, that is actually not considered a business expense, because it doesn't have the logo on it unless you get it put on then you can and you can wear it elsewhere. So for that reason, it's not a business expense. Another question I get a lot in this area is if I buy something like an outfit for a conference, can I do that as a business expense? And technically that answer is no, because it doesn't have the business logo on it.
And kind of the same with business groups. So the same kind of personal line here. If the business group, if the true nature of the group is a business, an association, you know, if it's a chamber of commerce, or a trade organization, maybe someplace where you're learning, you're connecting, again, the goal is business oriented, it is a business expense, but it is not deductible. If it's for entertainment, sports, fitness, I mean, maybe you're networking there as well. But truly, it's not not deductible unless the nature of the group is business.
Right, this sole purpose of the group if it is not for business development or or promotion, then that wouldn't fall in that category.
Right. Anything else that we can think of in this advertising and marketing category?
Yeah, so a couple more come to mind here. So a referral program is a great way to promote your business and to get referral clients. And the costs associated with those are also considered an advertising expense expense and is a deduction for your business. So any referral or affiliate payouts, those are considered a business expense if you receive or if you pay royalties, the cost for samples, if your business provides scholarships, all of those are a business expense. Moving on here, so down we have marketing consultants, so again, this can be a very significant expense for your business and it is 100% deductible. So if you are rebranding and are bringing someone out to help carry that out, though branding, all expenses associated with branding are considered a business expense. Anyone that's doing graphic design for you, that's considered a business expense. This same realm with that marketing software. So your email marketing, the cost to put all of that together and get the email sent out are also a business expense. Canva is one that we see often that's a business expense, your email marketing platform, so flow desk, MailChimp, all of those are considered business expenses, the cost to have your website, we see this a lot. So Squarespace can't think of any more until my Google domain GoDaddy, yeah, GoDaddy, I see this all the time. But when it comes, you know, to have it. It's on the tip of my tongue. And any costs associated with maintaining your website are on our percent deductible for your business.
There's a ton there, right? We knew that this episode was going to be a long format episode. But I think we want this to be a checklist for you to really stir up your thinking of what you are not including as a business expense that you could be deducting, this will also be in a downloadable format so that you can also read along and check according to your accounting software as well. Next, we have fees. So the next category of our framework is all of the fees associated with running our business. And what do we mean by fees? This is the bank charges, ATM fees, bank services, Cheque Printing penalties that you're paying to your credit cards, any credit card fees, the interest, maybe you took out a new loan this year, the loan origination fees, these are all considered a business deduction. And we want to make sure that you're paying them directly from your business account so that your bookkeeper can pull these transactions into the right categories, and you can have the all of the fees within your business. Completely deductible.
That's right, those really high $700 credit card membership fees. That's a business expense.
Yes, yeah, they're worth it. We got all those points, right. It'll pay itself off right. Next, let's go to facility costs. So facility costs are what we consider if you have a brick and mortar or a place where you run your business. So this would be the rent that you pay in order to rent out that space, then any of the repairs. So building improvements, renovations, remodeling, talk to your CPA, because depending on the type of improvement and renovation, this might be capitalized and depreciated over time, if it's a smaller amount, this might be something that you actually take at the time of the expense. So discuss this with your money team on if this is going to be a larger purchase. How will you handle that any cleaning, so landscaping, cleaning, janitorial, and then all the utilities for your business property are all a deduction, because I think that this is the place where everyone kind of the the their ears go up and say landscaping cleaning, I work from home is my landscaper and the individual coming to clean my house this month. Are they now a business expense? How do we handle that? When, when we're thinking about a home office, and I'm going to caveat with it, talk to your CPA, there's different risk tolerance on this, but for our clients, how do we handle this?
Yeah, so expenses associated with a home office are treated differently for tax purposes than most other expenses. Anything associated with a home office can be deducted in part and should be able to have a direct effect on your tax liability. So we want to make sure that you're counting those but how much you get depends on what type of business it is, what's the entity type. And usually how much you can deduct depends on the percentage of the portion of your home dedicated to business compared to your entire home. So without getting too nitty gritty about it, you know, it depends on your business type and how big the portion of your home is that's dedicated to business to the rest of your home. Perfect.
All right. So one of the reasons why the IRS allows for businesses to take so many deductions is because you are creating jobs. So as a business owner, you are creating jobs, you are helping the government keep the economy alive and thriving. And so a big area is payroll. So we are able to deduct the cost of our employees, any bonuses that are given to employees, the team equipment, if you are having an employment agency actually do the hiring for you. That is also a business expense, any flexible spending accounts, the benefits, the fringe benefits, payroll service fees, relocation costs, these are all considered a business deduction. I don't want to turn this into an S corp versus LLC rabbit hole, because we can very quickly go down that rabbit hole. If you are an S corp and you are paying yourself, then you are a business deduction to your business. If you are an LLC, and you are not an S corp, do not put yourself on payroll, you are not a business expense, you can take money from your business, but you're taking that as an owner's draw. This will also affect the benefits of your or your business. If you are an S corp, and you offer group health insurance, please make sure that you contact your payroll provider and ensure that they are actually running your benefit deductions through payroll. Otherwise, it's not going to be a business deduction. We've seen this happen one too many times with our clients that they don't have it properly going through payroll and then they cannot take the business deduction at the end of the year.
That's right. And another little tip that can save you a big headache later is to make sure that your deductions and contribution amounts in your payroll system are updated regularly make sure that if there's any updates to your actual health insurance plan, all of that information is also updated in your payroll system. Absolutely. In essence, in the payroll category, you can deduct anything, any costs to acquire your employees and to have and keep your employees. So like Daniel mentioned employment agencies, and that also encompasses you know, hiring softwares like Breezy zip recruiter, if you have paid subscriptions to those those are also a deduction for your business. Very good point. Thank
you. Yeah. All right. So now that we have covered payroll, let's talk a little bit about training and development because this is a huge area for our clients. You've heard Kelsey and I talked about this on the show before. This is a place that we see our clients invest heavily in as both personal development and the development of their team. And so all books, magazines, ebooks, newsletters, conferences, your business coach, your mastermind program, business seminars, these are all deductible. So the IRS wants you to succeed, right? They want you to stay in business, because you are hiring and you are creating jobs for the economy. And in order for you to stay in business and to succeed in business. You need to have training and development. And so you are able to, you are able to invest in this area for both you and your team.
That's right, this is actually a question we get pretty often if you know if you can even deduct these costs, and the answer is absolutely, please do.
Yes, absolutely. All right. Now let's say we are traveling to a conference. It's a business conference, and we are bringing a team member to come see what of that travel is a business deduction, because I think this becomes a big area for people because the big cost of travel is huge. So when we go to a conference for education, what pieces of that are a business deduction?
Yeah, so to attend the conference, you have to get there. And that's a business expense. So your transportation associated with going to the conference is absolutely a business deduction. But no matter the mode, so plane, train, bus, automobile, all of that is our business expenses, also Ubers lift, shuttles, all of that a business expense. I know a lot of airlines charge baggage fees, all of that is a business expense, because it's associated with the cost of you getting to the conference, rental cars, lodging, so your hotel, Airbnb, whatever it may be, all of that is a business expense. meals for the conference, while you are out of town is a business expense. There have been some updates to the way meals are treated for tax purposes due to COVID. A lot of restaurants shut down and the government was trying to ramp the restaurant industry back up. So they were making meals 100% deductible, and both 2021 and 2022. But it's important to know that that has gone away and 2023 meals and general are a 50% deduction now unless it's for a company party, given to the public or dinners with employees, things like that. Those are 100 but everything else is going to be 50%.
Yeah, so just to recap, if you are traveling for a conference or you're doing dinner with your employees, those are 100% deductible holiday party dinners. If you are just you know having a A meal out with a client, that is only 50%. If you are purchasing meals for the office, that's 50%. So this is a big area that, you know, as Kelsey said, it changed and it it really changes every year. So we need to be really aware of how we treat meals. Again, I don't want to go down an S corp rabbit hole, but talk to your CPA about some of the ways that this changes as you're an S corp and tracking basis. But as a general rule, you can use this as a specific guidance. Now, no matter what, if you are going to be deducting meals, we do recommend to track the date, the amount of business that was discussed, and the person that you had the meal with, you can do that really easily these days. You can just take the receipt, write the business purpose down, take a picture of the receipt, there's 1,000,001 Different software's out there. I like good old fashioned, you know, just we use a genius scan, and I scan the receipt and save it via Dropbox. But depending on how often you are taking pictures of these receipts you might want something a little bit more official like in Expensify. Or if you have team members who are traveling as well, you might choose to use something like Expensify or Receipt Bank, any that I'm missing.
No, I think you got it, we've definitely noticed that the IRS can be a little more finicky when it comes to allowing meals. I am not one that keeps boxes and receipts for business. Nor do I recommend it for the most part. But meals is definitely one that I would recommend making sure you keep the appropriate records for.
Absolutely. All right, so let's keep on diving into travel. So let's talk about automobiles. This is a big question that we get from our clients. How do I treat my car? And how can I get a business deduction for my car? Overall, we have two methods. We have the mileage math method or the actual method. And a lot of our clients will ask us which one is best? And I don't think that there's an answer that is the best across the board. It really depends on how often you're traveling for business and how organized you are in keeping track of that information. Anything that you would add to that CAHSEE
Yes, I agree. 100%. So I will say if you were to compare mileage versus direct automobile expenses, you usually come out better with mileage if everything is recorded correctly. But if you know you're not one that's going to keep a record of all of your mileage, you might as well get something so you know you have a record of your fuel, your maintenance for the vehicle repairs, anything like that those are those are easier to keep than mileage every day. So if you're not going to keep mileage, just know your regular expenses for the car. And it's, you know, like I said, Better to have something than nothing at all.
What about if I work from home, do I still deduct my car, it would
depend if you travel for work. So not to get too nitty gritty when it comes to entities. If you're an employee of your business, you can't deduct traveling to work. Like if you have an office, maybe for the business, you won't be able to deduct that as a business expense. But there are other forms of travel like traveling to clients, things like that, that you can still track the mileage or the direct costs for.
Again, this is guidance to get your wheels turning. And then we want you to take this conversation to your CPA, because they'll be able to look at your entire situation, you'll be able to talk to them about how often you're using your car, you know what your specific situation is, and then there'll be able to vary to give you specific guidance, there is a luxury vehicle right off that any vehicle over the 6000 pounds and less than 14,000 can receive a maximum first year deduction of up to $27,000 20,020 23. After that you'll follow a regular depreciation schedule. I have very strong opinions about this and that under no circumstance should you go buy a $150,000 car so you can get a $27,000 tax deduction. There's still cash leaving your bank. And if you cannot afford a vehicle like that, you should not be purchasing it just so that you get the tax deduction. So please do not spend $1 to save 3040 cents.
I was just gonna say that this goes right back to that principle.
Yeah. All right. Outside services. So next up in our strategic framework is outside services. And this includes all the different team members that you need that maybe aren't employees of your business, but that you need to operate your business. So our attorneys pay the cost of preparing contract Next trademarks, patents, any of the legal fees that we've used for our business. Only. Any legal fees paid for your personal situations are not deductible. So your divorce that you're going through is not a business deduction. But if they are working for you for your business, it is absolutely a business deduction. Kelsey, are our services a business deduction?
A big Yes. Your accountant, your CPA, financial advisor, all of those are absolutely business deductions, bookkeepers, all of that. I do want to clarify, when I say financial advisor, I mean for your business.
Oh, very good point. Thank you. Yeah. Keep in mind, the IRS. Just because you have a business doesn't mean you can deduct your whole personal life. Right? Your personal life is not a deduction from your business. So your business, you need to have clear records of clear record and clear separation of your business to personal please do not commingle business and personal is an audit nightmare. And one of the first things that the IRS is going to look at so please separate your business and your personal
not to scare you. But in the case of an audit, if you are mixing business with personal if you have business expenses and your personal accounts, once they see that they have access to all of the personal stuff. So it just opens the door for the IRS. And you know, we would love to put things in place so that you don't put yourself in that type of situation.
Hey, listeners, I hope you're enjoying another great episode of entrepreneur money stories. If you're ready to dive deeper into your money mindset, I invite you to book a strategy call with the kickstart accounting team. The KSA team is eagerly waiting to help you and support you as you make your dream business a reality. Don't put us on one of those to do lists that never get done. We know what it's like for accounting to follow you around like a black cloud. Tax get started 28444996969. Again, text get started 28444996969. Do it right here right now. Go ahead and press pause. As you're thinking about it. This is something that is too important to wait, trust me, you'll wish you did it a lot sooner. All right. Now, back to the episode. All right. Our last category is operating expenses. So in our strategic framework, the last category would be all the other operating expenses of our business. And there's a lot here this it can include shipping of business related items, business license registrations, those types of fees in order to continue to operate our business as a deduction, flowers, gifts, maybe for employees, clients, the insurance that we're going to pay for our business liability insurance is considered an operating expense in which is deductible office supplies, plants, your peal box, all of your computers, monitors printers, those are all business deduction. When we start to look at larger equipment, those pieces would be capitalized and depreciated over time. So again, work with your money team to look at the value of the purchase that you're making. And if it's larger equipment, it will not just be an operating expense to your business, it will actually go on your balance sheet and then be deducted over time.
That's right, you'll get that tax benefit for the next few years instead of just this year. And then don't forget about
your cell phone. This is a big one. If you're using your cell phone 100% of the time for business, then it's 100% deductible. If you're only using it partially for business and partially for personal use, then you only get to deduct the percentage of time that you're using for business as a business deduction. But don't forget about your cell phone. I would be willing to bet that most of us are using our cell phone as a business expense.
Yeah, a few other ones are flowers and gifts. So something that a lot of business owners don't know about gifts is that there's actually a limit on how much you can give. So a gift cannot be more than $25 if we're following IRS guidelines. Exactly. So just be aware of that. You can only deduct $25 of a gift.
So this comes up a lot around the holidays. What if I wanted to gift my employee a $500 gift card? And I don't want to have to put it on their paycheck. What the heck do I do?
Yeah. So what you do is not that this has come up a lot, you know, I don't want it to be on record for for my employee for my team member, you know what can I do, you can get them a gift card, but you'll only be able to deduct 20 deduct $25 of that. But my recommendation is definitely to either put it on payroll, or just keep it off the books entirely, it will, it can be considered an owner's draw. That's really the only way to keep it off the record for your team member, but still be able to provide that gift for them.
Yeah, so just keep in mind, you are shouldering the burden for that employee. So if you want to give that gift and have them not pay the taxes, you are taking that as an owner's draw. So the money doesn't just disappear from the account in accounting. Every time it goes somewhere. Yeah. You can't just pull it out. Alright, how about if I am sending my employee a gift basket? Is the gift basket a full business expense?
Only $25 of it? Yeah, that's tough.
How about for clients?
That is actually a full business deduction? That could be an advertising expense.
Yeah. So a lot of our clients see gifts on their income statement twice, because it's employee gifts and then gifts for clients. So you might see gifts in two different places for for your income statement, charitable deductions, again, this is a broad overview of how do you treat charitable deductions, but you or your business can deduct cash contributions, gifts, a property or equipment, any mileage or travel expenses that are incurred for for working at that charity charity event or completing the actual charity. But you cannot have your team actually work on a task for the charity, and then deduct the value of your employees time. So you cannot donate services, anything else around charitable contributions that you can think of. This is a really difficult one for people to wrap their head around.
Yeah, there's a lot of caveats to this one. So while yes, you can get a benefit for it, how you get that benefit can definitely vary based on your business entity. So just have that in mind.
Yes, definitely keep that in mind, it's really a personal deduction, unless you're a C Corp. So just keep in mind, I don't want to see anyone running out quarter four, to start giving charitable contributions without talking to your CPA, first, make sure that you are structured in a way that you'll actually be able to take that that business deduction, though those funds might be better suited to bonus out your employees through payroll, then they then they would be given to that charity, but make that charity contribution personally.
That's right. So charitable contributions are not the best way to reduce your tax liability. If that's the goal here. There's other ways to do that. My best advice would be if you want to give to charity, do so because you want to not for any type of tax benefit.
Absolutely. Is there anything else that you have learned this tax season that you that you think it would be beneficial for somebody to take with them throughout the rest of 2023?
There have been major updates to IRS guidelines to tax law for 2023. So I would do your research and be very, very cognizant of keeping personal and business separate. It's especially if you are an S corp. I cannot stress how important it is, especially now, to keep those things separate. There could be serious tax implications of having too many personal expenses and your business account. Not and I don't say that to scare you, I say that just to save you. You know, ask your CPA about it. Do your research and make sure that we're going into our business making informed decisions.
Yeah. And then I think of the one other lesson that I can think of. I always feel like a broken record, because I think I've said this every year is Stop waiting. Like seriously, stop waiting. My mom always said growing up that there's two things in life that you can kind of count on, you're gonna pay taxes and you're gonna die. As a business owner, you're not special, you're going to pay taxes. And you can't say at the end of the year that you were surprised that this event occurred. We have to get prepared for it throughout the year. So this is your call out that you need bookkeeping in place. You need to be making estimated taxes. You need to be putting aside money to be able to pay Your taxes at the end of the year, there are no surprises, you will pay your taxes next year.
That's right. And don't wait until you get a tax bill that you were absolutely not prepared for to then take a deep dive and figure out how to do this the right way. Save yourself to do the research beforehand. I can't stress it enough.
Yeah, me with your money team. You know, our clients specifically, they get monthly or quarterly updates from us. So we send them their monthly or quarterly snapshot, which includes the progress of their business throughout the year, and tax reserves so that they know how much that they need to be saving throughout the year. So if you are not getting that from your money team, please contact them and ask for that. Or contact us over at kickstart accounting Inc, we want to be a resource for you. We don't want you to be surprised. Our clients are getting that email throughout the year. So there is never a surprise. And then they can have things like this podcast as a resource, and the team as a resource to say, what else can I do? How else can I be prepared? And that doesn't mean that we're going to worry that we erase anyone's tax bill. We don't, we're not magicians, we do not erase it. But we help you make an informed decision and understand that those taxes are coming and help me be prepared, prepared for that because we want you to do well in business, which means you're gonna have to pay taxes.
That's right, Your Money Team can and should be a first step in your research.
Absolutely. All right. Well, I know today was a big episode. If you made it to the end, please don't forget to like and subscribe. We have so many amazing guests coming onto the show. We just met in Nashville for a week as a leadership team. We put together an amazing marketing calendar for the next year to come. So Kelsey and I can say with certainty that there is a lot of good stuff coming your way. So don't forget to hit like and subscribe and share this episode with one other business owner who you know needs this information. Kelsey, thank you so much for being here.
Thank you. Bye, everyone. See you next time.
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