Wait, I Can Deduct That? Tax Advice from Ann Etter, CPA, MBA
There is often a lot of confusion about what can and cannot be deducted when self-employed. The basic rule says that if it is an expenditure you make in the course of performing your service or increasing your business’s earning potential, then it is deductible. That being said, some things are never deductible (pets, no matter how many good ideas they give you) and other things are only partly deductible (meals, cell phone).
What IS Deductible (Note: all of these are deductible on Schedule C as business expenses):
- Advertising- the cost of your website, business cards, swag (no puppies), etc.
- Mileage driven for business. You MUST keep a mileage log in order to deduct mileage. The log needs to show date, miles and business purpose.
- Anything you pay to an editor or to an agent for their services.
- If you carry business insurance you will write it off on Schedule C. If you pay using after tax money for your own health insurance and are not eligible for health insurance through an employer (yours or your spouse’s) then you can take a health insurance deduction under “Adjustments” on the front of the tax return. Medicare premiums are paid with after-tax dollars and can be taken as an “adjustment”.
- If you pay a lawyer, accountant, consultant or other professional for services or advice on your business, you can deduct that.
- If you rent a separate space in which to write, you can deduct that. The coffee you buy to justify your table at the local coffee shop is not deductible, however, unless you are meeting with your publisher/editor/beta, in which case you can write off half of it. The coffee you buy when a reader comes to chat is also half deductible.
- Travel for business. This includes conferences.
- Meals for business. To be deductible, the meals usually involve other people and business must be discussed.
- Your cell phone and home internet costs to the extent that you use them for business. If you are on your cell phone an average of hour a day between phone calls and texting and about half of that time is with your publisher, editor, beta reader, etc. then your cell phone business use is 50% and you are allowed to write off 50% of your personal monthly cell phone bill. The same holds true for internet use. There are some places that can be hazy- are you on Facebook for marketing or for fun? The IRS doesn’t require a log, but your use should be reasonable. It’s hard to convince the IRS agent that your internet is 100% business use when you keep taking the personality quizzes on Facebook. Your home phone (landline) is not deductible in any portion.
- If you buy a computer that is partly for your writing and partly for family use, you only get to expense the part that is for writing.
- Supplies, educational books or classes, software, image permission, web hosting, professional dues, etc. are all deductible.
- When in doubt- ask a CPA.
What IS NOT deductible:
- Your pets or anything to do with them.
- Your meals or snacks when you are eating alone, unless traveling for business.
- Clothing that is suitable for streetwear. This includes formalwear. Orange prison suits and chef’s hats would be deductible when used for a professional conference presentation.
- A home office that is used for anything other than business (guest room, workout space…)
- Expenses of a personal nature that are not for the production of business income.
- When in doubt- ask a CPA.
Ann Etter, CPA, MBA is a partner in the accounting firm Goodney & Associates, PA and a member of MNCPA. She specializes in personal income tax, and small business (sole proprietors) and non-profit income tax and consulting, including Quickbooks. She’s also handy with ex-pat and other returns involving foreign tax issues. When not filling out tax forms, Ann can usually be found reading or volunteering, sometimes both at the same time. She can be reached at firstname.lastname@example.org.