Sole Proprietor Tax Deductions

Hang ups, let downs

Bad breaks, set backs
Natural fact is
I can’t pay my taxes
Oh, make me wanna holler
And throw up both my hands

I love to find any reason or excuse to write down one of Marvin Gaye’s lyrics. My client who is a sole proprietor sang this verse to me as I explained his tax liability. I love all of my clients so I didn’t know whether or not I should laugh or cry. I chose to play it safe and did both! A sole proprietor’s obligation may include taxes such as sales, estimated, payroll, self-employment, federal, state, local, etc. It has been suggested that we should create a new postage stamp bearing the picture of a weeping taxpayer. Sole proprietors must be aware of all business tax deductions. As a sole proprietor, you are allowed a laundry list of tax deductions. These are expenses that are necessary and relevant to your business. Every tax season, a lot of sole proprietors neglect to maximize their chances of reducing their tax liability. The reason is that they overlooked business deductions that they could have taken. Below is a list of business tax deductions for you to consider.

The Home Office Deduction

This deduction can help take the biggest bite out of your tax bill. If you are a sole proprietor and work from home in a space that is regularly and exclusively used for your business, you can take this deduction, even if that space is not a completely separate room. However, it must be a clearly defined workspace where no personal activities take place. Just because you did some work on your living room’s couch doesn’t make it a qualified workspace for home office deduction purposes.

General Business Expenses

Even if you don't take the home office deduction, there are many other expenses you can deduct to shrink your tax bill. Keep all your receipts throughout the year and a running log or weekly diary of expenses to prove that your deductions are legitimate. Business expenses can cover many items and services, including:

• office supplies......deductible

• printing……. deductible

• postage and shipping……. deductible

• business insurance….. deductible 

• professional fees…… deductible (accountants love to get paid)

• Gifts to keep your spouse happy……Not deductible! Oh yeah, start running and don’t look back because the IRS is coming after you.

Travel and Entertainment

Generally, you can deduct all of your travel expenses if your trip was entirely business-related. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination, including tips, cab fare, and other "life on the road" expenses such as dry cleaning. Meals are the only exception. You can deduct only 50 percent of your meals while traveling.

If your business trip includes personal side trips or extended stays for a personal vacation, you can only deduct travel expenses used for business-related activities. For example, suppose you live in New York, and went on a 7-day trip to California. You spent the first 4 days in business meetings, and the other 3 days spending time with your family. Unless, Mickey Mouse is your business client, don’t try to deduct the family trip to Disneyland. In this example, you can only deduct the costs of the 4 days you spent on business activities. I know the IRS is so darn cruel!

Importance of a tax consultant

Now these baby ballers toy rappers

Calling out my name to bring the boy backwards
Shooting air balls at the basket
What you call money I paid more in taxes

Yes, I know that I’m the first tax accountant to use a Jay-Z verse in a tax article. I appreciate that even Jay-Z knows the importance of paying his taxes. As a sole proprietor, good records and qualified tax advice are essential to the survival of your business. It's always recommended to consult tax accountant like myself throughout the year. I provided you with a simple outline of possible business tax deductions to reduce your annual tax bill. However, tax laws are never simple and change on an annual basis. For example, I didn’t discuss topics such as depreciation, expiring tax credits, phase-outs, amortization, deducting car expenses, etc. Learning about tax changes throughout the year can help your business grow. If you can reduce your annual tax liabilities then you may have more money to invest in your business.

My final piece of advice is to file only honest tax returns. What is the difference between an IRS auditor and a Rottweiler? A Rottweiler eventually lets go! Filing fraudulent tax returns are never worth the risk.

You don’t have to say it….You’re Welcome.