What is Deductible?
Yes, tax software or a tax professional will walk you through deductions, but it is important to know for yourself for two reasons:
1. So you can keep track! You will know what receipts to keep and how to organize them through out the year.
2. So you can plan. You are more likely to go to that craft show in December, if you know the fees and your travel expenses are tax deductible.
Selling Expenses: Selling expenses include Etsy fees, Paypal fees & other credit card/merchant services like Squareup (which allows you to accept credit cards through your iPhone or iPad). This line also includes sales commissions, craft show fees & the cost of shipping to customers (including bubble wrap, packaging for shipping to customers, etc.)
Materials: This includes the cost of fabric, yarn, beads, paints & anything else used to make your products and includes the cost of labels or decorative packaging (boxes or labels to market your product for sale on a store shelf), sales tax on the supplies & cost of shipping the supplies to you.
Office Supplies: This line is for your every day office supplies like postage, envelopes, paper, printer ink, pens, etc.
Misc. Supplies: This category includes small hand tools (nothing too expensive) first aid kits, cleaning supplies, etc.
Miles and Vehicle Expense: Keep a log whenever you use your car for your business – even driving to the store to buy your supplies counts. 55 cents per mile adds up!
Equipment: Your sewing machine, kiln, computer, & any equipment and the cost of repairs to keep them in working order.
Home Office: If you run your business primarily out of your home you can deduct a percentage of your rent or mortgage, phone, internet, and other utilities equal to the percentage of space your home office takes up. And soon it will be a flat deduction of $5 per square foot up to 300 square feet.
If you rent an office, studio or a storefront, you can deduct all your rent and utilities but you can’t claim both office & home office.
Travel Expenses: Traveling to a craft show, convention or sales meeting? Your miles, gas, meals, hotel & other expenses are deductible (but nothing “lavish or extravagant” – whatever that means! I mean really one woman’s necessity is another’s luxury, but the IRS is the final judge.)
Business Meals and Entertainment: The government goes Dutch on this one – You can deduct 50% of the cost.
Advertising: Includes your website domain & hosting, online advertising, print, radio, or television ads, email list for sales, promotional items (pens, business cards, etc.) & banners and signs
Legal, Accounting or Other Professional Services: ”Other professional services” include graphic designers, copywriters, or consultants.
Insurance: Related directly to your business like liability insurance or fire & theft for your office, studio or storefront (but not for the home office, because a percentage of your home or renter’s insurance is calculated as part of the home office deduction).
Interest paid: Interest paid to a bank for a loan or on a business credit card.