Work and Money
2021 Tax Write-offs for Small Business Owners
Tax season is upon us. Until May, we have time to work with our accountants to figure out our taxes for 2021. This means something entirely different for those of us who are self-employed. Roughly 75% of small businesses are self-employed businesses, according to the National Association for the Self-Employed, with over 10 million people in the country identifying as self-employed. While it’s certainly a struggle — long working hours, limited health care, and enduring work-related expenses — it can have its rewards, like crafting the lifestyle you want and making a living out of your passion project. As the famous adage says, “If you don't build your dreams, someone will hire you to help build theirs.” Here are some tax write-offs for small business owners to keep in mind this tax season:
If you have a business meeting over lunch, dinner, or drinks with a client, for an interview or for a networking purpose with a person in your industry, this meal or drink meeting can be written off as a business expense. Be sure to include a log of where and when the meeting took place and with whom, as well as the reason for your meeting — was it an interview or for research? Include the tip on the total amount paid for the meal or drinks, which must be for a minimum of two people. Warning: If you have a paid work meal on your birthday, it will look suspicious.
If you bought a new desk and/or office chair, these can be written off if you kept the receipts. If you work from home, your mortgage payments or rent is used for work — let’s say for example 20% of the time — then you can deduct 20% of these costs. A square footage calculation of $5 per square foot can be calculated by the IRS form 8829. If you don’t work in an office but have other work-related equipment that you use, whether it’s packing tape or USPS charges, be sure to collect these expenses and send them to your accountant as well.
Work-related travel trips can be written off with a daily per diem for government meals and incidentals rates, available at perdiem101.com. Note: To write off lodging, you must have paper receipts for proof of these expenses.
For those who don't live in major cities, you can write off your car expenses on your income tax, but only the portion that is used for business-related travel. That includes your mileage, your lease, gas, garage rental, and car insurance, as well as upkeep costs. If you travel for work on the subway or in an Uber, you can write off those specific trips, but be sure to document what meeting that was and its purpose, in case there are any questions asked.
5Phone and Internet Fees
If you use your phone for work 50% of the time, you can write off 50% of your annual phone bill. For example, if you pay $1,000 a year for your cellphone bill and half of it is used for business, then fill in $500 for your work-related phone bills.
If you are a film director or scriptwriter, you might use Netflix as a resource for your line of work. If you are a writer, subscribing to book-related publications is also work-related. If you sign up for a work-related marketing course, that’s part of your research expenses; so is hiring a career coach. Anything that relates to what you get paid for should be documented for your tax return — including work-related repairs.
Whether it’s getting a work-related visa or even hiring an accountant, all legal fees from the year should be collected for their own category.
8Health Insurance Premiums
Organizations like the Freelancers Union offer health plans for self-employed workers and freelancers, but these premiums are likely high. Be sure to include all health insurance premiums and medical costs in your expenses as a self-employed person. That also includes renter’s insurance.