Expanded A-to-Z Guide to LLC Tax Deductions
Advertising & Marketing
Any expense that is directly related to promoting your business is 100% deductible. This is a broad category that has evolved significantly in the digital age. It’s not just about newspaper ads and business cards anymore.
What’s Deductible?
- Digital Advertising: This is a huge category. It includes pay-per-click (PPC) campaigns on platforms like Google Ads and Bing Ads, social media advertising on Facebook, Instagram, LinkedIn, and TikTok, and any other platform where you pay to promote your content.
- Content Marketing: The costs associated with creating and promoting content are deductible. This includes hiring writers for your blog, paying for graphic design for your social media posts, and the cost of any software you use to create content (e.g., Canva, Adobe Creative Suite).
- Website Costs: The costs of designing, building, and maintaining your website are deductible. This includes domain name registration, web hosting fees, and the cost of any premium themes or plugins you purchase.
- Traditional Advertising: This includes print ads in newspapers and magazines, radio and television commercials, billboards, and direct mail campaigns.
- Promotional Materials: The cost of business cards, brochures, flyers, and other promotional materials are deductible.
- Sponsorships: Sponsoring a local event or a charity can be a deductible advertising expense, as long as your business gets some form of promotion in return (e.g., your logo on a banner).
- What’s NOT Deductible?
- Lobbying Expenses: You cannot deduct the cost of lobbying government officials.
- Political Contributions: You cannot deduct contributions to political candidates or parties.
Pro Tip: Keep meticulous records of your advertising expenses. If you are running a Facebook Ads campaign, for example, be sure to save the invoices and a screenshot of the ad itself. This will help you substantiate the deduction in the event of an audit.
Amortization
Amortization is similar to depreciation, but it applies to intangible assets rather than physical assets. An intangible asset is something that has value but that you can’t physically touch. The cost of certain intangible assets can be deducted over a period of 15 years.
What’s Deductible?
- Goodwill: If you purchase another business for more than the fair market value of its assets, the excess amount is called goodwill. This is a common occurrence in business acquisitions, and the goodwill can be amortized over 15 years.
- Patents, Copyrights, and Trademarks: The cost of acquiring a patent, copyright, or trademark can be amortized over its useful life. If the useful life is not determinable, it is amortized over 15 years.
- Franchise Fees: The fees you pay to acquire a franchise can be amortized over 15 years.
- Customer Lists: The cost of purchasing a customer list can be amortized over 15 years.
- What’s NOT Deductible?
- Self-Created Intangibles: You cannot amortize the cost of self-created intangibles, such as the value of your own brand that you have built over time.
Pro Tip: Amortization is a complex area of tax law. If you have acquired any intangible assets, you should work with a tax professional to ensure you are calculating the amortization correctly.
Calculate Your LLC Deduction in 60 Seconds
LLC Tax Classification Calculator
.
Bank Fees
This is a simple but often overlooked deduction. Any fees associated with your business bank accounts are 100% deductible. The key is to have a dedicated business bank account. Commingling your personal and business finances is a recipe for disaster, both from a bookkeeping and a legal perspective.
What’s Deductible?
- Monthly Service Fees: Most business checking accounts have a monthly service fee, which is deductible.
- Transfer Fees: Fees for wire transfers or ACH transfers are deductible.
- Overdraft Fees: While you should try to avoid them, overdraft fees are a cost of doing business and are deductible.
- Merchant Processing Fees: If you accept credit cards, the fees you pay to your merchant processor (e.g., Stripe, PayPal, Square) are deductible. These can add up to a significant amount, so be sure to track them.
Pro Tip: At the end of the year, download your bank statements and add up all the fees you paid. You may be surprised at how much they total. This is an easy deduction to claim, so don’t leave it on the table.
Business Travel
The cost of travel for business purposes is deductible, but this is an area where the IRS has strict rules. The travel must be “primarily” for business purposes. This means that more than 50% of your time on the trip must be spent on business activities.
What’s Deductible?
- Transportation: Airfare, train tickets, and rental cars are 100% deductible.
- Lodging: The cost of hotels, motels, and Airbnbs is 100% deductible.
- Meals: You can deduct 50% of the cost of your meals while you are traveling for business. This includes meals with clients and meals you eat by yourself.
- Incidentals: You can deduct the cost of tips, laundry, and other incidental expenses.
What’s NOT Deductible?
- Commuting: The cost of commuting from your home to your office is not deductible.
- Personal Travel: If you extend a business trip for a personal vacation, you can only deduct the business portion of the trip. For example, if you fly to a conference for 3 days and then stay for 2 extra days for vacation, you can deduct the full cost of your airfare, but only 3/5 of your lodging and meals.
Pro Tip: Keep detailed records of your business travel. For each trip, you should have a log that shows the dates of the trip, the destination, the business purpose of the trip, and a breakdown of your expenses. This will be invaluable in the event of an audit.
Car and Truck Expenses
If you use your vehicle for business, you can deduct the cost of that use. There are two methods for calculating this deduction: the actual expense method and the standard mileage rate.
The Standard Mileage Rate:
This is the simpler of the two methods. You simply multiply the number of business miles you drive by the standard mileage rate, which is set by the IRS each year. For 2024, the rate is 67 cents per mile. To use this method, you must keep a log of your business mileage. The log should show the date of each trip, your starting point, your destination, the purpose of the trip, and the number of miles you drove.
The Actual Expense Method:
This method is more complex, but it can result in a larger deduction if you have high car expenses. With
this method, you deduct the business use percentage of your actual car expenses. This includes gas,
oil, repairs, insurance, registration, and depreciation. To use this method, you must track all your car
expenses and the total number of miles you drive during the year (both business and personal).
- Which Method is Better?
- It depends. If you have a newer car with low operating costs, the standard mileage rate is probably better. If you have an older car with high operating costs, the actual expense method may be better. You can switch from the standard mileage rate to the actual expense method, but you cannot switch from the actual expense method to the standard mileage rate.
Pro Tip: Use a mileage tracking app like MileIQ or Everlance to automatically track your business mileage. This will save you a ton of time and ensure you have the documentation you need to support your deduction.
Commissions and Fees
This category covers payments you make to non-employees who help you generate revenue or perform other services for your business. It’s a straightforward deduction, but the reporting requirements are critical.
What’s Deductible?
- Sales Commissions: Payments to salespeople who are not on your payroll. This is common in industries like real estate, insurance, and software sales.
- Referral Fees / Affiliate Payments: If you have a referral or affiliate program, the fees you pay to others for sending you customers are deductible.
- Professional Fees:This is a broad category that includes fees paid to lawyers, accountants, bookkeepers, consultants, and other professionals. However, if the fee is for a service that provides a long-term benefit (e.g., helping you acquire another business), it may need to be capitalized and amortized rather than deducted in full.
- The Critical Form 1099-NEC:
- This is where many business owners get into trouble. If you pay an independent contractor (who is not a corporation) $600 or more in a calendar year, you are required to file Form 1099-NEC with the IRS and send a copy to the contractor. The deadline for filing is January 31st of the following year. Failure to file can result in significant penalties.
Pro Tip: Use a payroll service like Gusto or a bookkeeping software like QuickBooks to track your payments to contractors and automatically generate and file your 1099s. This will save you a lot of headaches at the end of the year.
Contract Labor
This is similar to commissions and fees, but it specifically refers to the cost of hiring independent contractors to perform services for your business. This is a huge area of focus for the IRS, so it’s critical to get it right.
The Employee vs. Contractor Distinction:
- The IRS has a 20-factor test to determine whether a worker is an employee or an independent contractor. The key factor is control. If you have the right to control what the worker does and how they do it, they are likely an employee. If you only have the right to control the result of the work, they are likely a contractor.
Why it Matters:
- If you misclassify an employee as a contractor, the consequences can be severe. You could be liable for back payroll taxes, penalties, and interest. This is not a mistake you want to make.
What’s Deductible?
- The full cost of hiring legitimate independent contractors is deductible.
What’s NOT Deductible (as Contract Labor)?
- Wages paid to employees. These are deducted under "Salaries and Wages."
Pro Tip: If you are unsure whether a worker is an employee or a contractor, you should consult with a lawyer or a tax professional. You can also file Form SS-8 with the IRS to get a determination. It’s better to be safe than sorry.
Depreciation
When you purchase a business asset that has a useful life of more than one year, you generally cannot deduct the full cost of the asset in the year you purchase it. Instead, you must deduct the cost over a period of several years through depreciation. This applies to assets like computers, furniture, equipment, and vehicles.
Section 179 Expensing:
This is a powerful exception to the general rule of depreciation. Section 179 allows you to deduct the full
cost of certain new or used business assets in the year you purchase them, up to a limit. For 2024, the limit is $1,220,000. This is a huge tax break for businesses that invest in new equipment.
Bonus Depreciation:
Bonus depreciation is another powerful tax break that allows you to deduct a percentage of the cost of new or used business assets in the year you purchase them. For 2024, bonus depreciation is 60%. This is in addition to any Section 179 deduction you take. However, bonus depreciation is being phased out, so it’s important to take advantage of it while you can.
What’s Depreciable?
- Computers and software
- Office furniture and equipment
- Vehicles
- Machinery and equipment
- Buildings (depreciated over 27.5 or 39 years)
What’s NOT Depreciable?
- Land
- Inventory
Pro Tip: Depreciation is a complex area of tax law. You should work with a tax professional to ensure you are taking full advantage of all the depreciation tax breaks available to you, including Section 179 and bonus depreciation.
Dues and Subscriptions
This category allows you to deduct the cost of memberships in professional organizations and subscriptions to industry-specific publications. The key is that the membership or subscription must be directly related to your business.
What’s Deductible?
- Professional Organization Dues: Dues paid to organizations like the American Medical Association (for doctors), the American Bar Association (for lawyers), or a local chamber of commerce are deductible.
- Trade Publication Subscriptions: Subscriptions to magazines, journals, and newsletters that are relevant to your industry are deductible. For example, a marketing consultant could deduct a subscription to Adweek, and a real estate agent could deduct a subscription to Real Estate Magazine.
- Software Subscriptions: The cost of software subscriptions, such as Microsoft 365, Adobe Creative Cloud, or a CRM like Salesforce, are deductible. This is a huge category for modern businesses.
What’s NOT Deductible?
- Lobbying Dues: The portion of your dues that goes towards lobbying activities is not deductible. The organization should tell you what percentage of your dues is non-deductible.
- Club Dues: Dues paid to social clubs, athletic clubs, or country clubs are not deductible, even if you use the club for business entertainment.
Pro Tip: Review your credit card statements at the end of the year for any recurring subscriptions. You may be surprised at how many you have. This is an easy way to pick up some extra deductions.
Education
You can deduct the cost of education that maintains or improves your skills in your current business. However, you cannot deduct the cost of education that qualifies you for a new business.
What’s Deductible?
- Continuing Education: The cost of continuing education courses that are required to maintain your professional license (e.g., for doctors, lawyers, accountants) is deductible.
- Skill-Building Courses: The cost of courses, seminars, and workshops that improve your skills in your current business is deductible. For example, a web developer could deduct the cost of a course on a new programming language, and a photographer could deduct the cost of a workshop on lighting techniques.
- Books and Materials: The cost of books and other materials related to your education is deductible.
What’s NOT Deductible?
- Education to Qualify for a New Business: You cannot deduct the cost of education that qualifies you for a new trade or business. For example, a bookkeeper cannot deduct the cost of going to law school.
- Education to Meet Minimum Requirements: You cannot deduct the cost of education that is required to meet the minimum requirements for your current job.
Pro Tip: Keep the course descriptions and syllabi for any education you deduct. This will help you prove that the education was related to your current business in the event of an audit.
Employee Benefits
If you have employees, the cost of providing them with benefits is deductible. This is a powerful way to attract and retain top talent.
What’s Deductible?
- Health Insurance: The premiums you pay for your employees' health insurance are deductible.
- Retirement Plans: The contributions you make to your employees' retirement plans, such as a 401(k) or a SEP IRA, are deductible.
- Paid Time Off: The cost of providing your employees with paid vacation, sick leave, and holidays is deductible.
- Fringe Benefits: The cost of providing other fringe benefits, such as life insurance, disability insurance, and education assistance, is deductible.
The S-Corp Owner Limitation:
- If you are an S-Corp owner who owns more than 2% of the company, you are treated as a partner for fringe benefit purposes. This means you cannot receive tax-free fringe benefits. Any benefits you receive must be included in your W-2 as wages. However, you can still deduct the cost of your own health insurance as an above-the-line deduction on your personal tax return.
Pro Tip: Offering a competitive benefits package can be a major advantage in the hiring market. Work with a benefits broker to design a package that fits your budget and meets the needs of your employees.
Insurance
Insurance is a critical part of protecting your business from risk, and the premiums you pay are generally deductible. The key is that the insurance must be for your trade or business.
What’s Deductible?
- General Liability Insurance: This protects your business from claims of bodily injury or property damage. It's a must-have for almost every business.
- Professional Liability Insurance (Errors & Omissions): This protects service-based businesses from claims of negligence or malpractice. It's essential for professionals like consultants, accountants, and lawyers.
- Property Insurance: This covers damage to your business property, such as your office building, equipment, and inventory.
- Business Interruption Insurance: This covers lost income if your business is forced to close due to a covered event, like a fire or natural disaster.
- Cyber Liability Insurance: This protects your business from data breaches and other cyber threats. It's becoming increasingly important in the digital age.
- Workers' Compensation Insurance: If you have employees, you are required by law to have workers' compensation insurance. The premiums are deductible.
What’s NOT Deductible?
- Personal Insurance: You cannot deduct the cost of your personal auto insurance, homeowner's insurance, or life insurance (unless it's a specific type of employee benefit).
- Disability Insurance: The tax treatment of disability insurance is complex. If you pay the premiums with after-tax dollars, the benefits you receive are tax-free. If your business pays the premiums and deducts them, the benefits you receive are taxable. Most advisors recommend paying for personal disability insurance with after-tax dollars.
Pro Tip: Review your insurance coverage annually with your insurance agent to ensure you have the right amount of coverage for your business. As your business grows, your insurance needs will change.
Interest
Interest paid on loans used for your business is deductible. This is a significant deduction for businesses that use debt to finance their operations or growth.
What’s Deductible?
- Business Loans: Interest on traditional bank loans, SBA loans, and lines of credit is deductible.
- Credit Card Interest: Interest on business credit cards is deductible. This is another reason why it's so important to have a separate credit card for your business.
- Mortgage Interest: The business use portion of the mortgage interest on your home is deductible as part of the home office deduction. If your business owns a commercial property, the full amount of the mortgage interest is deductible.
The Business Interest Limitation:
- For larger businesses, there is a limitation on the amount of business interest you can deduct. The limit is generally 30% of your adjusted taxable income. However, most small businesses are exempt from this limitation.
What’s NOT Deductible?
- Personal Interest: Interest on personal loans, personal credit cards, and your personal mortgage is not deductible.
Pro Tip: If you are just starting out and need to use a personal loan or credit card to fund your business, you can still deduct the interest. The key is to be able to prove that the funds were used for business purposes. The best way to do this is to deposit the funds directly into your business bank account and use them for business expenses.
Legal and Professional Services
Fees paid to lawyers, accountants, bookkeepers, consultants, and other professionals are deductible. These services are often essential for running your business and staying in compliance with the law.
What’s Deductible?
- Legal Fees: Fees paid to a lawyer for business matters, such as drafting contracts, reviewing leases, or handling litigation, are deductible. However, legal fees related to the acquisition of a business asset must be capitalized and amortized.
- Accounting and Bookkeeping Fees: Fees paid to an accountant or bookkeeper to maintain your books, prepare your financial statements, and file your tax returns are deductible.
- Consulting Fees: Fees paid to consultants who provide advice on things like marketing, strategy, or operations are deductible.
The Capitalization Rule:
- This is an important exception. If the professional service relates to the acquisition of a business or a long-term asset, the fee is generally not deductible in full in the year it is paid. Instead, it must be capitalized (added to the cost of the asset) and depreciated or amortized. For example, the legal fees you pay to acquire a new office building would be added to the cost of the building and depreciated over 39 years.
Pro Tip: Keep detailed invoices from your professional service providers. The invoices should clearly describe the services that were provided. This will help you determine whether the fee is deductible or must be capitalized.
Meals
The deduction for business meals is one of the most commonly used—and most frequently abused— deductions. The IRS has strict rules about what you can deduct and the documentation you need to support it.
The 50% Limitation:
- In most cases, you can only deduct 50% of the cost of a business meal. This limitation applies to the cost of the food, beverages, taxes, and tips. For example, if you take a client out for a business lunch and the bill is $100, you can only deduct $50.
What’s Deductible?
- Meals with Clients: The cost of meals with current or potential clients is deductible, as long as there is a substantial business discussion before, during, or after the meal.
- Travel Meals: The cost of your own meals while you are traveling for business is deductible (subject to the 50% limit).
- Office Meals: The cost of meals provided for the convenience of the employer on the employer's premises is 100% deductible. For example, if you provide lunch for your employees so they can work through a deadline, the cost is fully deductible.
The Strict Documentation Requirements:
- This is where most business owners get into trouble. To deduct a business meal, you must document the following:
- 1. The amount of the expense.
- 2. The date and place of the meal.
- 3. The business purpose of the meal.
- 4. The business relationship of the people you dined with.
What’s NOT Deductible?
- Entertainment: The Tax Cuts and Jobs Act of 2017 eliminated the deduction for business entertainment. You can no longer deduct the cost of taking a client to a sporting event, a concert, or a golf outing.
- Lavish or Extravagant Meals: The cost of a meal cannot be "lavish or extravagant." The IRS doesn't provide a specific definition of this, but it's a facts-and-circumstances test. A $500 dinner for two would likely be considered lavish.
Pro Tip: Write the names of the people you dined with and the business purpose of the meal on the back of the receipt. This will ensure you have the documentation you need in the event of an audit.
Office Expenses
This is a broad catch-all category for the day-to-day expenses of running your office. It includes all the small things that you need to keep your business running smoothly.
What’s Deductible?
- Office Supplies: Pens, paper, ink cartridges, folders, and other office supplies are deductible.
- Postage and Shipping: The cost of stamps, postage meters, and shipping services like FedEx and UPS are deductible.
- Software: The cost of software that is used in your business is deductible. If the software is a onetime purchase, it may need to be depreciated. If it's a subscription, the monthly or annual fee is deductible.
- Small Furniture and Equipment: The cost of small items of furniture and equipment, such as a desk chair or a printer, can often be deducted in full in the year of purchase under the de minimis safe harbor election (up to $2,500 per item).
The De Minimis Safe Harbor Election:
- This is a valuable tax break that allows you to deduct the full cost of small-asset purchases in the year you buy them, rather than depreciating them over several years. To use this election, you must have a policy in place at the beginning of the year to expense items under a certain dollar amount (e.g., $2,500).
Pro Tip: Do a supply closet inventory at the end of the year. You may be surprised at how many small purchases you made that can be deducted as office expenses.
Rent or Lease
The cost of renting or leasing property or equipment for your business is deductible. This is a major expense for many businesses.
What’s Deductible?
- Office Space: The rent you pay for your office, storefront, or warehouse is deductible.
- Equipment Leases: The payments you make to lease equipment, such as a copier, a postage meter, or a piece of machinery, are deductible.
- Vehicle Leases: The payments you make to lease a vehicle for your business are deductible. However, there are special rules and limitations for luxury vehicles.
Lease vs. Purchase:
- When you lease an asset, you deduct the lease payments. When you purchase an asset, you deduct the depreciation. Whether it's better to lease or purchase depends on a variety of factors, including the type of asset, the terms of the lease, and your cash flow situation. You should consult with a tax professional to determine which option is best for you.
Pro Tip: If you are a home-based business, you cannot deduct the rent you pay for your home. However, you can take the home office deduction, which allows you to deduct the business use portion of your rent or mortgage interest.
Repairs and Maintenance
The cost of repairs and maintenance to your business property is deductible. However, this is an area where the IRS has drawn a fine line between what constitutes a deductible repair and what constitutes a non-deductible improvement that must be capitalized and depreciated.
The Repair vs. Improvement Distinction:
- This is the critical concept to understand. A repair keeps your property in its normal operating condition. It doesn’t add to the value of the property or prolong its life. Examples include patching a leaky roof, fixing a broken window, or repainting a room. These are currently deductible.
- An improvement, on the other hand, makes the property better than it was before, adapts it to a new use, or restores it to like-new condition. Examples include replacing the entire roof, adding a new room to your building, or renovating the entire office. These costs must be capitalized and depreciated over the useful life of the asset (e.g., 39 years for a commercial building).
What’s Deductible?
- Routine maintenance (e.g., janitorial services, landscaping)
- Patching walls and painting
- Fixing plumbing leaks
- Repairing broken equipment
What Must Be Capitalized?
- Replacing a roof
- Installing a new HVAC system
- Renovating an entire office
- Additions to a building
Pro Tip: The repair regulations are notoriously complex. If you are undertaking a significant project, you should consult with a tax professional to determine which costs can be deducted and which must be capitalized. Proper classification can have a significant impact on your tax bill.
Salaries and Wages
The salaries, wages, and bonuses you pay to your employees are deductible. This is one of the largest deductions for many businesses.
What’s Deductible?
- Salaries and Wages: The gross amount of salaries and wages paid to your employees is deductible.
- Bonuses: Bonuses paid to your employees are deductible.
- Commissions: Commissions paid to your employees are deductible.
- Payroll Taxes: The employer’s share of payroll taxes (Social Security and Medicare) and federal and state unemployment taxes are deductible.
The Owner’s Salary:
- Sole Proprietors and Partners: You cannot pay yourself a salary. You simply take a draw from the business, which is not a deductible expense.
- S-Corp Owners: You must pay yourself a reasonable salary, which is a deductible expense for the S-Corp.
- C-Corp Owners: You can pay yourself a salary, which is a deductible expense for the C-Corp.
The Documentation Requirement:
- You must keep detailed records of all payments made to your employees, including the amount of the payment, the date of the payment, and the employee’s name and Social Security number. You must also file all required payroll tax returns (Form 941, Form 940) and issue W-2s to your employees.
Pro Tip: Use a payroll service. The cost is minimal, and it will ensure that you are in compliance with all the complex payroll tax rules. Trying to do payroll yourself is a recipe for disaster.
Supplies
This category covers the cost of materials and supplies that are used in your business. The key is that the supplies must be consumed within one year.
What’s Deductible?
- Office Supplies: Pens, paper, ink cartridges, folders, etc.
- Janitorial Supplies: Cleaning supplies, paper towels, etc.
- Manufacturing Supplies: The raw materials that go into the products you make.
- Restaurant Supplies: Food, beverages, napkins, etc.
The Inventory Exception:
- If you are a business that sells products, you cannot deduct the cost of your inventory until you sell it. The cost of your inventory is tracked in a separate account on your balance sheet. When you sell an item, the cost of that item is moved from your inventory account to your cost of goods sold account, which is a deductible expense.
Pro Tip: Don’t confuse supplies with assets. A supply is something that is used up within a year. An asset is something that has a useful life of more than one year and must be depreciated. For example, a box of paper is a supply, but a printer is an asset.
Taxes and Licenses
The taxes and licenses you pay to run your business are generally deductible. However, there is one very important exception.
What’s Deductible?
- State and Local Income Taxes: If your business is a C-Corp, it can deduct state and local income taxes. If your business is a pass-through entity (sole proprietorship, partnership, or SCorp), you can deduct state and local income taxes on your personal return, subject to the $10,000 SALT cap.
- Sales Tax: The sales tax you pay on business purchases is deductible. You can either deduct the actual amount of sales tax you paid or use the optional sales tax tables provided by the IRS.
- Property Tax: The property tax you pay on business property (e.g., your office building) is deductible.
- Payroll Taxes: The employer’s share of payroll taxes (Social Security and Medicare) and federal and state unemployment taxes are deductible.
- Business Licenses: The fees you pay for business licenses and permits are deductible.
What’s NOT Deductible?
- Federal Income Taxes: You can never deduct your federal income taxes.
The SALT Cap:
- The Tax Cuts and Jobs Act of 2017 imposed a $10,000 limit on the amount of state and local taxes (SALT) that individuals can deduct on their personal tax returns. This includes state and local income taxes, property taxes, and sales taxes. This limitation has a significant impact on business owners in high-tax states.
Pro Tip: Many states have enacted SALT cap workarounds that allow pass-through entities to pay the state income tax at the entity level. This allows the business to deduct the full amount of the state income tax, bypassing the $10,000 SALT cap for the owners. If you are in a high-tax state, you should talk to your tax professional about whether your state has a SALT cap workaround.
Telephone and Internet
The cost of your telephone and internet service is deductible, but you can only deduct the business use portion. This is an area where you need to be careful about separating your personal and business use.
The Business Use Percentage:
- To calculate your deduction, you must determine the percentage of your telephone and internet use that is for business. For example, if you use your cell phone 50% for business and 50% for personal use, you can deduct 50% of your cell phone bill.
What’s Deductible?
- Cell Phone Bill: The business use portion of your cell phone bill is deductible.
- Internet Bill: The business use portion of your home internet bill is deductible as part of the home office deduction.
- Dedicated Business Line: If you have a dedicated business phone line, the full cost is deductible.
The Documentation Requirement:
- You should keep a log for a representative period (e.g., one month) to determine your business use percentage. You should also keep copies of your bills.
Pro Tip: The simplest way to handle this is to get a dedicated business cell phone. This way, you can deduct 100% of the cost without having to worry about tracking your business use percentage.
Utilities
Similar to telephone and internet, you can deduct the business use portion of your utilities. This deduction is typically taken as part of the home office deduction.
What’s Deductible?
- Electricity
- Gas
- Water
- Trash Removal
The Home Office Deduction:
- If you have a home office, you can deduct the business use portion of your utilities. To calculate this, you determine the percentage of your home that is used for your office (e.g., if your office is 10% of the square footage of your home, you can deduct 10% of your utilities).
Pro Tip: The home office deduction is a red flag for audits, so it’s critical to have your documentation in order. You must use the space exclusively and regularly for your business. This means it can’t be a corner of your living room where your kids also play video games. It needs to be a dedicated space.