8 Business Expenses to Write Off (+ 3 Tips for Tracking Your Expenses!)

As a business owner, you’re probably used to thinking five steps ahead. Right now, you may be making a plan for the new year – new campaigns you’re going to launch, new services you’re going to add, how you can expand and improve your business over the next 12 months…

But before you leap into this next year, if you don’t take time to review last year’s business expenses, you could be losing thousands of dollars!

Do I have your attention yet?

As a business owner, I know how expensive it is to run your own business, from paying for website hosting to advertising, investing in education, hiring freelancers or even bringing on employees. And as a money coach, I also know how important it is to keep track of every penny.

I’m going to break down 8 business expenses to write off before the end of the year, as well as give you some tips for keeping track of your business expenses.

Why are business write offs important and how do they work?

I’m going to give you some specific examples of business expenses in a second, but first, if you aren’t familiar with tax write-offs or how they work, let me explain.

Basically, a tax write off is a business expense that the IRS defines as “necessary” and “ordinary.” In other words, an expense that is essential and would normally be expected in order for you to run your business. I’ll explain more in a moment, but basically, an office desk is a tax write off. New bedsheets are not.

When you add these expenses in, it lowers your taxable income and therefore lowers the amount of tax you need to pay for the year.

Here’s exactly how it works: let’s say you have $100,000 in business income and $50,000 in business expenses, you subtract 50,000 from 100,000 to get 50,000 in taxable income. Because of how the tax brackets work, in 2022, you’d be paying 22% of any income over $41,776. So you would be paying 22% of just under $9,000, which is almost $2,000.

Now, let’s say you find an additional $3,000 worth of expenses which lowers your taxable income from 50,000 to $47,000. So instead of paying $2,000 in taxes for your highest bracket, you’re paying just over $1,000.

In this scenario, finding $3,000 of additional expenses, saved you almost $1,000. The other way to think of it is that those $3,000 in expenses only cost you $2,000, or in other words, you got a 33% discount on whatever you bought.

This is one of the reasons business owners make a lot of purchases at the end of the year - to lower their taxable income and because it’s essentially like things are on sale.

What can you write off as a business expense?

Here are some common business expenses to write off:

1) Startup expenses

If you started your business in the last tax year, then you can write off up to $5,000 in start up costs. This includes costs associated with getting your business off the ground, such as training, travel, and marketing expenses.

2) Your home office

If you work from home, you can also deduct the cost of your home office.

How does it work? Let’s say you have a 2,000 square foot home and your office is 300 square feet. 300 divided by 2,000 is 15%, so your home office is 15% of the total square footage of your house. In that case, you can deduct 15% of the cost of your mortgage interest or rent, utilities (such as water, electricity, and gas bills), and homeowner’s insurance. So let’s say those 3 things totaled $28,000. You would then be able to deduct 15% of $28,0000, or $4,200 as a business expense.

And if you don’t have a home office, but you rent an office outside of your house, that’s also a business expense, so don’t forget to deduct that!

3) Business meals

This one’s important. Most of the time, you can only deduct 50% of qualifying food and drink purchases. But per IRS guidelines for 2021 and 2022, you can deduct the full cost of the meal. This is true for any meals that were billed or paid between December 31, 2020 and January 1, 2023, so don’t forget about it!

Keep in mind that you need to be able to report:

• The date and location of the meal
• The business relationship of the person or people you dined with
• The total cost of the meal (including tax and tips!)

Hot tip: save your receipts and write notes to yourself on them. (But we’ll get to that section next!)

4) New office supplies and furniture

Did you buy a new office chair with better back support? Printer paper? A laptop with better battery life? Those all qualify as tax deductions, count ‘em up and add them in! And if you’ve been dreaming about a new office chair, buy it before the end of the year!

5) Prepaid expenses

As long as you use the entire expense within the next 12 months, you can write it off in the current tax year. Say you prepay for your business insurance on December 31, 2022 for insurance from January 1, 2023 to December 31, 2023 — you can expense the entire amount.

6) Child and dependent care

According to TurboTax, “The Child and Dependent Care Credit provides a tax break for many parents who are responsible for the cost of childcare. Though the credit is geared toward working parents or guardians, taxpayers who were full-time students or who were unemployed for part of the year may also qualify.”

Basically, if you paid a daycare center, babysitter, summer camp, or any other sort of childcare for a child under the age of 13, you can qualify for a tax credit.

A tax credit is a little different than a tax deduction. A tax deduction essentially reduces your income before taxes are calculated. A tax credit can reduce the amount of tax you owe or increase your tax refund.

Regardless, it saves you money and you should make careful note of all childcare-related expenses.

7) Phone and Internet expenses

If using your phone or Internet is crucial to running your business, then those qualify as write-offs. But if you use them for a mix of personal and business reasons, then you can only partially deduct those costs.

8) Education & Coaching

As a lifelong learner, this is my favorite write-off. Educational and coaching expenses include:

• Courses and classes related to your field of work
• Seminars and webinars
• Trade publication subscriptions
• Books related to your industry
• Business coaching sessions

So, let’s say you buy a course to help you learn how to write effective sales emails or a coaching program that will help you grow your revenue. Or a program that will give your effective systems for managing your money – like the Million Dollar Year!

The Million Dollar Year is our signature program to help you learn how to painlessly manage money and build wealth. We even have a section in our training vault to help entrepreneurs master business finances. In it, we have lessons on how to pay yourself a steady salary, our system for managing your business finances, and how to grow your revenue. And don’t forget - it counts as a business write off!

3 simple ways to track your business expenses

All right, here are a few tips to track your business expenses so you don’t have to scramble to find those receipts at the end of the year:

1) Get a business bank account and a business credit card

It’s important to keep your business and personal finances separate. Having a separate business bank account will make tax prep easier, since you’ll be tracking your income and expenses.

Want to learn more about why you should set up a business account and how to pay yourself from it? Here’s how to pay yourself as a business owner.

2) Digitize your receipts

If you’re ever audited, the IRS will want to see receipts. Shoving a bunch of receipts into a junk drawer where they’ll get all jumbled up and the ink will fade only makes for an organizational nightmare later.

By digitally scanning and saving your receipts, it’ll be a much cleaner, more efficient system. There are tons of apps that make this really easy to snap a photo and add it to your records.

3) Keep a spreadsheet handy

As you’ve seen, there are a lot of different business expenses; this video just scratches the surface of possible expenses. I love keeping a spreadsheet where I list and categorize my expenses as they come up during the year. I always think I’ll remember things, but having this spreadsheet to reference at the end of the year makes it so much easier when tax season arrives!

Want to take your wealth-building to the next level?

All right, I hope you got the message that if you aren’t claiming business expenses on your tax return, then you are potentially leaving thousands of dollars on the table. So take advantage of these tips and use them to make the best financial decisions for yourself and your business.

Finally, if you want to learn our tried-and-true systems for managing money as an entrepreneur, living debt-free, saving for retirement, and building wealth, check out our program: the Million Dollar Year. In it, we give you all the spreadsheets, step by step video guides, and coaching support along the way so that managing your personal and business expenses feels easy.

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