This is probably one of the more anticipated questions, especially around tax season. What can you deduct as a business expense?
Most of it is pretty easy and straight forward. But first, a few quick notes. Keep records of everything you want to deduct! You need to keep records for a minimum of three years after the due date of your tax return. Why three years? Well, three years is the magic number because that’s the same amount of time that the IRS has to audit your tax return. After three years, you’re in the clear! (assuming no fraud is involved)
Business Expense Requirements
Purchases should be ordinary, necessary, and reasonable in amount for your business. If you’re an online ESL teacher, you could deduct a whiteboard you use during your lessons, dry erase markers, a poster board or decorations used for your background, sticky notes, popsicle sticks, arts and crafts materials for lessons, organizational materials like files and folders, lighting, puppets, pretty much anything that you are using in and for your classroom.
Utilities and the Home Office Deduction
Utilities can be deducted using the home office deduction with the actual expenses method on Form 8829.
Can I Deduct Internet??
A common expense subject that comes up is internet. A reasonable way to figure out your internet expense would be a time-use calculation to come up with a percentage. (I have heard of people trying to figure out data usage and calculate it that way. To me, that seems very difficult and unreasonable. How much data did you use navigating to this website or watching one of our instructional videos?) If you are an online ESL teacher and wake up at 3am and teach until 7am, Monday through Friday, you would be using internet for 20 hours a week. If everyone in your household is in bed by 10pm, 15 hours of the day your internet would be available for personal use time. Personal time calculation: 15x7=105 hours. Total use= 125 hours. Business use percent is 20/125 = 16%. In this example scenario, 16% of your internet bill would be associated with business use and could be deducted.
Whatever times, days, and use you use for your situation, just make sure it’s reasonable. You can deduct this on Schedule C, Part V, Other Expenses.
Cell Phone Business Expense
Another expense subject that comes up is cell phones. Can you deduct a portion of your cell phone bill? Yes. You can deduct the business use portion of your cellphone bill, especially if you use it as a hotspot. If you’re an online ESL teacher and you use it while you teach in the mornings to check student no-show status, feedback, class notifications, upcoming classes, or keep in touch with technical support, you can probably claim the same amount of time that you figured for internet use.
Vehicles and Travel Tracking
If you’re using your car for business purposes, like buying supplies, traveling to conventions, etc., you want to make sure you’re keeping track of your mileage appropriately. This will be useful, and necessary, regardless of whether you take the standard mileage rate or calculate business use percentage. It’s helpful to keep a travel log or use some sort of mileage tracking app. Some things you’ll want to note are the date of use, starting and ending mileage for that trip, and reason for the trip. It’s also a good idea to keep track of the overall mileage on your vehicle when you first started using it, and the ending mileage at the end of the year.
We are always here and available to help with any tax woes you may have. Whether it’s tax prep, collections, or simple tax advice you’re seeking, please feel free to reach out and contact us.