Updated: Mar 18
Most people find tracking write offs and knowing what they can write off extremely stressful and time consuming. I’m here to help with that. PLEASE KNOW: I am not a licensed cpa, tax attorney, or certified to give tax advice. This is not legal accounting advice. This is purely what I’ve learned and found that’s worked best for me.
Now let’s dive in. What’s a write off and how does it work? A write off is a business expense you can partially or fully deduct from your taxable income, reducing how much you owe the government. The less you have to pay at the end of the year the more that stays in your pocket. Knowing what you can write off and how to track those write offs is key to keeping your pockets full.
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While working on my taxes for 2019 I took down the different categories of itemized deductions H&R Block listed that can use for write offs. What I love about H&R Block is that when you’re entering your itemized deductions it doesn't just say “Advertising” or “Office Expenses” it actually gives you a list of examples under the name of each category. Here's a few I keep in my notes:
-Business cards, flyers, and newspaper ads
-Internet, television, and radio advertising
-Advertising at a charitable or community event
Car + Truck
-Mileage tracked during business drives
Legal or Professional Services
-Fees paid for tax advice for your business
-Feeds paid for the preparation of the tax forms for your business
-Legal fees paid to an attorney that were ordinary and necessary to the operation of your business
Business Meals and Entertainment
-Meals while traveling overnight on business
-A business lunch with a customer or client
-Refreshments given out at an open house
-A seperate phone line or internet service
-Office supplies and postage
-Maintenance and cleaning expenses
-Merchandise bought for sale to customers
-Material used to produce goods or assemble good for sale
-Print cartridges and printer paper
-Cleaning material and supplies
-Professional books, instruments, and equipment if normally used up within one year
Taxes or Licenses
-Federal highway use tax
-Property tax on a business property
PLEASE KNOW: I am not a licensed cpa, tax attorney, or certified to give tax advice. This is not legal accounting advice. This write off category list is what I found through H&R Block. This is not a full list of all write offs available to you, there are more. If you have questions or think there is more you could be writing off please contact a tax profession. This is just a great place to start!
Being self employed has its perks, but it also comes with a lot of responsibility. If you’re going to write any of this off you’ll need to track it. But how do you track it without it taking up hours and hours during tax time? The answer here is consistency and diligence. The only way to shorten the amount of time it takes to do taxes is to work on it throughout the year. An hour or two once a month will save you countless hours of frustration during tax time!
Let’s break this down into 4 simple steps.
#1 Finding Write Offs
Every month my bank sends me a paper statement with a list of all my transactions. Each month when I receive it I go through each transaction and highlight the write offs.
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#2 Categorizing Expenses for Each Month
After highlighting the write offs on my bank statements I go in and categorize them in a spreadsheet on my Google Drive. (Bonus Tip: I like to keep a list of the category titles and examples in the notes app on my phone so I can reference it to make sure I'm putting each transaction in the correct category.)
Categorizing your first month's expenses: Sign into your Google account on your computer or download the Google Drive app and create a new folder in your Google Drive and label it “2020 Write Offs”. In that folder you’ll want to create a folder for each month. Then in the month's folder you're working on you'll want to create a new spreadsheet, this is where you'll track the expenses you highlighted on your bank statement in Step #1.
Here's how to set up your spreadsheet:
#3 Organizing Receipts:
As I categorize each transaction I make sure I’ve got the receipt for it saved in my Google Drive. I have an app called Scannable that I downloaded for free that I'm able to scan my receipts with. I save them to my camera roll and then upload them to the correct month's folder in my Google Drive from my phone. Sometimes I search my email for receipts and screenshot them and upload those to the Google Drive if I'm working on my computer.
#4 Tracking Mileage:
I also use an app called Mile IQ that tracks my mileage whenever I drive. It’s so simple, I swipe left for personal drives and right for business drives and at the end of the month I can email the pdf to myself. This pdf includes every business drive on it. It lists the amount of business miles tracked as well as the amount of money all those drives will be worth as a write off! The app is less than $7 a month and last year I tracked over $500 in business drives - definitely worth it. Plus that monthly cost for the app is a write off ;) WIN WIN.
And that's it! If you're tracking your write offs like this each month all you have to do at the end of the year is add up each category and you've got every single write off with receipts to prove it!
This is a great place to start as you're growing your own small business or side hustle. As your business grows and your income increases it's very important to find a tax professional you trust. I have a great friend who does this professionally who has been immensely helpful in this whole process. If you'd like his contact information shoot me an email! Otherwise, I'd love to hear your thoughts in the comments below.
To wrap things up my advice would be to sit down at the end of each quarter and follow this checklist:
#1 Highlight the transactions that are write offs
#2 Type those up in a spreadsheet like the one listed above
#3 Download your mileage report from Mile IQ (as long as all drives are tracked)
#4 Make sure you have receipts for each transaction
#5 Figure out what you spent for Q1 and what you made and pay your first quarter taxes so you aren't penalized at the end of the year.
If you have any questions please leave a comment!