If you take the blue pill, all of your insurance premiums qualify as small business tax write-offs. If you take the red pill, you can deduct your Shoeboxed.com membership. Wait a second…what if Neo took both pills at the same time? In the 1999 action movie The Matrix (that’s right, we’re taking it back to the original), our hero Neo must determine what’s fantasy (“the matrix”), what’s reality, and what to do about it all. Can you imagine keeping track of small business expenses with that kind of uncertainty? Yet so many small business owners keep track of their business expenses as if they’re operating within some kind of mysterious matrix. What can I write off? What doesn’t count? In an effort to stay off the IRS’s radar, they end up losing out on a lot of money every year. Here is a refresher course on some commonly confused business expenses:
1. Health Insurance
If you’re a small business owner and are self-employed, you can deduct the entire cost of your health insurance payments – that’s right, 100%! Just be careful if you’re a new startup company, or if your business didn’t turn a profit in its first year. You can’t deduct more than the amount of your net profit for that year. And if you’re married, things get both better and worse – just like discovering the matrix, right? For better, if your spouse is employed by you, you can also deduct their health insurance as part of your business expenses. For worse? If you had the option of going on your spouse’s health insurance, you’re not allowed to pay for your own and then write it off.
2. Phone Calls
Neo and Trinity were able to artfully avoid the Agents simply by making a phone call. While it may not be quite as easy to find a payphone nowadays, it is possible to make your phone calls work for you in terms of your business expenses. The key is to get specific. Before scanning or mailing your phone bill to the folks at Shoeboxed, circle each phone call that was a business call. That way your totals will be 100% tax deductible at the end of the year. You can also get a phone (mobile or landline) that is totally dedicated to business-only calls. Just make sure you really only use it for business calls, in case Big Brother (or Agent Smith) is listening. If you do the first option, you’re not able to include all of those taxes and surcharges in your write-off, but if you get a separate line, you may be able to do so.
Neo and the crew could only enjoy a nice steak when they were in the matrix. In the real world, they consumed an oatmeal-esque slop that looked and smelled worse than prison food. While you’re traveling and keeping track of your business expenses, don’t forget that there is a very important difference between where you sleep and where you dine. The cost of your hotel room – down to what you tipped the employee who helped with your bags – is 100% deductible. However, your meals are only half off. Even if you’re entertaining clients or having a lunch meeting that is completely and utterly work-related (think Neo meeting Morpheus for the first time), Uncle Sam only allows for 50% of those costs to count as tax write-offs. So enjoy the fanciest hotels that the matrix has to offer, but return to the ship when it’s time for your oatmeal.