Episode 31: Tax Deductions Every Creative Should Know

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  You’re listening to the Creative Minds Smart Money Podcast, and I’m your host, Samantha Eck. And today we’re going to talk about deductions you might be missing as a creative entrepreneur. But first of all, can you believe that it’s already February? Feels like we just started the year and we’re already in the second month.

Time flies. Now what if I told you that the IRS might owe you money? Yeah, you heard that right. If you’re not taking advantage of every deduction, you’re really leaving cash on the table. So let’s talk about some obvious deductions that you just might be missing. As creatives, we all kind of wear those different hats, whether it’s an artist, a marketer, a CEO, and sometimes, yes, even a bookkeeper or an accountant.

But taxes is one hat that really none of us want to wear, not even me as a bookkeeper. And you would rather throw it in the trash, but don’t worry, I’ve got you covered with the most overlooked tax deductions that are going to save you some really big bucks. And a lot of people tend to Doubt the power of these and how they can be utilized.

So I really just want to talk about this So last year was the first year I actually filed taxes for my business and One of the things I didn’t realize was how powerful the home office deduction was. There’s really a lot that goes into it from your rent or your mortgage to your insurance, to your internet, to any sort of utilities you pay, especially when you know the exact square footage of the space that you’re using.

It can really pay off. I think I got like six, seven hundred dollars deducted because of that. So it’s something you really want to keep an eye out for. So let’s talk about some of these really big deductions that we might be missing as creative entrepreneurs because we’re too busy thinking about creating and not thinking about what we might be able to deduct.

Also these are things that you should be keeping track of all year so that at the end of the year it’s really easy to hand off to whoever you’re, working with. Whether that’s already, tracking your expenses you want to make sure that those are in there so that you can pass this off. So the first one is obviously the home office deduction.

Now a lot of people get scared by this one because they’re like, well, I use a portion of my home, but I don’t know how much of a portion of my home I can write off. So let’s start with the basics. The home office deduction is only write off able if you use a portion of your home specifically for business.

This means that you cannot sit there and eat dinner or eat lunch or Watch tv while you’re Sitting there. It can’t just be like a space on your counter. It actually has to be a solely dedicated space So the space i’m in right now is actually my husband and mine’s gaming room It is not considered a home office deduction because not only do I use it for business, but I also use it for gaming.

Now, if I had a completely separate office where I was just doing work and that was its sole purpose, I could write off that entire room because that entire purpose of that room is for work only. Then you have to understand how to calculate the square footage of your room. So there’s two methods you can do this.

Now if you are someone like me, maybe you’ve looked at a floor plan before so you know the square footage of your rooms or You have some sort of like floor plan that you have for your house or something so that you they’ve already given you the measurements This makes this part really easy But if not, you’re going to want to take a tape measure and measure You know wall to wall wall to wall to figure out that approximate square footage of your house as compared to your entire home so usually even if you have not measured your whole house there is a way to get like the square footage for your whole house whether that’s through zillow or like something like that because usually they list all those houses even if they’re not for sale so you should be able to tell what your whole house square footage is and then be able to tell what the square footage of your office space is this is the most advantageous method there is a simplified method where it just kind of generates a number for you and you People are always like, oh, it makes it so easy, but if you want the, to take full advantage of this tax deduction,

You really want to focus on the overall square footage. So, for example, If you are a photographer, and you have a studio space in your house, and that is exactly what, that’s what you use it for. It’s your studio space, people can come in, they go to your studio space, you also have your computer there for editing, that entire room is deductible.

Now there’s also additions to that deduction. You have your utilities, so any electricity, any sort of water that you use in that area. Now I want you to be clear on that, that you can’t just deduct willy nilly. It really has to be Considered like a part of that you so you really want to think about what you’re deducting now Obviously an insurance can be covered property taxes are usually covered if you have a house Your mortgage can be covered if you own the house, of course and then rent as well So that means they’re going to write off a portion of that.

So Realistically, if you’re paying two thousand dollars in rent every month, you could technically probably get away with writing off I think it’s like 15 percent I’m not 100 percent sure on that, but I know that there are some really good rules for the home office deductions. You want to keep an eye out for that.

I will also mention there is a hidden key with the maintenance as well. So if, the wall is crumbling and you got that prepared or, you got your walls painted or something like that, repair and maintenance can also go into that home office deduction. So it’s something that’s really, really, really good to keep track of.

Your second deduction I want to talk about is your car. Now, there’s two ways that you can write off your vehicle, especially if you’re using it for your business. I just want to mention that this is very important, that you consider what is actually business. So, if you are a Etsy shop owner and you do physical events, Driving to and from that event is considered business.

If you are a service provider, like myself, you’re a bookkeeper, you’re networking, you go out to meet someone at a coffee shop, that is considered business. So you just earned a deduction. There are two methods that you can use to calculate The vehicle deduction. So when we want to think about that, we want to think of the two methods.

Either you can calculate mileage. So if you’re someone who doesn’t have a lot of driving, you’re only driving a little bit for your business. You know, you’re going to those markets, maybe you’re going out for networking. Mileage is probably more advantageous for you because you’re going to get a full deduction for those miles that you’ve driven.

The other method is vehicle expenses. Now I want to make it clear that you cannot bounce between the two. You can on a yearly basis, but you cannot in the middle of the year. So you can’t be like, okay, I went with the mileage deduction for the first half of the year, and then I’m going with vehicle expenses for the last half of the year.

You have to choose one or the other. The vehicle expenses one is a little bit more complex. You need to be able to calculate what your beginning mileage was at the beginning of the year. And then what you used. At the end of the year and what percentage of that was used for business So if you’re writing off gas if you’re writing off, you know your car insurance any maintenance you’re writing off Any sort of things you’re doing with your vehicle, you can write those all off, but only a percentage of them are deductible, and that’s the percentage that’s used for business.

Now, if the car is used entirely for business, that’s a different story. Obviously, that’s going to be entirely write off able. But, if you are using it for both business and personal, then you’re only going to be able to write off a portion of those expenses. The next one I want to talk about is the internet and the phone bills.

Similar to what I was talking about with the home office deduction with utilities, you can write off actually a portion of your Wi Fi and your phone bill. So it really does depend on the personal versus business usage. As I said, usually what we do for our clients is when we have that Wi Fi or that phone bill, that’s kind of the Wi Fi is calculated into that home office deduction under your, under your square footage because that’s the easiest.

And then the phone bill is really, if it’s used specifically for your business, it’s a little bit harder to calculate if it’s both personal and business. You’d kind of have to consider, okay, is it 50 50? Like what percentage of that could you write off and realistically justify to the IRS? And that’s something I want to pause on and talk about.

When we’re thinking about what can we write off, we want to think about what can I justify to the IRS? So if an auditor were to come to your door and say, hey, I noticed that you wrote off this home office deduction, can you tell me why? If you can’t tell them that you have an entire room that you use for business, it technically, you shouldn’t be writing it off.

You want to be able to justify and tell them that yeah, that’s absolutely why I wrote this off. So that’s all you have to think about when you’re writing a lot of these off. The next one I want to talk about is your continuing education. If you have or you take any courses, workshops, or certifications during the year, you can deduct them.

Now I want to kind of make that clear that continuing education only pertains to what you’re currently doing. So if I’m a bookkeeper and I’m taking courses on, You know, taxes. I’m taking courses on accounts payable. I’m taking courses on payroll. Those are all write off able. But if I went and took a course on website design, it is not in that same vein, so it wouldn’t really be able to be deducted.

That doesn’t mean you can’t go to like a workshop, like a general business workshop, and that’s considered growth. But when you’re thinking of courses and certifications, usually with those education certifications, they only consider them deductible if they’re within the same vein of what you’re doing.

So I just want to make that clear. But if you’re someone who loves to go to workshops, you love to go to retreats, you love to go to conferences, this is such a great opportunity for you to write off that continuing education charge because you’re growing in your business, you’re growing as a business owner.

So something that’s really, really good for you. And then the last one I want to talk about is software and subscriptions. So, I think we all know that we can write off things like QuickBooks, Adobe, Canva, whatever your website is hosting, but I think a lot of people tend to doubt that because some people, at least in my knowledge, that have come to me have been still charging some of this to their personal accounts.

So I want to make it clear that any sort of software or subscriptions that you use specifically for your business can be written off as a deduction. So if you’re using Canva for your business, It’s a deduction. If you are using something like my podcast software, Descript, it’s a deduction. So you want to think really clearly on what you’re actually using for your business, whether that’s ClickUp, whether that’s, you know, HoneyBook, whatever it is, it’s going to be deductible for your business.

You do not have to charge it to your personal card.

Now that we know some of the biggest deductions that we could be missing as creative entrepreneurs, there are three things that we want to do to take away from today’s episode. The first thing you want to do is review your business expenses and see if you’re already capturing these deductions. A couple of these you won’t be able to track within your books specifically because you don’t want to just put in a whole bunch of expenses that are only a fraction right off of all.

So for example, the home office deduction, your mileage, and then your internet imposed bills, that’s something you’re going to want to keep track of whether we do that on a spreadsheet together or whether you keep track of that on a spreadsheet so that you can give that to your tax preparer at the end of the year.

If you’re not already tracking expenses, then you’re really missing out on being able to track some of these expenses. Keep receipts and digital records for anything that you want to deduct because it’s really good to have that extra backup and that’s what I like to call my clients making their books audit proof.

So if you’re always worried you’re someone who worries about audits the best thing you can do is have receipts attached to those so if someone ever were to audit your books they can see exactly what the charge was for. And then obviously use a bookkeeping tool or spreadsheet to track those deductions year round.

It is so much easier than cramming it tax season, especially if you have a lot of transactions. If you have over 50 plus transactions, it’s going to take you hours when it gets to tax season to sift through everything to make sure you find those deductions. So keep track of it year round so you’re not running into that issue.

Taxes don’t have to be terrifying and deductions are really your best friend when done right. The key is knowing where to look and now you do. Every dollar you save on taxes is a dollar you can reinvest in your business. You’ve got the talent. So let’s make your finances work for you.

📍 Thank you so much for listening to this episode. If you loved it, please subscribe for more bookkeeping and finance tips. check out the show notes for a handy list of deductions that we’ve covered today. If you really loved listening to this episode, please make sure to share it with a friend, leave the podcast a review, and as always, have a great rest of your week.

Farewell, fellow travelers.