Top Tax Deductions for Home Service Providers
If you work as an independent cleaner, handyman/woman, or work for an on-demand services company like TaskRabbit or Handy, there are lots of expenses that you can deduct for your business! Here are some important ones that you shouldn’t forget:
Self-employed individuals can deduct their non-commuting business mileage. This includes miles that you drive to your first delivery pickup, between deliveries, and back home at the end of the day.
Careful--you can’t deduct both mileage and gas at the same time! The standard mileage deduction (53.5 cents per mile in 2017) is calculated by the IRS to include the average costs of gas, car payments, maintenance, car insurance, and depreciation. Think of it like a bulk deduction for all of the costs you incur due to using your car.
Fun fact: Taking the mileage deduction often means you can deduct more from your business income than you would if you had deducted all of your actual car expenses! This means you save more in taxes, and you don’t have to keep track of gas and maintenance receipts along with your mileage log.
If you’re doing cleaning work, then you’re probably paying for your own cleaning products, rags, and paper towels. The supplies that you buy for your cleaning business are all deductible!
Tip: The IRS can be strict about using business supplies for personal reasons. So if you’re in need of cleaning supplies outside of work, you would do better to have another set of supplies for personal use.
Public transportation costs for getting to clients’ homes or running work errands are deductible! Bus tickets, subway tickets, taxis, or any other expense for public transportation would be deductible.
Note: Transportation for a regular commute is not deductible! If you travel from home to an office on most workdays, then that travel would be classified as a commute (unless you have a qualifying home office). Be sure to only deduct transportation when you’re traveling to and from a temporary worksite.
Phone & Service
Every on-demand worker needs a great phone, accessories, and lots of data to get through the day. The portion of these expenses that is attributable to work is deductible!
Phone accessories like a car holder, car charger, and any others that are “ordinary and necessary” for your delivery job would be deductible.
Here’s the catch: You can only deduct the expenses as a percentage of business use. What this means is that if you use your cell phone for work 50% of the time, and for personal reasons 50% of the time, you could deduct 50% of the associated costs. We know it can be tough to estimate how much of your phone usage is due to work. It’s probably best to go through your phone records for a typical month, look at how much of your data and phone calls are occurring during work hours, and apply the average to the rest of the year (or even better, check out your phone records each month!).
If you printed business cards to promote your business, that purchase is deductible as an “advertising” expense!
Printing & Copying
Costs related to advertising your business are deductible. That means that printing or copying costs for flyers, brochures, and office records are all tax deductible!
Different expenses, same answer. Online ads, signs, and other advertising expenses that you make in order to promote your services are deductible!
Did you know that promotional gifts count as advertising? Free promotional items that you give out to promote your business, like pens and stress balls with your business’s name, are deductible!
Tip: Gifts that you give to your clients are not considered “promotional goodies,” and are instead tax deductible client gifts. There’s a $25 deduction limit on these gifts, so be sure not to deduct an entire $30 gift!
The IRS allows you to deduct your health insurance premiums if you’re self employed, and if you meet a few requirements. You can read more about it here.
Note: If you are getting a government subsidy on your health insurance, only the amount you pay out of pocket each month is deductible!
Business use of home
Expenses like utilities, remodeling and maintenance that are related to the business use of your home, are deductible only if they fall into two categories:
1) That portion of home is used regularly and exclusively for business purposes as the main place of business.
2) The portion of home that is regularly but not necessarily exclusive used for the business.
Category 2 would be when storing supplies.
For either category 1 or 2 principal place of business includes a place where administration or management activities are conducted. The expenses allocable to the portion of the unit used for business purposes may be determined by any reasonable method under the circumstances, such as the number of rooms or square footage. Calculation, allocation, and substantiation of deductible business expenses can be complex and burdensome. Therefore, for years that you estimate expenses related to the business use of your home will be approximately $1,500 or less, you may consider applying a safe harbor that simplifies the deduction. Under the safe harbor, instead of deducting the actual expenses, you may deduct an amount equal to the square footage of the space you use for business purposes (up to 300 square feet) by $5. The amount of the deduction is limited to the amount of income that can be offset. For example, if expenses for transportation, meals, supplies and advertising are deducted from revenue causing a loss there is no deduction to be taken for the home office.
Equipment and or computer use
You may be able to take cost recovery deductions for property used in the business. You would need to get to the amount of the deduction with:
1) Depreciation method: How to account for depreciation of your equipment or computer
2) Recovery period: How long you’ve relied on that equipment for work
If the laptop is used for personal use than taxpayer should create a list of tasks done on the laptop. You should provide a reasonable amount of time the computer is used per month for business use to consider the percentage used for business purposes. This percentage will be used to reduce the amount of the deduction and to determine whether the asset is eligible for Section 179 treatment.
Business protection expenses or liability insurance are deductible if proximately related to the trade or business.
Disclaimer: The information contained in this Guide is not offered as legal or tax advice. The U.S. federal income tax discussion included in this Guide is for general information purposes only and is not a complete analysis or discussion of all potential tax consequences that may be relevant to a particular individual. In light of the foregoing, each individual should consult with and seek advice from such individual’s own tax advisor with respect to the tax consequences discussed herein. Any information contained in this Guide is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the U.S. Internal Revenue Code of 1986, as amended.