08 Mar 5 Tax Deductions for Internet Entrepreneurs and Resellers
Taxes for American Citizens are due on April 15th, 2019. Last year my parent’s accountant filed my taxes for me, but this year I need to do it myself.
I haven’t started to look back at my receipts or anything for taxes. It’s really stressing me out. To motivate myself to just figure out my taxes and file them, here are 5 deductions that I’m going to include on my tax forms as an internet entrepreneur and reseller.
I knew about some of these deductions, and I recently learned a lot of these from a video made by Mark Tew at Notyourdadscpa.com.
Square footage of office/ Inventory Storage
I recently learned that you can only deduct a square footage if it’s used solely for business activities. Because I run my whole business from my bedroom I first thought I was going to not be able to count the square footage of my room.
Being the defiant, but paranoid person that I am, I decided I was going to move my bed and dresser into my hall, and take a picture to prove that my room was only an inventory closet to trick the IRS. I thought I was really clever.
But then I learned that this rule doesn’t apply to inventory. So I was getting anxious for nothing.
MileIQ makes it easy to track your business miles. I’ve never used this app, but I’ve heard great things about it. Instead, I look back at how many miles my car had at the beginning of the year and end of the year, and then multiply by 75%. That gives me a rough estimate of my business miles.
Each state has a per business mile rate (I thinks it’s like 10 cents per mile where I live) that you can multiply your business miles by to get your mile deduction.
More bad news I learned is that you can’t deduct the per mile deduction as well as repairs, and costs like gas, tires, insurance, parts, etc. We need to just choose one or the other.
3. Materials and supplies
One of the best things about being an internet entrepreneur is that there are very little upfront costs. You can usually run your whole reseller business/ side hustle, or freelance job from your house or apartment.
And the business costs that we do have can be used deducted from our taxes. It’s always a good idea to try and find free supplies, but make sure to keep track of all the supplies and materials that you buy.
4. costs of good sold (COGS)
At the end of each month I go back through my sold listings and in a journal I list the date each item sold, along with a short description. Then I list the cost of what the item was- This is the cost of goods sold (COGS).
Until our inventory sells, it’s considered an asset by business standards. So we can’t deduct our total cost of inventory, just the cost of what sold.
Thankfully, the accounting software that I use automatically records the total sale price along with my shipping costs. So the only thing that I need to manually record are my COGS.
But it’s still really easy to forget the exact cost of each item. I use the average prices of the places that I get my inventory. I get most of my t shirts for a dollar, so if a T Shirt sold then I’ll write down $1 for the cost. If a dress shirt sold then I list $5 because that’s the average cost for one around me.
Eventually you’re going to have to purge your old inventory because of clutter. It’s the reality of dealing with a lot of different items.
You could try bringing old clothes to consignment shops to squeeze out any last profits, but you’ll probably end up taking a lot of your old inventory (and junk) to Goodwill. If you do that then at least you’ll get a charitable donation form.
Then you can lie and dramatically increase what you think your old, stained and broken inventory was worth.
I think there’s a limit to the amount that we can declare for donations, but I haven’t researched it yet.
I like brining my old inventory to Savers more than Goodwill. At the Savers around me you get a 30% discount for filling up one of their donation bins. The bins are like the big, laundry baskets on wheels at a gym, but they’re easy to fill up if you bring bulky things like coats, and old books.
How do you do taxes?
These are 5 deductions that I’m going to include on my tax return. I have yet to start taxes, but this post has gotten the idea into my subconsious mind. Also the deadline is in a month, so, one way or another, I’m going to have to file my taxes.
I’ll record more specifically how I did it when the deed is done.
And check back tomorrow for another post!