Sole proprietors who qualify for vehicular deductions base their calculations on either their actual expenses or the standard mileage rate set forth by the IRS—for 2009, it’s fifty-five cents per mile. People who opt for the latter method must state their intention to use it during the first year they use their vehicle for business purposes.
Don’t go thinking you can write off your next vacation to Bora Bora just because you’re self-employed, but if you’re traveling for a legitimate business reason, you can deduct many of the expenses you incur during your trip. These include:
- Airplane, train, bus, or automobile travel between your home and your business destination
- Taxi, commuter bus, and limousine fares between the airport, your hotel, and your temporary work location, as well as rental-car fees
- Meals (generally, 50 percent of the total cost is deductible) and lodging (if your trip is one night or longer, you’ll need sleep and sustenance to carry out your work responsibilities satisfactorily)
- Even dry cleaning and laundry!
Meals and Entertainment
The IRS defines business entertainment as activities whose primary purpose is “the active conduct of business” or during which “you did engage in business with the person during the entertainment period, and you had more than a general expectation of getting income or some other specific business benefit.” Possible acceptable venues for business entertainment include nightclubs, athletic clubs, theaters, and sporting events. If you pay for meals, accommodations, or a vehicle for your clients, those expenses are deductible as well—though the IRS typically reimburses taxpayers for only 50 percent of meal- and entertainment-related costs. It also stipulates, “You cannot deduct expenses that are lavish or extravagant under the circumstances.”
Computer and Phone Expenses
In this information age, computers and cell phones are the lifeblood of almost every businessperson. If you’re newly self-employed, the cost of a high-powered laptop, a whole suite of software, security-monitoring applications, an external hard drive, and a smartphone can seem prohibitive, but you can recoup these expenses if you use any of this equipment to perform your job to the best of your abilities. You’ll also be able to write off any utilities charges (such as cell phone service, Internet access, and electricity) related to your livelihood.
The specific items in this catchall category vary widely, depending on the taxpayer’s particular profession. A freelance book editor, for example, might claim red pens, correction tape, printer paper and ink cartridges, and The Chicago Manual of Style as necessary business expenses, whereas a Web designer would amass an entirely different selection of essential tools. As a general rule, any time you make a big Office Depot run, you’re bound to emerge with purchases that are largely tax-deductible. And don’t forget to pick up—and write off—a high-quality office chair if you spend long hours sitting in front of a computer.