As a sole proprietor, deducting office supplies and materials expenses is one of the best ways to offset your business income at tax time. Because office supplies are required as part of conducting a business, these materials can be deducted as a direct expense for the year in which they were used. Deducting office supplies that were purchased in bulk at the end of the year can send a red flag to the IRS should you be audited. If you cannot possibly use all of the office supplies within the year purchased, you may not be able to deduct these material expenses.
If you are planning to deduct your office supplies and material expenses, be sure to keep accurate records.
- Records of expenditures can be as simple as canceled checks or as complex as a spreadsheet that tallies every single office supply deduction for that year.
- Keeping a folder with receipts is also a good way of tracking office supply deductions.
- Make sure to mark these receipts for any personal items, so that you don't accidentally deduct them with your office supply and material expenses.
- Keep receipts for all office supply and materials expense deductions for up to 3 years from the date the taxes were filed.
Make sure to keep the deductions for office supplies used in the creation of your product separate from those you will use for the general office supplies deduction. The expenses for these materials should be deducted as cost of goods.
- For example, if you provide a printed guide in a 3-ring binder and you charge your client, it would be considered a cost of goods expense.
- If you were to use a 3-ring binder in your office to hold business paperwork, they would then be applicable to the office supplies and material expense deductions.
- You can however, lump repairs and maintenance of office equipment deductions in same area with the deductions for your office supplies and materials expenses.
If you have a home-based business, but don't qualify for the home office deductions, you can still deduct office supplies and materials expenses. The deductions for office supplies should be listed as a lump sum on tax form 8829 as many fall under the description "other". Again, while the tax form may list these deductions all together, it is important to keep individual records of all office supply and materials expenses you plan to deduct.