Schedule C Tax Deductions: "b" Is For Bad Debts, Bank Charges & Books
Are you wondering whether you are deducting all the expenses the law allows for your sole proprietorship? Here are three commonly overlooked deductions that begin with the letter "B".
1. Bad Debts. If you use the Accrual Method of bookkeeping, you record income from a sale when you invoice the customer, regardless of when or even whether they pay you. So what happens if they don't pay you? Let's say that several months have passed and you keep sending them statements that continue to be ignored. By the end of the year, if you've done all you can do to collect the payment without success, you can take a deduction for the uncollectible amount. This is known as a "bad debt" and you should write it off.
What happens if you deduct the bad debt on your 2008 return and the customer surprises you by making payment in 2009? You simply record the payment as income on your 2009 return.
If you use the Cash Method of bookkeeping, you record the income only when the customer pays you, so there really is no bad debt to deduct.
2. Bank Charges. All those annoying nickel and dime bank fees that appear on your monthly bank statement are deductible business expenses. The key here is to take the time to carefully examine every monthly bank statement and then record those bank charges in your bookkeeping software program or manual record keeping system. It's easy to overlook these charges because you didn't write a check or use your credit card to incur them.
The same thing applies to merchant credit card fees. If you accept credit card payments from customers, fees are probably assessed to your bank account every month and these fees are automatically deducted from your bank balance. Be sure to record those charges, too, or you'll miss out on bona fide tax deduction.
3. Books, Magazines, Trade Journals. Any book you purchase for business use is a legitimate tax deduction. Be careful here not to limit this deduction to only those books that deal with your particular industry, product or service. Self-help books contain much advice that is applicable to your life as a business owner, as well as books on topics such as time management, people skills, salesmanship and marketing.
And while we're on the topic of reading material, you probably subscribe to newspapers, magazines and trade journals that you read primarily for business purposes, so these are deductible as well.
Since none of these three expenses have a specific Schedule C line in Part II, the best place to put them is in Part V, Other Expenses. The total of all these Other Expenses (line 48) is then transferred to Schedule C, Line 27.
1. Bad Debts. If you use the Accrual Method of bookkeeping, you record income from a sale when you invoice the customer, regardless of when or even whether they pay you. So what happens if they don't pay you? Let's say that several months have passed and you keep sending them statements that continue to be ignored. By the end of the year, if you've done all you can do to collect the payment without success, you can take a deduction for the uncollectible amount. This is known as a "bad debt" and you should write it off.
What happens if you deduct the bad debt on your 2008 return and the customer surprises you by making payment in 2009? You simply record the payment as income on your 2009 return.
If you use the Cash Method of bookkeeping, you record the income only when the customer pays you, so there really is no bad debt to deduct.
2. Bank Charges. All those annoying nickel and dime bank fees that appear on your monthly bank statement are deductible business expenses. The key here is to take the time to carefully examine every monthly bank statement and then record those bank charges in your bookkeeping software program or manual record keeping system. It's easy to overlook these charges because you didn't write a check or use your credit card to incur them.
The same thing applies to merchant credit card fees. If you accept credit card payments from customers, fees are probably assessed to your bank account every month and these fees are automatically deducted from your bank balance. Be sure to record those charges, too, or you'll miss out on bona fide tax deduction.
3. Books, Magazines, Trade Journals. Any book you purchase for business use is a legitimate tax deduction. Be careful here not to limit this deduction to only those books that deal with your particular industry, product or service. Self-help books contain much advice that is applicable to your life as a business owner, as well as books on topics such as time management, people skills, salesmanship and marketing.
And while we're on the topic of reading material, you probably subscribe to newspapers, magazines and trade journals that you read primarily for business purposes, so these are deductible as well.
Since none of these three expenses have a specific Schedule C line in Part II, the best place to put them is in Part V, Other Expenses. The total of all these Other Expenses (line 48) is then transferred to Schedule C, Line 27.
