Tax Deductible Expenses for Interior Designers

My fellow designers, have you closed out your books for 2017?  January 31^st is fastly approaching and is the deadline to get 1099’s issued to any subcontractors you used last year.  Once I've reconciled my business checking account, I give my accountant remote access to my desktop.  She then goes into my Quickbooks company file and run the reports she needs to issue 1099's. 

How do you tax prep throughout the year?  In some of my design classes, I discuss this subject with my students because, as creatives, we tend to shy away from the necessary business management tasks that we all have to get done as entrepreneurs, solopreneurs, momprenuers…whichever ~preneur you creatively identify with. YAY for that ~preneur life, right! ;-)

I’m quite deliberate about my biz management tasks.  As long as I have active projects, I make sure I’m sending a bill every 2 weeks and I reconcile my accounts every month.  I understand we’re all on varying billing schedules BUT I wonder, how many of you reconcile regularly as well?  If not, do you know how to?  Are you using an accounting software that makes this exercise super-duper simple?  I use QuickBooks, I have for many years, and it is SUPER-DUPER SIMPLE.

I’ll go into further detail on QuickBooks in another post.  For this post, I wanted to share my Expense Account List that I use to itemize ALL of my expenses…yep, every single dollar, every single debit charge on my business checking account, that is.  

You may have a bookkeeper doing this task for you.  However, if there's no bookkeeper and you’re not currently allocating your expenses to their appropriate accounts, please use this list as a starter to help organize your tax prep for your design practice.  This is a basic list of typical expenses incurred by designers and I’m sure we all have our unique aspects to our business that may require additional accounts or not as many as I've listed below:

• Automobile expenses – lease payments, gas, mileage
• Books / magazine purchases, reference material, online subscriptions
• Business gifts
• Business insurance
• Business meals and entertainment
• Cabs (Uber, Lyft), any form of public transportation expenses
• Copying, printing
• Cultural events / museum entrance fees
• Equipment and software
• Film & processing
• Gas and electric
• Hanging fees, framing of art
• Memberships (museums, professional organizations)
• Messengers / delivery or shipping charges, postage
• Office supplies
• Promotion, PR, Marketing
• Rent (see below for claiming home office expenses)
• Samples
• Subcontractors
• Tax preparation, legal fees
• Telephone/internet
• Travel

Have a Home Office?

So, I’ve been blessed to have a dedicated home studio to comfortably work from and I love it.  I have 2 boys {well, 3 if you count my husband LOL} and the convenience I have working from home with all their schedule demands – and my desire to be there - isn’t something I’m willing to trade any time soon.  As such, I claim related expenses on everything {i.e. taxes, utilities, insurance, etc.}. 

If you have a home office as well, the first thing is to determine if the designated space complies with the definition of ‘home office’ with the IRS and it simply states: (1) The business must be legitimate and active; (2) The space must be used as your principal place of business or for specific business purposes, like meeting clients or doing business paperwork, and (3) the space must be used "regularly and exclusively" for business {meaning it can’t be a guest room / home office, that won’t comply}. 

The IRS has two (2) ways you can claim your home office.  Your bookkeeper should know how to expense it out; however, for you own edification, they have a Simplified Method and the Regular Method:

The Simplified Method for Home Office Deduction Calculation

With the simplified option, you aren’t deducting actual expenses. Instead, the square footage of your space is multiplied by a rate of $5 per square foot for up to 300 square feet of space. If your home office is over 300 square feet, you can’t use the simplified method.

 The Regular Method for Home Office Deduction Calculation

The regular, more complicated method values your home office by measuring actual expenditures against your overall residence expenses. You can deduct mortgage interest, taxes, maintenance and repairs, insurance, utilities and other expenses.

The choice whether to use the simplified deduction, if you’re eligible for it, or to deduct actual expenses should be determined by which would give you the bigger tax deduction. Makes sense, right!

If you use the regular actual-expenses method, you can deduct direct expenses — such as painting or repairs solely in the home office — IN FULL. Indirect expenses — mortgage interest, insurance, home utilities, real estate taxes, general home repairs — are deductible based on the percentage of your home used for business.

Example / Regular Method: Let’s say you paid $3,000 in mortgage interest, $1,000 in insurance premiums and $3,000 in utilities {all indirect expenses} plus $500 on a home office paint job {direct expense} in the 2017 tax year. Your home office takes up 300 square feet in a 2,000-square-foot home, so you’re eligible to deduct indirect expenses on 15% of your home {300 / 2000 = 15%}.  You’d be eligible to claim a deduction of $1,050 in indirect expenses ($7,000 in expenses, multiplied by the 15% of space used in the home), plus $500 for the direct expense of painting the home office, for a total deduction of $1,550.

It’s advised that there’s no need to bother with the details if your home office is 100 square feet or less. And, there you have it.  A quick rundown of what you should be expensing out come tax time. Hope this helps.  If you have any questions on my personal methods or wanna share the system you're using to stay on top of your books, please share. I look forward to hearing from you.

Warmly, Taj