Deductions and Write-Offs

Hello Katie,

In order to answer your question properly, it is important to know the tax structure of your business; is it a corporation, Single-member LLC or sole proprietor.

Since we can only deduct the portion of your home that is used exclusively and regularly for business (the rule of thumb for the percentage to be in the range of 5-20%), I would advise you to pay for the expenses out of your personal accounts, then record the deductible portion on a monthly basis on a separate sheet. At the end of the year or on a monthly basis, provide an employee reimbursement report to your company for payment.

In general, the deductible portion of the mortgage, real estate taxes, utilities, and insurance need to be booked as "due to shareholder". Once it has been paid by cutting a check or transferring the money out of your business account to your personal account, you will need to reverse the entry by getting rid of your account "due to shareholder" and reducing your cash balance.

Hope my answer helped.

Hello Scott,

Unfortunately, the value of time or service is not tax-deductible, but any expenses that incur due to the pro bono work that are directly related to the charity are tax-deductible.

Unfortunately, I have some bad news for you. As a result of the Tax Cuts and Jobs Act (TCJA), starting with 2018, no unreimbursed employee business expenses (that would include marketing/advertising) are deductible anywhere on your individual income tax return. Prior to TCJA, if employees had out-of-pocket expenses for which they were not reimbursed, they could attempt to deduct them on Schedule A (itemized deductions) to the extent they exceeded 2% of adjusted gross income. So such expenses were tax deductible, but in actuality, it was still difficult to actually get any tax benefit because you had to clear that 2% threshold and then you still needed to have enough itemized deductions to itemize.

Instead of just leaving you with an answer but no possible remedy, I have two ideas.

First, see if you can get any business expenses reimbursed by your employer. If they reimbursed the exact amount of expenses you turned in (and substantiated with receipts), the reimbursement would be tax-free to you AND a business write-off to the employer. A win-win for both of you and a LOSE for IRS. Perhaps negotiate this instead of an increase in pay in the future.

Second, see if you can create a sole proprietorship (be an independent contractor) on the side with other clients. That opens up the possibility for you to deduct some (not all) your business expenses. It would be illegal/unethical to deduct business expenses that relate directly to your work as a W-2 employee, but you could deduct expenses that relate directly to your status as independent contractor as well as expenses that benefit both activities.

If you found this helpful, I would really appreciate if you could leave a Google review for me (Adam Dickreiter) by following this link https://g.page/adam-dickreiter-cpa-pllc/review?gm or doing a Google search for my name.

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Adam Dickreiter, CPA

First, congratulations are in order.

To answer your question, yes, it is possible to be both an independent contractor and an employee at the same time. Having said that, hopefully, you are not serving in both capacities for the same individual/company, as that would be questionable. So, if you are an employee for one company, but you’re an independent contractor serving your own clients on the side, there is no problem there.

Come tax-time, you will receive a Form W-2 for your work as an employee. You will continue to report your income as an independent contractor the same way you have done in the past (assuming you’ve been an independent contractor prior to 2021). In your question, you don’t state how you’re filing as an independent contractor, so I cannot speak to that issue.

To answer your last question, you cannot write off any of the expenses related to your work as an agent against your employee income. As long as you have income as an independent contractor, you can continue to write off your agent expenses. The only issue is that you don’t want to end up with a loss, as you could be subject to the hobby loss rules.

If you found this free advice helpful, please leave me a review, either through Google (search for Adam Dickreiter or by using the following link https://g.page/adam-dickreiter-cpa-pllc/review?gm) or through this website (CPAdirectory).