With tax season upon us, here are a few tips to keep in mind. Please note: both Oregon and Federal filing deadlines have been extended to July 15th.
Ordinary and Necessary
Tax write offs include anything ordinary (commonly accepted in your trade) and necessary (helpful and appropriate) to run your business as a massage therapist, such as linens, lotions, lubricants, bolsters, hot stones and other tools.
If you practice massage out of your home, the home office deduction can bring tax savings but there are limitations on qualifying for it: the business space has to be used strictly for business purposes. The IRS offers two ways of calculating the home office deduction: the Simplified method and the Actual Expense method.
With the Simplified method multiply the square footage of your office (up to 300 square feet) by the standard rate of $5.
With the Actual Expense method you add up the expenditures related to your home office including direct expenses (supplies for and repairs to the office can be deducted in full.) And indirect expenses such as mortgage, insurance and utilities. Divide the cost of these expenses by the percentage of your home that’s used for business.
If you have your own office, deductions include rent, utilities, furniture, office supplies, massage supplies, depreciation on fixed assets and don’t forget music, bottled water, snacks, and gifts for your clients which is limited to $25 per year/per client. If you purchase something for your business that has a useful life of over one year, like a massage table or chair, you’d record it as a business asset then deduct a portion of the expense over multiple years.
Keep track of all your business-related trips such as between your home office and appointments, between client appointments on out-call, and work-related errands, such as getting supplies. The IRS offers two ways of calculating the cost of using your vehicle in your business: the Actual Expenses method and the Standard Mileage method.
• The Actual Expenses method requires you to add up all the money actually spent in the operation of your vehicle. You then multiply this figure by the percentage of the vehicle’s business use. Some of the costs you can include in your Actual Expenses are: lease payments, insurance, gasoline, maintenance (such as oil changes, brake pad replacements, tire rotations), new tire purchases, title, licensing, and registration fees (not deductible in all states; check with TurboTax to see if this expense is deductible in your state), vehicle depreciation (use a depreciation table to calculate the amount, and then deduct only the portion that applies to the business use of your vehicle.)
• The Standard Mileage method is a much simpler way of calculating the business use of your car. It does not require you to track individual purchases and save receipts. Instead, you simply keep track of your mileage for the tax year. (Tip: Take a photo of your odometer on New Year’s Day and save it, so you can always see where your mileage stood at the beginning of the tax year.) If you choose to take the standard mileage deduction, 58 cents per mile, you cannot deduct individual vehicle expenses like gas, oil changes, car repairs, tires, vehicle depreciation, and car insurance.
The cost of continuing education, along with any expenses incurred while continuing your education. This includes books, videos, classes, travel costs to and from the classes, and business meals.
One of the best deductions is a SEP IRA, A Simplified Employee Pension Individual Retirement Arrangement. This is a variation of the Individual Retirement Account. SEP IRAs are adopted by business owners to provide retirement benefits for themselves and their employees. The money grows tax deferred until you use it after your turn 59 and half years old.
Liability insurance; licensing fees; professional membership dues; health insurance; work wardrobe; laundry expenses; magazine subscriptions; fees for consultants.
References: Massage Magazine; American Massage Therapy Assoc., Aly Keller-Stride Blog.
Article by Rosa Leonardi