Office Supplies and Office Expenses
Setting up an office is an essential first step for running a small business. When doing so you should be aware of the supplies and expenses that you need to cover, partly because they are essential and partly because they are tax deductible items.
There’s a difference between supplies and expenses precisely in this because they affect how you’re taxed differently. Before you make any of these purchases you should discuss the matter with your tax accountant and ask for their guidance.
What are supplies?
Office supplies are tangible, physical items, that are commonly used to run the day to day tasks needed to run the office. These include: pens, staplers, paper clips, USB thumb drives, and printer ink cartridges. They also cover the costs of items that aren’t used in the office itself but are needed to run the office. These are:
-Record keeping supplies, like invoices and sales receipts
-Janitorial and cleaning supplies,
-Bathroom tissue
-Places to keep supplies, like fixing cabinets and storage lockers
-Paper plates, paper towels, and plastic utensils
-Beverages
-Low-cost office furniture
The cost of postage is also taken into account by IRS.
What are expenses?
Expenses needed to run the office are somewhat similar to equipment at least from the point of view of the owner since they are something you need to pay for in order to run the office. They are also known as office operating expenses.
These include:
-Web site hosting and operating services.
-Cloud services and their maintenance.
-Software solutions, including the ones needed to pay and account for taxes
-Banking fees and services cost
-Computer maintenance and updating
-Office phone plans, and the software related to their use and maintenance
Personal and professional use
The use of these items is also a matter of interest for the IRS. When they are used for business purposes, they are tax deductible and when they are not, their cost can’t be deducted from your taxes. You’ll also need to prove that the equipment and services you’re using are needed for the day to day running of your company.
There’s also a category of “listed property”. That’s the property that can be used for both personal and professional purposes. These are often cars, cell phones, but also larger property such as using your home as an office. In order to get tax deduction for these you’ll need to keep close records as to when are they used for which purpose.
What can be deducted?
Simply put, everything that’s actually used for the purpose of running an office can be deducted. You can deduct a 100 percent of the expenses that are documented and that are actually used as your business cost.
There are also some deductions that don’t depend on keeping actual score of what products and service you use. These are smaller and they usually come in percentage of the profit. They are easier to deal with since there’s less accounting work involved.
Deprecation
Items that you need for work that used to cost more than $500 can be deprecated. That means that their value reduces over time simply because they are being used. The amount you can deduct from your taxes therefore gets smaller each year as it loses its value.
This process is now changed and IRS now uses a simpler (and they would say more fair method of accounting for the lost value). Now the amount after which the deprecation starts is set at $2.500. This means that it only covers, truly larger and more durable office items.
Other restrictions
There’s also a restriction regarding the use of supplies. You can only deduct the cost of supplies that are used within a tax year. That means that you can’t just buy a lot of supplies in bulk and keep them in storage. At least, you can’t deduct their full cost if they haven’t been used.
You’ll need to consult your tax expert if you plan to buy your supplies this way, since you’ll have to keep track of when they are bought and when they are used as well. It’s a more complicated way of doing things, even if buying in bulk is less expensive.
Conclusion
Office supplies, equipment and services are amongst the first expenses you’ll need to make in order to make your office run. They are therefore tax deductible in full. You’ll need to keep track of the items you buy and you’ll get to deduct their cost of your yearly taxes.
This only applies to the costs that are made for the equipment used within a year and it includes the services as well as the physical items you purchase and that are needed for the same goal of day to day office work.
