Tax Deductions for Salespeople

Almost everything a self-employed salesperson buys for their business is tax deductible as long as it is ordinary and necessary and the cost is reasonable. These deductions can really add up.

Example of a Tax Deduction for Salespeople

For example, if you buy a $2,000 computer and use it for your sales business, you could deduct the full cost from your taxes. If you were in the 28% federal income tax bracket, this would save you $560 in income tax.

In effect, you'd be getting a 28% discount on the computer. The catch is you must use the computer or other item you buy for the business. You can't deduct personal expenses.

Common Tax Deductions for Salespeople

Common tax deductions taken by salespeople include the following.

Car Deductions

The single most claimed tax deductions for all small businesses are car and truck expenses. The cost of all driving you do for your sales business, with the important exception of commuting to and from your home to work, is tax deductible.

If you like recordkeeping, you can keep track of all your car expenses to figure your annual deduction. But, if you'd rather not keep track of how much you spend for gas, oil, repairs, car washes, and so forth, you can use the standard mileage rate. When you use the standard rate, you only need to keep track of how many miles you drive for business, not how much you spend on your car.

Office Expenses

The amounts you spend on your business office are deductible business expenses. For example, you may deduct the rent and utilities you spend on an office.

But, if you work at home, you might be able to deduct the cost of your home office. This deduction is particularly valuable if you are a renter because it enables you to deduct a portion of your monthly rent, a sizable expense that is ordinarily not deductible.

Business Travel

You may also deduct your expenses when you go out of town for your sales business. These include airfare or other transportation costs and hotel or other lodging expenses.

But, you may only deduct 50% of the cost of meals when you travel on business. If you plan things right, you can even mix pleasure and business and still get a deduction.

Long-Term Property

Salespeople often purchase tangible personal property that lasts for more than one year, such as computers and office furniture. The full cost of such property can usually be deducted using bonus depreciation, Section 179 expensing, regular depreciation, or the de minimis safe harbor (applicable to property that costs $2,500 or less).

Supplies

Supplies are business items that you use up in less than one year. They include everything from paperclips to postage stamps.

Legal and Professional Services

You can deduct fees that you pay to attorneys, accountants, consultants, and other professionals if the fees are paid for work related to your business.

Insurance

Insurance you buy just for your business is deductible—for example, business liability insurance or insurance for business property. If you have a home office, you may deduct a portion of your homeowners insurance. Self-employed people are also allowed to deduct 100% of their health insurance premiums from their income taxes.

Business Clothing With Logos

You can only deduct clothing you buy for business use if it can't be used for ordinary street wear. This means you can't deduct a regular business suit. However, you may deduct the cost of a sport jacket, coat, or other clothing item with a company logo on it.

Websites

You can deduct the cost of designing and maintaining a website you use for business. You can also deduct your internet hosting fees and the cost of obtaining a domain name for your business.

Business Gifts

Gifts you purchase for clients are deductible as a business expense, but the deduction is limited to $25 per person per year. However, the $25 limit applies only to gifts to individuals. It doesn't apply if you give a gift to an entire company, unless the gift was intended for a particular person or group of people within the company. These company-wide gifts are deductible in any amount, as long as the amount is reasonable.

Telephone Expenses

You get no deduction for the monthly charges for a single phone in your home, whether a land line or cell phone. But you may deduct extra costs for long distance phone calls and special phone services you use for your sales business such as call waiting or message center. You may deduct the full cost of a second phone you use for business, including a cell phone. If you use a second phone both for personal and business calls, you're required to document your business use.

Pass-Through Deduction

The vast majority of self-employed salespeople operate as pass-through businesses. A "pass-through" business is any business in which the profits are taxed on the owner's individual tax return at his or her individual tax rates. Most salespeople are sole proprietors (a one-owner business in which the owner personally owns all the business assets), but some have formed limited liability companies, S corporations, or are members of partnerships.

The Tax Cuts and Jobs Act established a brand new deduction allowing owners of such pass-through businesses, including salespeople, to deduct an amount equal to up to 20% of their net income from the business. For example, if you earn $100,000 in profit from your sales business, and qualify for the pass-through deduction, you may deduct $20,000..

However, you're entitled to the full 20% pass-through deduction only if your taxable income from all sources after deductions is less than a certain limit, which changes annually. The deduction is phased out if your income exceeds the limit.

This is a personal deduction salespeople can take on their returns whether or not they itemize. This deduction began on January 1, 2018 and is scheduled to last through December 31, 2025.

Getting Help

To learn more about making the most of your tax deductions, see Nolo's book Deduct It! by Stephen Fishman, J.D.