The Part II: Expenses section of the Schedule C Form is the relatively “fun” bit as you’ll be listing out all of the claimable expenses you are making for this year so you can deduct this from your taxable income.
For an overview of what the Schedule C Form is for, please see our blog post Schedule C: An Instruction Guide.
You’ll want to make sure that you aren’t claiming any material costs here as they should be included in Part III (Cost of Goods Sold) below. For more information about why it’s important to make this distinction you’ll want to read our blog post here: Why claiming materials as expenses is a really bad idea for a craft business »
This is any form of advertising you have paid for directly linked to your business. Keep in mind that this can also include any free products you have given to bloggers for reviews. Etsy Listing Fees can also be categorised as advertising if you wish (the only rule here is to make sure you don’t account for these also under Commissions and Fees below)
8: Car & Truck expenses
You can deduct the expenses of running your vehicles if they are essential to the running of your business. You have two ways of accounting for this expense: actual and standard mileage. If you have less than 5 vehicles, and haven’t claimed in a past year using the actual method then you can use standard mileage calculations. If you have been logging your expenses in Craftybase, then you will be able to use the actual method here.
80: Commissions and fees
This is for any money you paid to other businesses or individuals for services.
This can be fees paid for market stalls, commission paid for items you have sent out on consignment and any fees payable for online marketplaces like Etsy.
80: Contract Labor
If you hire people to help in the running of your business, you’ll need to account for this expense here.
Depreciation is required for business assets with a useful life more than a year. There is no minimum guideline on how valuable the asset needs to be before you should try to claim using this method, however a good rule of thumb is that assets below $100 in value are better expensed in supplies rather than depreciated.
87: Legal and professional services
This can include the costs of your accountants, tax preparers or any legal service.
87: Office expenses
The postage costs you incur in sending out your orders should be included here. Also stationery and supplies for running your office (e.g. printers, ink, tape, stapler, pens). Anything that is likely to be not be completely used up within a year should be included here.
81: Repairs and Maintenance
Any repairs on equipment you use in the running of your business should be put here (e.g. repairs to your sewing machine).
82: Supplies (not included in Part III)
This should include any supplies you have on hand that you a) expect to use up completely within the year and b) are not directly used to produce your finished products.
These items will not be included as part of your Cost of Goods Sold as this should only include materials you directly use in your products. Shipping labels, paper, bubble wrap and other packaging materials should be included here.
Also, any material that you do use in the production of your products that is difficult to inventory accurately can also be included here. Examples are and glue and thread: measuring exact amounts used of both of these materials is impractical in most cases and thus can be included here.
83: Taxes and licenses
Any sales tax you pay at a state level, along with any licences you need to pay in order to run your business should be included.
Examples of expenses that can be claimed as part of this section include:
- Business licenses
- Estimated taxes
- Federal tax
- Sales tax
- State tax
- Property tax
- Trademarks and logo fees
- Software licensing and renewal fees
- DBA/Fictitious Business Name one-time filing fee
- Incorporation fees
- Business name search fees
- Copyright application and registration
- Domain name search fees
- Fees to draft, acquire or cancel a lease
84: Travel, meals and entertainment
Different allowances for travel exist for certain circumstances, so it is best to check with your financial adviser first before logging and claiming these types of expenses. Generally you need to make sure that any travel / meals you are claiming here is wholly for the purpose of running your business. Delivering a cake to a client would be an example of travel for business purposes, as would a trip to purchase supplies. Claiming travel for a family vacation to Florida as you also purchased some supplies while you were there should not be claimed.
Internet and telephone bills can be included here, if they are wholly for the running of your business.
87a: Other expenses
These can include any expenses not covered in any of the other expense categories above.
Software you use to run your business can also be included here: Craftybase is business software and thus can be claimed in this allowance section.
If you haven’t included any of your online sales channel fees (PayPal / Etsy etc.) in the Commissions and fees category, then you can include them here instead.
Awesome! Now that you have completed Part II: Expenses, move along to our next Schedule C blog post: Schedule C Guide - Part III: Cost of Goods Sold »
If you need a recap of Part I: Income, you’ll find our handy guide here: Schedule C Guide - Part I: Income »