Maximize Your Tax Savings: The Top 3 Deductions Every Online Service Provider Should Know
The Top Three Deductions for Online Service Providers
As an online service provider, understanding which business expenses are deductible can feel overwhelming—especially since your business operates differently from a traditional brick-and-mortar setup. While you may not have office space to deduct, there are several deductions specific to online businesses that you don’t want to overlook!
1. Software
Running your business virtually likely means relying on several online subscriptions. These are all deductible business expenses:
- CRM Software: Platforms like HoneyBook or Dubsado that help you deliver an excellent customer journey are deductible.
- Project Management Tools: Stay organized and deduct software like ClickUp, Asana, or Monday.
- Communication Tools: Apps like Slack, Voxer, or Zoom—used to connect with your team or clients—qualify.
- Marketing Software: Don’t forget design tools like Canva or Adobe and social media schedulers like Planoly or Sprout Social.
2. Professional Development
According to the IRS, expenses that improve your skills or grow your business are deductible. For online service providers, these commonly include:
- Coaching: Whether it’s a one-time session or ongoing engagement, coaching fees are deductible.
- Masterminds: Many online entrepreneurs network virtually—deduct the cost of participating in masterminds.
- Memberships: Monthly fees for networking groups, social media memberships, or similar services are allowable deductions.
- Templates: Whether for contracts, social media, or spreadsheets, templates used in your business qualify.
- Courses: Keep receipts for any courses you purchase to grow your business or skills.
Pro Tip from Your Favorite CPA: Avoid the “Course Graveyard”! Invest in courses you’ll actually use and implement.
3. Website Expenses
As an online business, your website is your storefront. These essential costs are deductible:
- Domain and Hosting Fees: Track charges for domain registration (e.g., GoDaddy) and hosting platforms like Squarespace, Showit, or Shopify.
- Plugins: Third-party plugins might be small expenses but are fully deductible.
- Maintenance and Design: Payments to your web design team—whether for building a new site or monthly upkeep—are valid write-offs.
Navigating Taxes for Online Businesses
Taxes for online businesses can feel tricky, especially if your accountant isn’t familiar with the nuances of the virtual world. A helpful guideline? The IRS states that an expense must be both ordinary and necessary to qualify as a deduction:
- Ordinary: Common within your industry.
- Necessary: Helpful and appropriate for your business.
By focusing on these three categories, you can maximize your deductions and keep more of what you earn!
