biz ladiesLife & Business

Biz Ladies: 5 Tax Deductions Clever Crafters Make Sure to Take

by Stephanie

Illustration by David Saracino.

Today’s Biz Ladies post comes from Jennifer Dunn of Outright.com, the web resource for managing your business finances online. Jennifer has previously contributed to the Biz Ladies series, and today she details some of the tax deductions you may be missing. Thanks, Jennifer, for this very helpful post! — Stephanie

Read the full post after the jump . . .

We’ve all been there at tax time, the point where we crunch the numbers and get that sinking feeling — I owe money. But making sure you track every single business expense you took during the year can mean the difference between that sinking feeling and breaking even. To put it simply, the more business expenses you deduct, the less tax responsibility you have and the less you pay to the IRS.

What’s not simple is knowing what you can deduct. When you think of deductions, you probably think of huge items like buying a brand new computer station or knocking off the rental fee for your humongous warehouse.

But the littlest things can add up to a big deduction; you just have to know what to look for. Also, make sure you save your receipts — all of them!

1. Office Expenses

This is a big one that’s either misused or missed entirely. Everything you use to take care of and run your business at its optimal capacity can be used as a deduction on your taxes. This includes your bills, rent and supplies.

A large percentage of crafters work from home, so you’re probably wondering if you can still deduct expenses. The answer is yes, but make sure it’s the percentage you’re using for your business and nothing more. For example, if you use half of your Internet time for work, only deduct half of it on your taxes. Also, to be able to deduct your office as a “home office,” it must have its own dedicated space in your house!

2. Travel Expenses

You undoubtedly do a lot of traveling as a crafter, whether you realize it or not. There are trips to the store for supplies, jaunts to the post office to send packages and journeys across town and state to craft fairs. It adds up!

Through all this traveling, you’ve accumulated miles on your car and lots of receipts at gas stations. Save them! Meals, lodging, gas — whatever. It’s all available to deduct.

3. Advertising

Hey, you’ve got to spread the word about your company, right? Advertising is a necessary evil that can really cut into the budget of any new company. Luckily, advertising is tax deductible!

This goes for anything that spreads the word about your company. It doesn’t have to be a full-page ad in the New York Times to be deductible. Business cards and QR codes spread around town are just as eligible!

4. Start-up Expenses up to $5,000

If you’ve just started your business and expenses are piling up, you may be in for some luck soon. New businesses can typically deduct up to $5,000 for any costs they incur during their first year plus $5,000 in organizational costs. Keep in mind that this is only good after you officially start your business. As with anything IRS related, there are catches and caveats, so it’s probably a good idea to consult an accountant if you are deducting start-up costs.

5. Costs of Goods Sold

This is undoubtedly one of the more important deductions taken by any crafter. The costs of goods sold are anything you buy to make your product into a “sellable condition.” This doesn’t mean the price of the item; it means all the individual things you bought to be able to get that item to the customer.

Say you create a cute little mixed-media painting. You had to buy a frame, paint, glue and all the little items that go on the painting, so those are deductible. You’ve got a custom box and brand labels to complete the “look” of the item, so that’s deductible, too. The only thing you can’t deduct, unfortunately, is the time spent actually making the item! COGS can get a little complicated, so check out our crafter’s guide to COGS for more info!

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  • Is this only if you’ve got your business listed with a tax ID number and everything? What if I’ve just started, haven’t sold anything, but am still spending money on startup costs and tracking receipts for supplies, etc.? Can I deduct these things from my regular personal taxes?? Thanks for all the helpful information :)

  • THANK YOU! This is amazingly helpful. I’m in my first year of business and didn’t even know where to start with my taxes and this gives me a good jumping off point. So so so helpful!

  • I have always kept a trip diary for business related car travel. It’s time consuming but I figure that if I am audited it’s worth it. Logging your destination and odometer reading at the beginning and end of every trip takes only a few seconds, keep a book in the door pocket on your car with a pen attached. At the end of the month or year (depending on how organized you are) you can submit a true deduction for mileage with proof.

  • The IRS Small Business initiative is a great resource for help. Make sure to keep all your receipts and records! If your business is a sole proprietorship, you may not yet have a separate tax ID (yet), but the income and expenses can be reported through your Schedule C. Also, look into whether your local business schools and/or law schools offer a small business clinic. Several in my area do, and offer services at little to no charge to local small businesses to assist with books & records, and preparing tax returns.

  • I have an app on my iPhone to keep track of business mileage. It’s called MileBug, and I use it faithfully to record my mileage every time I leave the house for business or charitable work. It calculates the mileage deductions differently for different types of travel, so it takes the guesswork out of it.

  • This is one of those moments where I’m grateful to have what I already know confirmed for me. I don’t want to stereotype myself along gender lines, but somehow part of me always feels like I’m being judged more harshly on my financial prowess than my male counterparts are. I picked up most of these tips through experience and other online resources during the course of the last 6 years, and it was incredibly reassuring to read this and think to myself “Heck yes! I already knew those! I’m pretty good at this whole business thing!!!”. Thanks for that :)

  • this is great, i am in the process of starting my own little business, and though i knew some of this info already, some of it was a real surprize to me, thianks!

  • It is good to note, for your readers, that if you deduct that “home office” expense and own your home you might end up owing extra taxes for your home sale because of it. I’d suggest there at least be a caveat to do more research on the risks and rewards of that particular deduction (which I was eligible for and never took).