Are Office Supplies Tax Deductible?

Are Office Supplies Tax Deductible?
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Look around your office. Whether it’s at home or in an office building, chances are there are some supplies around. You can deduct the cost of office supplies on your taxes as long as you’re self-employed and the costs are ordinary and necessary to your business.

Deducting Office Supplies

Although reliance on computers has certainly reduced the need for office supplies in recent years, you still likely use items like paper, pens and paper clips at least occasionally. If you’re self-employed, you can deduct the cost of office supplies along with the other expenses associated with running your business.

If you work for an employer and you purchase office supplies, you can’t claim the tax deduction. At one time, you could claim unreimbursed employee expenses, but the Tax Cuts and Jobs Act eliminated those tax deductions. If your employer doesn’t provide office supplies, you can see if reimbursement is an option.

Office Supply Eligibility Test

To claim your office supplies on your taxes, you’ll need to be able to demonstrate under audit that there was a business use for the purchase. The IRS requires that the business expense is ordinary and necessary to qualify. Ordinary means that the expense is common in your industry, while a necessary expense is one that is helpful for business purposes.

In order to be able to claim deductions in the first place, though, you have to be able to show that you’re engaged in an activity geared toward generating income. You don’t have to actually generate income at first, but if you operate at a loss for multiple years, the IRS may begin to question whether you’re using your venture as a tax shelter.

What You Can Deduct

Whether you work in an office suite or out of your home, if you’re self-employed, most of the items you find at office supply stores qualify as business deductions. For those working from home, that includes the following:

  • Printers and printer cartridges
  • Paper
  • Postage
  • Staplers
  • Paper clips
  • Invoice and receipt books

Offices with employees have even more deductions, including cleaning supplies, toilet paper and items for the break room like paper plates and plastic utensils. Keep receipts and records of every item you deduct.

When to Deduct Office Supplies

In most cases, you’ll need to claim office expenses in the year you purchased the item. If you use the accrual method of accounting, though, it gets a little more complicated if you pay the bill in a different tax year.

If, for instance, you ordered toner cartridges for your business in December and they arrived, you can claim them in that tax year even if the bill doesn’t arrive until January. Yes, it’s a new tax year, but the IRS merely requires you to claim it in the year “economic performance” occurs, not the year the expense was paid.

How to Claim Office Supplies

To deduct the cost of office supplies on your taxes, you’ll use Schedule C, which is also known as Form 1040 or 1040-SR. Expenses are itemized under Part II. It can help to review the list to get a feel for what you can deduct. Most of your supplies will go under Part II, Line 22.

In most cases, the items you’re claiming should be used within the tax year in which you’re claiming them. However, it’s fairly likely you’ll purchase items that will last into the next year and possibly beyond. You can claim expenses in the year in which you purchased them, as long as your accounting clearly shows that you’re making an income.

Claiming Computer Equipment

Large purchases like equipment are a little more complicated. For items like laptops and computers, you’ll spend more and get use out of them well beyond the current tax year. In that case, you’ll need to use depreciation to deduct them on your taxes.

As with office supplies, you can only claim equipment if you’re self-employed. If you use your personal computer for your business part of the time, you can still claim it, you’ll just need to figure the percentage of use that goes to business and claim only that percentage. For instance, a $1,000 computer you use 50 percent for business will be reduced to $500 before you start the depreciation process.

If you use your computer more than 50 percent of the time for business, you can claim the full amount of the purchase in the first year. If it’s mostly a personal computer, though, or you just want to spread the cost out, depreciation is the way to go. For tax purposes, a computer’s useful life is five years, so you would need to divide the cost up and claim it on your taxes each year.

Claiming Office Space

Businesses that lease or own office space can claim the cost on their tax return. The same goes if you’re self-employed and work from home. You’ll need a dedicated office to be able to take the deduction. In other words, if you work at your kitchen table, that won’t count as an office deduction because you don’t use it exclusively for work.

There are two options for deducting office space on your taxes. The easiest way is the simplified method, which lets you deduct $5 per square foot with a limit of 300 feet. This allows you to claim the home office deduction without having to go through your bills and divide out just how much of your home expenses go toward your office.

If you want to use the other method, you’ll need to do some homework. You’ll first have to calculate how much of your home’s square footage is dedicated to your office. Then you’ll divide all the costs associated with your home by that amount. You can claim the square footage equivalent of the following expenses:

  • Mortgage interest
  • Insurance
  • Utilities
  • Repairs
  • Depreciation

Deducting Furniture and Décor

A big, empty room won’t help you conduct business. You’ll need at least a desk and chair. The IRS lets you deduct that, too, but you have to be able to demonstrate that the item is used in your business. You can either claim a Section 179 deduction, which has you deducting the full cost in the tax year in which its purchased, or depreciate it over its useful life, which is seven years for furniture.

What if you already had that desk and chair when your business started? You can’t claim them as a deduction, either in full or depreciated. However, you can depreciate the item using the IRS’s modified accelerated cost recovery system. You’ll need the fair market value on the day you depreciated it. Keep records of the method you used to determine the fair market value in case there are questions about the depreciation down the line.

If you’re working from home and you are self-employed, tax deductions can reduce your tax liability each year. If you purchase something you’ll be using for your business, chances are you can deduct it. Make sure you keep receipts, as well as maintaining records of any calculations you used to arrive at the deduction you chose in case you’re audited.