Are bookkeeping services tax deductible?

Part of the magic of professional services is that depending on the structure of your business, you may or may not be able to claim them as expenses that are tax deductible. With bookkeeping specifically, it really depends on whether you’re doing them for a business entity or on a personal basis.

Personal bookkeeping

Any expenses you have on your personal taxes are not deductible as a business expense. So if you’re paying someone to help you with your personal budget, it’s a little different than if you’re paying someone to do your business’s bookkeeping for you.

Maybe you have a hobby or start-up situation where you haven’t made any money yet, but you are still paying for services like bookkeeping to start out on a good foot. Your CPA can help you leverage the situation and reduce your income tax liability.

The bottom line is if the bookkeeping services are not for a business, it’s going to be difficult to justify claiming them as tax deductible.

Bookkeeping services for business

If, on the other hand, the bookkeeping services you’re paying for are for a business, suddenly it’s putting extra value into the community and it becomes tax deductible.

Let’s look at a fictitious example. John Smith can invest in real estate all day long. But if John Smith, LLC is investing in real estate, all of a sudden you have additional advantages. In other words, the less organized and less official you look to the government, the more suspicious you look.

In fact, when it comes to doing business across multiple states, tax deductions are not the only advantage to creating an LLC. You get great legal protection out of state and you can begin to do some really high-caliber security planning for yourself and your business. And it’s cheap too! There’s really no reason not to form an LLC.

Tracking business expenses

From a tax perspective, your tax preparer is only as good as the information they’re getting. And even outside of tax purposes, there are enough weird things you can do with money that it’s really, really powerful to begin tracking that early on.

Even when you’re not making money, there’s a chance that your CPA can help you claim expenses and tax deductions fairly early. And even if it’s not deductible for some reason, you should still track it so you can see what’s actually happening in your business from a cash flow perspective.

Outsourced bookkeeping and other services

So tracking is important both to determine if you have an opportunity to reduce your taxes and to see what’s happening in your business from a cash flow perspective. But you should really hire professionals to help you.

Of course, since your CPA can only go off the information they’re given, the way to get them the best information possible is to use a professional bookkeeper. And let’s face it, your focus should really be on the sales and production of your business. It’s a waste of your time to do something that’s not moving the needle in that area.

Get someone else on your team that can help you with professional services like bookkeeping so you can focus on the the things that really matter.