Right now is an exciting time for me. I'm diving into the adventure of wholesaling and am beginning to explore options to create my deal funnel. Along with this comes expenses and given that this is my first LLC im not sure about what I can and can't write off. I plan on sending direct mail, online advertising, and bandit signs. Are these eligible? What else do you think I should know about writing off expenses? Any big cans or cants that I should be made aware of?
Without a doubt anything directly related to the day-to-day operation of your business, such as sending post cards, is deductible. Also, don't forget to track mileage (carefully) as that can add up.
There are many areas where there are shades of gray. For example, can you deduct your cell phone bills? If I take someone to lunch and we talk about wholesaling, can you deduct it? Can you deduct a portion of depreciation on your home computer? Talk to your CPA.
If you don't have a CPA, get one. People tend to think of a CPA as just an added cost, but a good CPA is worth their weight in gold and makes you much more money than they cost.
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
Advertising cost - direct mail and online advertising sound like legitimate expenses.
Bandit sign costs might be a grey area if it is considered illegal in your area.
Track your mileage costs to and from potential wholesale properties.
You may be entitled to take a deduction if you take a distressed seller to lunch.
@Greg Scott - Thanks for the great advice. At my next REIA meeting I'm going to reach out to the other local wholesalers, ask them what they do and don't deduct, and ask them who their CPA is. I think it would make the most sense for me to work with a CPA who has previous experience working with real estate wholesalers.
@Basit Siddiqi - I had a feeling the bandit signs could be a grey area. However, from a filing perspective, if I write off my 'yard signs' as business expenses I doubt it would raise any red flags. I guess it comes down to this question: Is saving a few bucks worth the chance of trying to defend myself if uncle same starts asking questions.?That's something I'm going to have to talk to a CPA about.
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