If you are of a certain age, you’ve probably walked through an Office Depot or Staples and marveled at the endless supply of options for office supplies. You might have even bought a floppy disk, and if so, it’s probably time for a night cream as the old internet adage goes. Although office supplies can be bought online nowadays, they can still represent a significant cost for businesses large and small. So let’s find out how they are dealt with come tax-time.

First, it’s important to note that the IRS differentiates between office supplies and office expenses and they each affect business taxes in different ways. Office supplies are the classics like pens, paper, staplers and paper clips. They can also be janitorial and cleaning supplies, bathroom tissue and paper towels, or things like paper plates and plastic utensils for your office gatherings. They are typically bought and used within a year at the business. If your business makes or sells goods, the costs for supplies associated with those, from making, processing or shipping, would be handled differently as part of the ‘costs of goods sold’ calculation.

Office expenses are expenses related to running your business. This can be things like website services like hosting and domain fees, cloud services like iCloud or Dropbox, accounting software like Quickbooks, and equipment like laptops, phone systems and more. If expenses are higher-cost or more permanent, they can be classified as assets instead of expenses and would need to be depreciated. This can include things like large printers, furniture and office machines.

In order to deduct office supplies and expenses on your tax return, you must show that they are ‘ordinary and necessary’ business expenses and not for personal use. For some supplies like printer paper, this might be obvious but for expenses like cell phones and internet bills, this might be trickier. You can deduct 100% of the cost of office supplies that have been bought and used within the year, so long as you meet these IRS rules: 1) you don’t keep a record of when they are used 2) you don’t keep inventory of them 3) deducting these items won’t distort your income significantly.

The situation for office expenses is a bit more complicated. Office expenses considered business assets can be deducted if they are $2,500 or less, otherwise they would need to be depreciated. Furthermore, if you are a start-up acquiring furniture and equipment in the first year of business, this could be considered start-up costs and treated differently than regular business expenses.

Trying to figure out which office costs count as supplies, expenses or assets can be difficult and confusing for small business owners and wildly complicated for larger enterprises. A knowledgeable and experienced accountant can help you differentiate between these categories and provide peace of mind that you’re filing correctly and receiving all the deductions that you are eligible for. At ClarkSilva, we are well-versed in guiding businesses through the maze of business expenses related to running a business. We’re happy to answer any questions you might have regarding office supplies and tax deductions, reach out to one of our team members today!