Taxes for a sole proprietorship are simple compared to taxes for other organizational structures. Your sole proprietorship income is reported on the same tax return as your personal income. You and your business are treated as one entity. For this reason, your business expense claims are also reported on your personal Form 1040 and Schedule C as a deduction. You can claim several business expenditures as deductions. Each claim must be reasonable and necessary for the operation of your business.
Business Startup Expenses
As a sole proprietor, you can claim all money spent starting up your business. Perhaps you consulted with a a market research firm or business attorney to verify the proper organizational structure for your business. Claim money spent to obtain a “fictitious business name” or "Doing Business As" certificate. If you spend money to launch a website for your business, this is claimable. The costs for business cards, signage and promotional fliers are also claimable.
Any money spent operating your business can be claimed on your taxes. For instance, if you install a fax line or telephone line for your business, this is deductible. Claim web-hosting expenses and insurance premiums. If you rent office space for your sole proprietorship, claim rental fees. If you operate out of a home office, you may qualify for the home-office deduction. To qualify, your home must be your principal place of business. The office must be used primarily for business purposes. To claim the home-office deduction, complete Internal Revenue Service Form 8829 to determine the amount of your deduction.
Equipment & Inventory
Claim all money spent on business equipment for your business. Examples of equipment are computers, copy machines, printers and fax machines. If your business requires an inventory to operate, claim money spent on inventory. To claim equipment on your taxes, you must be able to prove that the equipment is needed for business purposes. Otherwise, claiming the equipment can trigger an IRS audit.
If you are required to travel for business purposes, you can claim travel expenses on your tax return. The travel expenses include transportation, meals and lodging. If you pay registration fees to attend a business conference, claim the registration fees. If you use your personal vehicle for business travels, whether local or long distance, you can claim gas or mileage on your tax return.