Self-storage units are the best for small business owners, aren’t they?
They come in handy to hold a wide variety of necessities, such as extra inventory, materials used to create your product, excess office supplies, parts and equipment that aren’t immediately needed in your repair shop, and old records and files that you’d prefer not to have cluttering up your work space, yet you know you should keep on hand for future reference.
But when you use a self-storage area for your business, it seems like it’s something you should be able to write off on your business taxes. And the good news is that you can.
How Can I Deduct Self-Storage Expenses?
While you might initially consider the storage space your “home office,” especially if you visit there a lot for your business, you don’t want to classify the business deduction the same way you would your den or other dedicated work space, says Gary Blumenthal, CPA and vice president of Betro and Company in Foxboro, MA. Instead the storage space actually should be classified as “rent.”
That means the rental charge would be added to any other rental charges you might incur for leased space, such as for an office or factory, and deducted as a business expense as part of the rental category, says Mark H. Misselbeck, C.P.A., M.S.T. with Katz, Nannis + Solomon, P.C, in Waltham, MA.
Here’s exactly where you would include it on your taxes, according to Blumenthal:
- For sole proprietors and single-member LLCs: Include it on Schedule C—Line 20B
- For partnerships and multiple member LLCs: Add it to Form 1065—Line 13
- For C-Corporations: Include it on Form 1120—Line 16
- For S-Corporations: Include on Form 1120S—Line 11
What if the Self-Storage is “Mixed Use?”
Got a few personal items included in there; say some out-of-season camping equipment on shelves off to the side from your main inventory area? It’s common for the entire unit not to be used solely for business purposes, but doesn’t mean that you can’t take the deduction you’re owed, Blumenthal says.
“If you also use the units to store personal items, the cost of renting the space must be allocated between the business use and the personal use,” Misselbeck says. But to make sure you’re legally deducting what you should, you’ll want to figure out what percentage of the square footage is occupied by the business items compared to your personal property.
Blumenthal suggests that the easiest way to figure the business portion is by taking the percentage of square feet taken up by your business needs over the total square footage of the unit and multiply that by the total rental charge.
So let’s say your 10 x 10 storage unit runs $100 a month. You use 60 percent of it to store furniture that you have salvaged and intend to refinish and sell. The other 40 percent, well, it’s none of anyone’s dang business that you are holding on to Beanie Babies and a few other collectibles hoping for a resurgence, now, is it?
You’d take that $100 and allocate $60 of it for the tax deduction and $40 for the “other uses” that can’t be written off. If you have any questions about how to determine the appropriate ratio for tax purposes, be sure to consult with a trusted tax advisor.
But, if the greater part of the entire volume of space is devoted to one or the other use, Misselbeck suggests modifying the equation. “An allocation using cubic feet might be more appropriate to measure the allocation of the cost of renting the space and how much can be deducted,” he says.
Estimate to the best of your ability, but it can’t hurt to take photos for each tax year, says Blumenthal, in case you need to prove it in the event of an IRS or state tax audit.
Bottom line? Self-storage units can play an important role in keeping your business running smoothly, and you should make sure you enjoy the full tax deduction you legally deserve.