Being among the best salespeople in the game can have a ton of benefits. While that may be true, those benefits recently dropped by a whole lot. Starting at the beginning of 2018, the tax plan all but removed any deductibles that employees can take related to incurred business expenses. Let’s take a deeper look at what that means, how it affects you as a salesperson, and what you should do about it. Plus, we’ll take a look at how taxes have changed for the 2020 year.
Tax Deductions for Field Reps
Thanks to changes in 2020 tax laws, it is more difficult to make deductions and many sales reps will only qualify for standard deductions. The past year has also changed the way field teams conduct their business, which will affect how they can file.
Your employee status with your company will also affect how you can make deductions. If you receive a salary and commission, then the IRS classifies you as an employee. Typically, employees are reimbursed by their companies for the expenses of landing a client. Businesses will usually offer an expense account or reimbursement. In that case, you cannot write off those expenses.
However, if you don’t get reimbursed or you qualify as an independent contractor, you can write off many of the expenses to lower your tax bill. Here are some of the tax deductions that you can possibly make in 2020:
Tax Deductions on Your Vehicle
The past year saw most sales reps traveling less than ever. However, if you did still have to do quite a bit of driving to see clients, you can submit your information one of two ways. First, you can keep track of all the expenses to figure out your annual deduction. These expenses include gas, oil, repairs, car washes, etc. However, if you did not keep meticulous records, you can use a standard rate. At a standard rate, you only need to account for how many miles you drove.
Tax Deductions on Business Travel
If you had to travel for business at any point, certain parts of your expenses can be deducted. Your airfare and transportation costs (such as a rental car), as well as lodging are all valid deductions. You can also deduct 50% of your meals deducted when traveling.
Tax Deductions on Office Expenses
Many field sales reps spent most of their time in their home offices. This is another potential area to deduct from your taxes. You can deduct the cost of a home office, and if you are renter you can deduct part of your monthly rent.
Tax Deductions on Long-Term Property
Along with your home office, you can also get deductions on any equipment that you purchased. If you had to pay to set up your home office this year, you might be able to make deductions on it. Tangible property that lasts more than a year, such as office furniture or computers, are eligible for deductions.
Tax Deductions on Supplies
Along with your home office and equipment, you can also deduct supplies that you use up in less than a year. Everything from paperclips, envelopes, pens, stamps, and paper can be deducted.
Tax Deductions on Education
Many sales reps require education to help sharpen their skills. You can deduct the cost of education, such as an online course, if your employer requires it to maintain your job or pay rate, or it improves your selling skills. However, courses that you take to qualify for a new trade or business do not qualify for a deduction.
Tax Deductions on Your Cell Phone
Many reps were on their phones more than ever last year. You can deduct the monthly charges of a single phone line, which can be either a landline or cell phone. You can also deduct the full cost of a second phone line for business. However, you must document your business use if you used the second phone for both personal and business calls.
Tax Changes for 2020
This year has seen more changes to filing taxes. The deadline this year is now May 17, 2021 to give people more time to file and pay their taxes. Also, you can file for an extension until October 15, 2021. Keep in mind that the tax extension only gives you more time to file, not more time to pay. Even if you file an extension, you will have to pay by May 17th.
The deductions have increased as well. The standard deduction is $12,400 for single filers and $24,800 for married couples filing jointly. Also, income tax brackets increased to account to inflation.
Many Americans received stimulus payments last year to help offset some of the burden of the pandemic. These payments are not taxable because they are classified as a tax credit for 2020, paid out in advance.
If you received too much stimulus money based on your 2020 income, you will not be required to pay it back. However, if your taxes indicate that you did not receive enough money you can fill a form for recovery rebate credit to get more stimulus money.
Tax Changes for 2019
It’s a new tax year! So, what has changed for outside sales in 2019 tax deductions
The short answer is, not much.
Sales reps are still not allowed business expenses incurred out on the road. The only major change is in the standard deduction. What that means is it will be even harder for sales reps to claim any itemized deduction that could somehow qualify:
It’s estimated that roughly 95% of households will use the standard deduction this year. Unless your itemizable deductions exceed the standard deduction, then it will be in your best interest to use the standard deduction.
The current tax provisions will last until 2025, so it is still a wise move to lower your sales expenses to a minimum. It will be a while before there might be changes that will benefit outside sales reps.
Tax Changes for 2018
What to Know About the Tax Cuts and Jobs Act
Here is the exact language pulled directly from The “TAX CUTS AND JOBS ACT” which is the official title of the Trump Tax Bill. Listed below are all the expenses that are no longer deductible that could potentially affect you as a salesperson.
Under the provision, business expenses incurred by an employee are not deductible, other than expenses that are deductible in determining adjusted gross income
- Purchase of travel, transportation, meals, entertainment, gifts, and local lodging related to the taxpayer’s work
- Business bad debt of an employee
- Business liability insurance premiums
- Passport fees for a business trip
- Tools and supplies used in the taxpayer’s work
- Work-related education
How Does This Affect Salespeople?
What exactly does this mean? Well, here’s the reality. From now on, until the provision expires in 2025, salespeople will no longer be able to deduct any of the following expenses from their taxes:
- Plane Tickets
- Taking Clients Out
- Passport fees
Obviously, these provisions are going to have a pretty substantial impact on salespeople in the field. The average salesperson drives upwards of 500 miles per week and with gas costing an average of $3 per gallon, salespeople are shelling out an average of $60 per week. That may not seem like a lot but it adds up over a year to $3000 dollars just in gas costs. That’s not including the wear and tear on the vehicle that comes from the 25,000 miles they drive annually on average for work.
You can see how driving miles add up pretty quickly for an outside salesperson. All of the expenses with the job always seem to stack up at a staggering rate and for those who don’t work at companies who cover everything, which is often the case, salespeople used to lean on tax deductions. That is no longer an option. Outside salespeople will be left to shoulder these costs themselves and have to take all of these calculations into account.
What to Do About Changes to the Tax Bill
It’s clear that as a salesperson, the less money you have to spend on job-related activities, the more money you’ll have in your pocket. At the same time, you don't want to be doing less work, meeting with clients and prospects less, or cutting down on your work ethic. All of that will lead to significant declines in performance and that's obviously no good. So what’s the answer?
The key is one word, efficiency. That doesn't mean navigating between meetings to make sure you get there efficiently: it means optimizing your entire route, your entire day, and your entire approach. Efficiency means following up with prospects when you're supposed to rather than forgetting and having to add it to the end of the week. It means, knowing the area so you can check in on nearby clients while you’re there without having to make another trip out specifically for them.
It doesn’t mean sitting in your car after every single meeting to manually log check-ins, burning gas the entire time. You have to be much more conscious about your time, energy, and money while you're out in the field.
Thankfully, there are tools that can help you make the most of your time and money. Sales efficiency tools can help you spend as little as possible while still exceeding your sales goals. Not only will you save on expenses, but you can be faster and more effective than ever.
So it's clear now that, due to this tax bill, salespeople are going to suffer a bit when it comes to work-related deductions. We’ve shown that the only real workaround is to try your best to cut down on these work-related costs while not sacrificing your clients or which leads us back to one keyword: efficiency. Well here at Map My Customers, our goal throughout our company is to provide a suite of effective tools that will cut costs, save time, and boost face time with clients. If you’re looking for a way to boost sales, give Map My Customers a try.