Many businesses benefit from having extra storage. Service businesses can use storage for equipment. Sales companies can use storage for inventory. Businesses of all kinds can keep records in storage for added security and have many other potential uses for off-site storage. The good news is that the cost of the storage facilities is usually deductible for businesses and sometimes for individuals when moving.
There are two general circumstances where the costs of a storage facility are tax-deductible:
- For businesses, rental expenditures for a storage facility are considered a tax deduction if the expense is ordinary and necessary for the business according to the Internal Revenue Service (IRS) rules.
- For individuals, rental expenditures for a storage facility are only deductible if they are part of a deduction allowed for moving expenses related to work or self-employment.
Tax Deduction of Storage Expenses for a Business
The IRS gives guidance about expenses for businesses in Publication 535 – Business Expense. The IRS defines a business expense as something that is “ordinary and necessary” for the business to operate. A determination needs to be made to see if the cost of a storage facility is part of the startup costs for a business, is part of the cost of goods sold, or is a part of the ongoing, regular, business expenses.
Storage Facility Expense Deducted as Part of the Startup Expenses
The IRS rules state that the costs incurred before beginning to operate a business are considered capital expenditures and must be amortized. Amortization means that these costs are tax deductible in equal portions over a period of 180 months, starting from the month that the business started.
Example: A storage facility is rented to hold equipment that is used later after the business starts. The cost of the storage unit is added to the startup expenditures of the business and amortized over 180 months.
Storage Facility Expense Deducted as Part of the Cost of Goods Sold
When using storage is a part of the process necessary to have goods to sell, the expenses for the storage facility are deducted as a part of the cost of goods sold.
Example: A storage facility is used to hold inventory for sale. The cost of this storage facility can be added to the product cost as part of the cost of goods sold.
Storage Facility Expense Deducted as Ongoing Business Expenses
If the storage facility is used in the normal course of business, then the cost is fully tax deductible for the period when incurred.
Example: A storage unit is used to keep important business records, tools, or equipment that is needed for the business to operate. The cost is a tax deduction for that period.
Tax Deduction of Storage Expenses for an Individual
If using a storage facility is part of moving expenses then the cost qualifies for a tax deduction on an individual tax return. In order to benefit from a moving expense deduction, an individual needs to file form 1040 and itemize all deductions instead of accepting the basic standard deduction amount offered for those that do not itemize expenses.
The IRS defines deductible moving expenses as those expenses that come from a move, which is required for a job or a business location. The move must be closely related to the start of the work in the new place and must meet the time and distance requirements. The distance required is that the new work must be at least 50 miles from your previous home. The time requirement, if you are an employee, is that you must work 39 weeks for the first year after your move. If you are self-employed, you must work at least 39 weeks per year for the two years after your move. Members of the military do not have to meet the time or distance requirements.
Example: You move to a new city more than 50 miles from your existing home. You put things in storage while looking for a new home. The cost of the storage is tax deductible as part of the moving expenses.
Every circumstance is slightly different so please double check with your accountant or tax advisor if you are not sure if your expenditures for a storage facility are tax deductible.
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