How to Measure ROI and Record Tax Deductions on Educational Material as a Solopreneur

measure ROI and record tax deductions on educational material

measure ROI and record tax deductions on educational material

As freelancers and solo business owners, we know the importance of investing in what I like to call “YOU, Inc.”

For our business to grow, we have to continually educate ourselves on all the things we have to do, both in and on our company. In fact, when I quit my job to work full time for myself, I quickly learned that my accounting degree wouldn’t be enough.

I knew I had to invest in nontraditional education beyond the blog posts I was reading and the podcasts I was listening to. It was time to look at paid webinars, courses, classes, and books to help fill in any gaps my formal business degree left.

At some point, however, I became a “content consumer.” Similar to a “professional student,” I was taking every course and attending every workshop I thought would help make my business better.

I love learning new things but I was forgetting the most valuable piece of the puzzle: the actual implementation.

Since then, I’ve learned that I need to measure the return on investment (ROI) before I make a purchase on any new educational material that I come across, taking some time to work out the numbers and evaluate how quickly I can earn my costs back. (Yes, your purchase will be tax deductible — we’ll talk about that in a minute — but spending money you don’t need to is not good for your cash flow, either.)

Here’s how I do it, and how you can do the same.

Measuring the ROI of business development content purchases

Good news: You don’t have to be a mathematician to calculate a rough ROI on your course purchases.

Here’s what’s important: Having a roadmap to know where you’re headed no matter what concepts you’re studying. Nothing is random, and everything has a purpose. Creating ROI goals and meticulously tracking them gives you some accountability to yourself and helps you understand what it would take to recoup the cost of the purchase.

Here are the questions I ask myself before purchasing:

  • What does it cost?
  • What do I want to accomplish from this investment?
  • If I implement what I’ve learned from the material, can I create new paid content from it or increase my prices? If so, how much do I have the potential to make, based on my goals?
  • How does what I learn from this course or workshop enable me to build a more profitable, more efficient business?

Here are a few examples of how I consider the cost versus what I want to accomplish from learning:

  • If I have to decide on purchasing a $99 course on creating the best Instagram strategy, I set a follower goal for my Instagram account and then a revenue goal based on conversion rates.
  • If I purchase a $799 course on creating courses, I’d set a revenue goal to earn 3-5 times the cost before I buy it. This way, even if I fall short of the exact goal, I will have at least made my investment back.

Having a solid roadmap for how you’ll use the product/course to implement change in your business is key to knowing whether it will produce an ROI that makes it worth the investment.

Accounting for educational material purchases

Once you’ve decided to invest in a course, you don’t want to miss out on any tax deductions that you’re entitled to. Business development counts as deductible business expenses.

So how do you account for these types of expenses?

Create a category of expenses called Business Development. In this category, place purchases like:

  • E-books and physical books
  • Paid email courses and online courses
  • Online webinars, masterclasses, and workshops
  • College and university individual courses
  • Any online challenges you pay for
  • Community membership sites (Have you joined the OWS group? It’s well worth it!)
  • Bundles of educational material (like the Solopreneur Success Bundle)
  • In-person workshops and seminars
  • Conference ticket registration fees (separate from hotel, flights, and rental cars, which are categorized under travel)

….and any other training and development material you purchase. If you’re conflicted on whether it falls under Business Development or a different category, reach out to an accountant who can steer you in the right direction.

Advanced note: If you’re a sole proprietor or a single-member LLC using a Schedule C on your personal tax return, business development expenses will be listed under “other expenses.” (It’s line 27 in the latest IRS edition.)

Get your books in order

Set yourself up to record your next professional development purchase now:

  1. Open your favorite system you use to keep track of your expenses — a spreadsheet, Evernote, accounting software, etc.
  2. Create an account called Business Development. If you aren’t using anything currently to keep track of your expenses, try a simple program like Freshbooks to start.
  3. In this category will go any content you’ve purchased from the categories listed above. Locate your receipts and keep them together. Be sure to take all physical receipts, scanning them in for backup and safekeeping so that at the end of the year, you’re not scrambling to pull information together or organize the shoebox.

When tax time comes around, be sure to include these expenses to help reduce your taxable income.

Measure ROI and record tax deductions on educational material: a better approach to learning

With a solid estimate of ROI before you’ve purchased a course and an understanding of how to record that income to maximize your tax return, you’re much better equipped to avoid becoming a “content consumer” and instead using your learning to truly better your business.

P.S. — Here’s why there’s no such thing as a free course.

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Tai Stewart is the founder of Saidia Financial Solutions, a full service accounting and tax firm that helps entrepreneurs organize, strategize, and analyze their business finances so that they can focus on running the business of their dreams.

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