Article takeaways
- Ensure your storage facility allows business use. Not all companies allow their units to be used for business, so before you sign a rental agreement, be sure to confirm your intended use complies with their policies.
- Business use is usually tax deductible. Your use of the unit must meet IRS requirements for “ordinary and necessary” business operations, such as housing for documents, inventory or office equipment.
- Your employment status matters. W-2 employees typically are ineligible, but business owners, freelancers, real estate investors and landlords may qualify.
- Good documentation is essential. Retain and meticulously maintain all documentation–rental and business agreements, storage and inventory records and any other paperwork you may need to justify your deduction should the IRS come calling.
- Confirm the details of your storage unit write-off with a tax professional. A pro can help you estimate your storage unit cost against your effective tax rate to ballpark how much you could save.
If you’re a small business owner, freelancer or remote worker paying monthly for a storage unit to house your business-related equipment, inventory or records, you may be wondering what your options are at tax time. Can you write off a storage unit on taxes?
The answer isn’t a simple yes or no. It depends on your employment status and how the unit is used. Business use typically qualifies, while personal use generally does not.
In this article, we’ll break down who may qualify, what the IRS looks for and how to estimate your potential self-storage tax savings. While we cannot provide tax advice–it’s best to consult a tax professional for specific guidance–we can help you sort out your options and understand what may or may not apply to your situation.
Are Storage Units Tax-Deductible? Here’s What the IRS Says
Are storage units tax-deductible for everyone? No. Generally, freelancers, business owners, real estate investors, landlords, etc. who are using storage for business fall into the eligible category.
The IRS considers a deductible storage unit expense to be any cost that is “ordinary and necessary” to the operation of your trade, business or income-producing activity. “Ordinary” means the expense is incurred for the storage of items common and accepted in your line of business. “Necessary” means it’s appropriate and helpful for your business, regardless if it’s absolutely required to remain afloat. When your business meets both criteria and you have a sufficiently documented business use to support your case, you can probably deduct the cost of your unit.
Note that personal storage of any kind is not deductible. If you’re storing holiday decor, furniture, household goods or any other items not directly related to a business, your unit expenses would not qualify for a write-off.
Can You Write Off a Storage Unit on Your Taxes? Here’s Who Can–and Cannot–Deduct Expenses
So exactly who qualifies? Can you write off your storage unit on taxes this year? Business owners renting storage units that allow business use should qualify. Eligible user types and typical use cases that may qualify for a tax write-off include:
- Small business owners storing inventory, equipment, or supplies
- Freelancers and self-employed individuals storing work-related materials
- Real estate investors storing tools, staging furniture, or property management supplies
- Remote workers/home office users, but note that stricter rules apply here; storage must be for the business, not just overflow from the renter’s home
- Contractors and tradespeople storing job-site equipment or materials
What about W-2 employees using off-site storage? Are storage units tax-deductible if you don’t own a business but use a storage unit for business purposes?
Unfortunately, no. Even if you are using the unit for business purposes, W-2 employees are ineligible to deduct unreimbursed business expenses under current tax law (specifically the post-2017 Tax Cuts and Jobs Act).
However, landlords may deduct storage expenses that are directly related to units used for rental property management.
As always, consult a tax professional to know exactly where you stand.
Your Choice of Unit Matters: Before You Claim the Deduction, Make Sure Your Facility Allows it
Before you plan your deduction, it’s critical that you make sure your facility permits business and commercial use on its premises. Read the facility’s rental agreement or call directly to make sure you’ve chosen a facility with storage units that allow business use, to ensure you are not in violation of your lease, let alone able to deduct your expenses. Not all facilities will let renters use their units for business purposes, but many do.
In general, storage units that allow business use require that the use cases meet a few criteria relevant to the storage of items specific to the operations of a business. Business inventory, records, or equipment would all qualify as business uses. Be aware that operating a business out of a storage unit, however, is typically prohibited due to zoning laws, insurance considerations and traffic concerns.
If you’re looking for storage units that allow business use, search Storage.com to find units near you that meet these requirements.
How to Estimate Your Self-Storage Tax Benefits: Crunching the Numbers on Your Potential Savings
To estimate your self-storage tax benefits, you should first know that a deduction reduces your taxable income, not your dollar-for-dollar tax bill.
For example: if you pay $1800 per year for a storage unit used exclusively for business, you should subtract $1800 from your taxable income. Your actual tax savings depends on your effective tax rate, so if that rate is 25%, the potential storage unit deduction could save you about $450 per year.*
To get your own rough estimate, multiply your annual storage cost by your estimated effective tax rate. If you’re unsure of your current rate, check your most recent tax return, plug your numbers into tax software, or consult a CPA to help you find your estimate.
*This example is for illustrative purposes only. Consult a qualified tax professional for advice specific to your situation.
What Documentation Do You Need? Here’s the Ultimate Checklist for Your Write-Off Recordkeeping
Sound recordkeeping can provide an affirmative answer to the IRS agent whose job is to ask “Are these storage units tax-deductible?” Let’s make sure your case is sound, should the IRS ever come to call.
Here’s what to have, and to hold:
- Monthly or annual receipts and invoices from your storage facility
- Storage facility rental agreement, which should show the unit address, size and terms
- Inventory lists of exactly what your unit contains, especially if it houses business equipment or supplies
- Business-use logs that detail in dates and times how frequently you access the unit, and if you use it for mixed purposes.
- All correspondence with the facility confirming it provides storage units that allow business use.
You should keep these documents for a minimum of 3 years, which is the standard IRS audit window from the date you file a return. A best practice is to keep these documents for up to 6 years, especially if your income reporting is complex. If space is an issue, consider digital storage to help with bulk.
So, Are Storage Units Tax Deductible? The Breakdown on How Business Owners Benefit Best
The final answer to “can you write off a storage unit on taxes” comes down to whether you are using the unit for business purposes, and business purposes only.
Freelancers, contractors, small business owners, landlords or real estate agents who are renting storage units that allow business use typically will qualify for a tax-writeoff. The unit must be used for legitimate business purposes by only the self-employed; personal use and W-2 employees do not qualify under current tax law.
It’s best to consult a CPA or professional tax accountant to review your situation and confirm your eligibility.
Ready to find a storage unit for your business? Search Storage.com to compare facilities, prices, and features near you.
