Small Business Tax Preparation Guide

6. Take Advantage Of These 17 Small Business Tax Deductions

Next Read: 30 Small Business Tax Credits You Should Know About


Take Advantage Of These 17 Small Business Tax Deductions

Mar 04, 2022 • 10+ min read
Man calculating taxes with a calculator
Table of Contents

      It’s tax preparation season, which means that thousands of small business owners nationwide are digging out their receipts, spreadsheets, and calculators, all in the hopes of maximizing a precious resource for their bottom lines: tax deductions.

      A tax deduction is money you can subtract from your taxable income or revenue, but not from your actual income or revenue. So, if you made $100K, but had $15K in deductions, you’d only be paying tax on $85K. 

      This differs from tax credits, which are applied to your final tax bill. A $500 tax credit on a $5,000 tax bill would mean you’d owe only $4,500.

      Tax credits are more exciting, but deductions are far more plentiful. And deductions can add up if you maximize them.

      As you can see below, deductions can make a difference. As your taxable income is decreased, so is your final tax bill.

      Taxable Income21% Tax Rate
      Identifying Qualifying Expenses

      Identifying Qualifying Expenses

      The IRS provides plenty of resources to help you ascertain whether or not an expense is deductible—but the onus is on you to do the research and figure it out.

      One of the most common issues is blending business expenses with personal expenses. Small business owners usually have so much overlap in their lives that this delineation can become murky. For example, you might occasionally use your work vehicle for driving your daughter to soccer practice. Thankfully, the IRS provides robust information to help make the crucial distinctions necessary to keep your business and personal life separate on your taxes. explains:

      “Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part. For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you can deduct 70% of the interest as a  business expense. The remaining 30% is personal interest and is not deductible. Refer to chapter 4 of Publication 535, Business Expenses, for information on deducting interest and the allocation rules.”

      Take time to read through the information provided by the IRS—and you should also always consult with a tax professional before claiming a deduction. They can help you confirm what qualifies and what doesn’t while suggesting additional strategies to help you to lower your tax burden legally. Better safe than sorry, as they say.

      Small Business Deductions

      Small Business Deductions To Consider

      It doesn’t matter whether your business manufactures office chairs or teaches children how to speak Italian—there are tax deductions available to you. Remember, not every deduction will be applicable. It all depends on your unique situation.

      Additionally, if you have hopes of deducting an expense, you had better keep the receipts and record any other relevant information. The IRS doesn’t have much patience for ambiguity when it comes to lowering your tax bill—either you have all the details in order for a deduction or you aren’t allowed to pursue it.

      With that in mind, here are some deductions that might help you to save some money next tax season.

      1. Business Mileage

      Keeping track of your business mileage is one of the most beneficial ways to maximize your deductions come tax time. You can either deduct your annual fuel and car maintenance costs or take the standard mileage deduction offered by the IRS. For the 2019 tax year, the IRS set the standard mileage rate at 58 cents per mile driven for business use. The latter is probably the better option, especially if you use your vehicle often for work. You can also deduct expenses like tolls or parking fees.

      Keep records of your mileage throughout the year, noting the mileage of each trip, as well as the business purpose of the trip. Importantly, you can’t deduct mileage for personal use of your car, including commuting to and from a workplace.

      2. Employee Salaries And Wages

      The IRS allows businesses to deduct payments to employees, which include salaries, wages, bonuses, commissions, and some fringe benefits. Employee benefit programs, like dependent care assistance, can be deducted, as well as contributions to qualifying employee retirement plan accounts.

      Depending on how your business is structured with the IRS, you might be able to deduct your salary. However, if you are a sole proprietor, you cannot deduct your income. Check with your accountant about how you should go about this.

      This deduction does not include payments to other corporations, freelancers, or contractors, which can be deducted but under a different category.

      3. Contract Labor

      If you have any 1099 laborers, you cannot deduct these payments as wages because the IRS does not consider them your salaried employees. If you pay any independent contractor more than $600 in one year, make sure to issue them a 1099-MISC, so the IRS has a record for the sake of both of your taxes.

      Since employee salaries and payment to freelancers can add up to a huge portion of your business’ yearly cash outflows, you want to make sure this is all categorized correctly, so that you can maximize your business tax deductions.

      4. Business Equipment and Supplies

      You can deduct the cost of all your business equipment and supplies bought during the year, including vehicles. Keep receipts of everything you bought for your business, including cleaning supplies. You can also deduct depreciation costs for lots of business equipment, including computers, machinery, and even office furniture or livestock. Consult with a tax professional or tax software program to calculate equipment depreciation costs over the years.

      5. Rent on Business Property

      Rent for business property is fully deductible—including rent for an office, co-working space, storefront, boutique, factory, or any other business facility. Your utilities are also deductible, including electricity, water, and telephone costs.

      6. Home Office

      The business property rental deduction even applies to your home office, but extra rules are in place because you can’t just deduct your apartment rent or home mortgage payments as a business expense. If you have a home office or other area of your home used regularly and exclusively as a business area—such as a room where you meet clients—calculate what percentage this area takes up of your home. This percentage of your rent or mortgage is deductible as a business expense.

      Note that the IRS requires you to use a home office for business only, not for personal use, ever. Even if you are deducting the corner of your dining room table as a home office, you have to be able to show you use this corner only for business.  

      Don’t overlook this write-off, even if your business provides offsite services (e.g., a cleaning business). If most of the business’ administrative tasks, like scheduling, invoicing, and marketing, are done primarily at your house, then you may still qualify for the home office deduction. 

      7. Insurance

      With the exception of health insurance, almost all forms of business insurance costs are fully deductible, including flood insurance, business continuation insurance, and malpractice coverage.

      You can deduct health coverage, but there are more regulations at play. Small businesses can actually receive a tax credit, which is better than a deduction, for up to half of the health insurance premiums paid for employees. If you are self-employed, your health insurance premiums are not business deductions. Instead, you have to take them as deductions on your personal taxes.

      8. Licenses And Taxes

      Starting and running a small business often requires you to jump through hoops. Some of the expenses related to licenses can be deducted, such as the cost of your business license. You can also deduct some ongoing tax-related expenses, including payroll taxes, sales tax, personal property taxes, state income taxes, and fuel taxes.

      9. Education

      The more learning you do, the more it enriches you as a person. And when you incur expenses related to training and education that will improve the skills needed for your small business, you can often deduct them from your taxes.

      The relevance of a specific training will depend on your field and the nature of the education. Possible examples of deductible costs include webinars, seminars, workshops, professional magazine subscriptions, work-related books, and even transportation expenses incurred going to a relevant education event.

      10. Childcare

      Being a parent and a small business owner requires a continual balancing act. In most cases, childcare is required. You can usually deduct the money you spend on these services.

      It’s worth noting that you can also deduct care expenses for those who are over the age of 12 and aren’t able to care for themselves. This includes a spouse or dependent who has physical or mental disabilities.

      11. Business Meals

      Entrepreneurs need to eat just like everyone else, but that doesn’t mean that all meals can be deducted from your taxes. The IRS provides clear instructions for what qualifies and what doesn’t. The rules state that the food can’t be extravagant—so don’t even think about going on a caviar binge. Also, either the business owner or at least one employee has to be present at the meal.

      Be sure to save all receipts associated with the meals you plan to deduct. It’s also helpful to record the details of the meal, so that if you need to provide context later, it’s readily available.

      12. Travel Costs

      There are often times when your business duties require you to travel beyond your city. As long as these trips are for legitimate purposes and meet the other IRS requirements, you can deduct the associated costs. Examples include toll fees, parking fees, meals, hotels, airfare, or a rental car.

      Maintain a clear record of the trip so that you can justify the expenses you plan to deduct. These details should include your travel dates, the trip’s purpose, any business contacts you had meetings with, and a breakdown of each expense.

      13. Moving Costs

      Owning a business requires plenty of flexibility. This may mean that you’ll be relocating to a new location. Perhaps you’re downsizing to save money. Or you might be expanding operations and need more space.

      The good news is that you can often deduct the expenses incurred as you shuttle your inventory and equipment from one place to another. As long as the expenses are carefully recorded, you should be able to save some money come tax time.

      14. Advertising

      You need to spread the word about your business, so it’s important to know that your advertising, marketing, and other promotional efforts can be deductible. The money you spent on designing your new website or running that billboard on the interstate can be used to lower your tax bill.

      Just note that you can’t deduct any promotional efforts that have political entanglements. So if you hire a lobbyist in Washington, DC, or throw a rally for a senator, you won’t be able to deduct a single dime.

      15. Contributions To Charities

      If it seems like your entrepreneurial friends are a giving bunch, you’re definitely on to something. It’s an established fact that entrepreneurs have bigger hearts than the average American.

      “Most entrepreneurs feel strongly philanthropic, typically giving 50% more annually to charity than people not running or advising their own companies,” explains a philanthropic report from Fast Company. “They are also far more likely to volunteer. (They also realize that acting generously burnishes their reputation, and the reputation of their company.) …All told, entrepreneurs give about $1,200 more to charity than those working for traditional companies at the same income level. Two-thirds of them also volunteer at least two or more hours per month to cause groups.”

      This penchant for giving does more than just help others—the contributions are often tax deductible. One of the main qualifiers: the recipient must be a registered organization, rather than an individual in need to whom you gave some money.

      16. Contributions To Retirement Funds

      Small business owners are also skilled at looking toward the future. So if you’re making contributions to your retirement account (or those of your employees), you can deduct it from your taxes. Just make sure to confirm the details with a tax professional to ensure you’re complying with IRS requirements.

      17. Other Deductions To Consider

      • Union dues
      • Bank and credit card fees
      • Business entertainment 
      • Certain employee benefits 
      • Contracted workers/labor

      When you let tax deductions and tax credits join forces for your benefit, you’ll find that your tax-related stresses decrease accordingly. Choosing that joyous feeling as your goal can provide the motivation needed to track all the details through the year and ensure you’re in a position to claim everything confidently when tax time comes.

      Save Money On Your Small Business Taxes

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      About the author
      Robert Woo

      Robert Woo is a freelance writer and marketer. He focuses on the tech and finance industry, has been a featured contributor of Lendio, and regularly shares his experience with software via blogs and articles. During any remaining free time, he's obsessing over fantasy football, writing for television, and playing guitar just enough to maintain the calluses on his fingers.

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