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Did you know your business could deduct many necessary and ordinary expenses, like transportation, rent, supplies, and more? Taking advantage of these business tax deductions could save you thousands each year.
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Tax deductions or write-offs can save businesses thousands of dollars on taxable income, but understanding the IRS’s rules on deductible business expenses can also induce some serious migraines.
Here’s an easy-to-follow breakdown of the most common small business tax deductions and how to qualify for them.
Table of Contents
A tax deduction is a business expense you can use to reduce your total taxable income. According to the IRS, expenses that qualify for deduction must be “both ordinary and necessary.” Expenses that meet these requirements can be written off on your tax return, saving you hundreds or potentially thousands of dollars each tax season.
Exactly how you write these deductions off on your taxes and which deductions you qualify for is going to depend on which type of business structure you have.
For example, some tax deductions are specific to freelancers, and others are specific to corporations. We’ll cover some of the most common business tax deductions below. Read on to see how small business tax deductions work so that you can start saving on your business tax return.
Business owners can use a variety of small business deductions to lower their taxable incomes and save on their tax returns. Many everyday business operating expenses even qualify as deductions–so saving on taxes is easier than you would think. Here are the top tax write-offs small business owners should know about.
With sole proprietorships, LLCs, partnerships, and S corporations, business income is not taxed at the corporate level. Instead, it passes through and is taxed at the individual level via the business owner’s tax return. Since the business owner is then responsible for paying business taxes on their personal tax return, they can take 20% off of their taxable income.
There are many rules and regulations about how the 20% qualified business income tax deduction works, so talk to your accountant to see if you’re eligible.
If you drive your car regularly for business purposes, you can write these miles off as a deductible business expense. Qualifying mileage includes (but isn’t limited to):
Commutes and personal errands made when running business errands do not qualify.
For the 2023 tax year, the mileage deduction is 65.5 cents per mile.
You can choose either the mileage deduction or the vehicle expenses deduction, but you can’t choose both, so you’ll want to calculate which option will save you the most money.
Car and truck expenses can be counted as a tax write-off, so long as you don’t write off your mileage as well. Eligible expenses include:
Certain business travel expenses can be written off on your tax return including:
According to the IRS, for business meals to be a deductible business expense they must:
If these requirements are met, you can deduct up to 50% of meal expenses. Unfortunately, entertainment expenses are no longer deductible.
If you have a separate space in your home that is exclusively used for business, then you may be eligible for a home office deduction via either the square footage method or the actual expenses method. The simplified method multiplies the square footage of your office by $5 for your total deduction.
If you don’t opt for the home office square footage method of claiming the home office deduction, you can use the actual expense method, which allows you to deduct home office expenses such as:
While you can sometimes receive a larger deduction going with the actual expenses method, it does require much more work and careful bookkeeping.
Certain commercial or investment properties or improvements to said properties can qualify for cost segregation, meaning you can write off the costs using depreciation. While many businesses are eligible for cost segregation, it’s a tricky subject, so check out our full guide on what cost segregation is, how cost segregation is calculated, and/or work directly with a cost segregation company to see if your business qualifies.
Also, check out the top rental property tax write-offs if you own a rental property for more tax savings
Office supplies are 100% deductible and include everything from pens and paper to break room supplies.
Furniture for your office space is also deductible, although, depending on the purchase, these expenses may need to be depreciated.
Expenses that fall into the cost of goods sold tax deduction include:
Calculating this particular tax deduction can be tricky, so talk to your accountant about the best way to take the COGs tax deduction for your business — and don’t forget to provide your accountant with an inventory count from the beginning and end of the financial year.
Necessary tools and equipment for your business are also deductible, so long as these tools can be used within one year.
Larger equipment that lasts longer than a year, such as computers or machinery, cannot be deducted as usual and may need to be depreciated over multiple tax years instead.
If you own a commercial business property and make certain changes such as installing energy-efficient lighting, heating, cooling, or ventilation systems, you may be eligible for a tax deduction. This deduction is calculated based on the square footage of your property and the percentage of energy-efficient changes made.
See the IRS’s Internal Revenue Code (IRC) Section 179D for details.
You can deduct the cost of repairs and maintenance of property, provided the following conditions are met:
Depending on the repair, this deduction may need to be depreciated so be sure to talk to your accountant about how to properly write off this expense.
If you rent an office or building that you use solely for operating your business, you can deduct the rent. The stipulation is that, according to the IRS, if you “have or will receive equity in or title to the property,” you cannot write off the rent as a deduction.
If you relocate your business, you can fully deduct any expenses related to moving such as packing and transport. This deduction only applies if your business is a corporation or LLC.
Your business’s utilities can be a tax write-off, so long as they are strictly business expenses. Utilities include:
In case you missed it, you may be able to write off a portion of your personal utilities for the business use of your home office if you qualify for the home office deduction.
If the internet is a requirement for running your business, then your internet services count as a deductible expense.
If your business requires specific software to operate, you can deduct the software cost or monthly subscription. This includes subscription fees for:
If you’re in the market for business software after learning you can deduct the software subscription costs, we are happy to help you find the best payroll software, the best point of sale software, and more.
Both employee salaries and contracted labor count as tax deductions.
Since commissions are considered a part of an employee’s wages (even if the commission is on top of regular wages or salaries), commissions are a deductible tax expense.
In most instances, you can deduct the following employee benefits:
Employee gifts can be tax deductible, though the limit is no more than $25/year per person. Other restrictions apply. For example, entertainment can’t be deducted and neither can shipping, so be sure to look at the IRS rules before taking this deduction (or before purchasing employee gifts).
If you offer education assistance to your employees, you can write off work-related education expenses for your employees, including:
There is a $5,250 limit and you must also have a written employee assistance program to qualify for this deduction. If you are self-employed, you can also deduct the cost of your education, so long as it is related to your business.
Certain insurance premiums are often tax-deductible, including insurance for:
Those who are self-employed can also benefit from the added health insurance deduction. Learn more about what insurance your business needs in our small business guide to business insurance.
Certain taxes, including real estate taxes and income taxes, also count as deductions.
Most legal and professional fees are 100% deductible. Examples of typical fees include the cost of:
As a small business owner, you can write off fees associated with your bank or credit card institutions, including:
In most cases, you can deduct all interest paid or accrued during a tax year, so long as you are legally liable for the debt. You can deduct a part of the interest if you are only partially liable.
Certain types of interest are not accepted, so be sure to contact your accountant or tax professional for the most accurate information.
In most cases, you can deduct all advertising expenses related to marketing your business. This includes promotional items, business cards, social media ads, billboards, local advertising, and other marketing tools.
If you pay for janitorial or cleaning services for your business or office, this expense counts as a deduction on your small business tax return.
There’s a unique category of deductions for business assets that are considered “intangible,” or assets that aren’t physical. This deduction includes:
The full list of intangibles is long, so be sure to check out the IRS’s business expense rules and regulations.
Certain intangibles require amortization over a period of time, so be sure to consult your accountant or tax preparer to properly take this business deduction.
Businesses set up as corporations can count charitable donations as write-offs for their businesses.
Business owners with pass-through business structures can still write off charitable donations — the donations would just be considered personal deductions on your individual tax return rather than “business” deductions.
There are specific forms you must file with your small business income tax return in order to claim your deductions. These include:
Your accountant can help you file these forms correctly. Be sure to keep careful accounting records and save all expense receipts throughout the year.
If you missed a deduction from previous years, don’t worry. Some deductions are retroactive, meaning you can have your previous tax filings reevaluated to include these deductions.
Maximizing your deductions is complicated, but it can save you money this tax season. If you have any questions or concerns about which deductions you are eligible for and which small business expenses you can write off, talk to your accountant or another tax professional for the most accurate business advice.
The best way to maximize your tax deductions is to keep careful records and receipts of all expenses throughout the fiscal year and work with an accountant or certified tax preparer to see which tax deductions your unique business qualifies for.
Having a general understanding of which business expenses are deductible can also help you plan your small business budget and spending strategy for the upcoming year. By being proactive, you can make sure your business takes advantage of all of the tax deductions allowed.
There is no limit on the number of deductions you can take, but certain deductions have limits. For example, you can only write off 50% of eligible meal costs. Other business expenses have to be depreciated over time, so there are limits on how much you can depreciate each year. We’ve outlined the basics in the breakdowns of each tax deduction above, but working with a trusted accountant or tax preparer is the best way to understand the limits on your business’s specific eligible deductions.
To see if you are ready for other aspects of the tax season, check out our Small Business Tax Prep Checklist. For additional help filing your taxes, talk with your accountant or a trusted tax preparer. Happy filing!
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