The Top 31 Small Business Tax Deductions
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.
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.
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How Do Tax Deductions Work For Businesses?
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.
31 Tax Write-Offs For Small Businesses
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.
Qualified Business Income
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):
- Meeting a client
- Picking up office supplies
- Driving to the bank for business transactions
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 & Truck Expenses
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:
- Oil changes
- Maintenance and repairs
- Parking fees
- Garage rent
Certain business travel expenses can be written off on your tax return including:
- Transportation between your home and a business destination
- Transportation via car, taxi, train, etc. when traveling from your lodging to a business-related destination
- Lodging expenses
- Baggage fees
- Dry cleaning
- Business calls
- Fees associated with acquiring a passport for business travel
- Travel arranged for job candidates being interviewed
According to the IRS, for business meals to be a deductible business expense they must:
- Not be “lavish or extravagant”
- Be an “ordinary and necessary” business expense
- Be purchased while the taxpayer is present
- Be with a customer, employee, vendor, or business contact
If these requirements are met, you can deduct up to 50% of meal expenses. Unfortunately, entertainment expenses are no longer deductible.
Home Office Square Footage
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.
Home Office Expenses
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:
- Property Taxes
While you can sometimes receive a larger deduction going with the actual expenses method, it does require much more work and careful bookkeeping.
Office Supplies & Furniture
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.
Cost Of Goods Sold
Expenses that fall into the cost of goods sold tax deduction include:
- Raw materials
- Packaging materials
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.
Tools & Equipment
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.
Energy Efficient Commercial Buildings
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.
Property Repairs & Maintenance Costs
You can deduct the cost of repairs and maintenance of property, provided the following conditions are met:
- The total is less than $10,000 or less than 2% of the unadjusted asset basis of the property (meaning the original purchase cost of the asset, not the current value)
- Your business earns less than $10 million
- The unadjusted asset basis of the building must be less than $1 million
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:
- Telephone services
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:
- POS software
- Accounting software
- Payroll software
- HR software
- Project management software
- Email marketing software
- Website builders
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:
- Health plans
- Retirement plans
- Sick pay
- Vacation pay
- Accident coverage
- Life insurance coverage
- Welfare benefit funds
- Cafeteria plans
- Adoption assistance
- Dependent care assistance
- Employee bonuses
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:
- Books and supplies
- Lab fees
- Certain transportation and travel costs
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:
- Storms or floods
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.
Income Tax & Real Estate Tax
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:
- Tax preparers
Bank & Credit Card Fees
As a small business owner, you can write off fees associated with your bank or credit card institutions, including:
- Monthly service fees
- Annual fees
- Overdraft fees
- Transfer fees
- Credit card processing fees
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.
Advertising & Marketing Expenses
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.
Cleaning & Janitorial Expenses
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.
Trademarks, Copyrights, & Other Intangible Assets
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.
How To Claim Small Business Tax Deductions
There are specific forms you must file with your small business income tax return in order to claim your deductions. These include:
- Form 1040 Schedule C: Used for most tax deductions and business expenses
- Schedule E: Used to report income and expenses associated with partnerships, S corporations, royalties, or rental real estate
- Form 8829: Used to deduct expenses associated with using your home for business
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.
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!