What Can I Write Off As A Deduction? The Complete List Of Small Business Tax Deductions
According to a study done by QuickBooks, one in 10 businesses don’t take advantage of tax deductions! Are you getting the most out of your potential tax deductions, or are you letting easy money pass you by?
We get it. With all of the recent changes to the tax code, the whole concept of business tax deductions can be daunting and confusing. But you work hard to make your small business profitable and successful — and we want you to be able to keep your business that way. That’s why we’ve compiled this comprehensive list of small business tax deductions.
Learn about these key deductions, so you can stop asking how much you owe and start asking how much you’ve saved.
Table of Contents
What Do New Tax Laws Mean For Small Businesses?
In December of 2017, Congress signed the Tax Cuts and Jobs Act (TCJA), which went into effect on January 1, 2018. Many reporters and tax professionals consider this the biggest tax reform in decades, and most ordinary people are still trying to figure out precisely what all of these changes mean for both themselves as individual taxpayers and the businesses they run.
On its official website, the IRS says:
The IRS is working on implementing the Tax Cuts and Jobs Act (TCJA). This major tax legislation will affect individuals, businesses, tax exempt and government entities.
You will find a publication called Tax Reform: Basics for Individuals and Families on the IRS site as well, and that’s all well and good, and but what about small businesses?
According to the same QuickBooks’ study, small business owners have mixed feelings about the TCJA tax reform. Thirty-two percent of business owners think the reform will benefit their business, while 19% say it will poorly affect business — and 22% have heard about the changes to the tax laws but have no idea what the impact will be.
Whether the tax reform is for the better or worse, we can shed a little light on what these laws actually mean. Here is a brief overview of the main tax reform changes that will affect small businesses and their deductions this tax season:
Huge Cut In Corporate Tax
The corporate tax rate went from 35% down to 21%.
New 20% Qualified Business Income Deduction
There’s good news for small businesses too. Certain types of small businesses, such as sole proprietorships, S corporations, and partnerships, may qualify for a 20% income deduction. Since with these types of businesses, the business income “passes through” to the individual business owner’s income for tax purposes, the tax reform allows these individuals to deduct 20% from their total income.
There are many rules and regulations about how this tax break works, so talk to your accountant to see if you’re eligible.
New Bonus Depreciation
You can now depreciate 100% of certain expenses instead of only 50%. The IRS says:
The new law increases the bonus depreciation percentage from 50 percent to 100 percent for qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. The bonus depreciation percentage for qualified property that a taxpayer acquired before Sept. 28, 2017, and placed in service before Jan. 1, 2018, remains at 50 percent.
The bonus depreciation applies to fixed assets, such as:
- Vehicles
- Computers
- Software
- Machinery
- Equipment
Used property may also qualify for 100% depreciation if it meets certain requirements. Furthermore, film, television, and live productions may also be eligible for bonus depreciation.
This law also lets you depreciate farm equipment over five years instead of seven.
Contact your accountant for all of the details and to ensure you are eligible for bonus depreciation before filing.
Change In Meals & Entertainment Deduction
In past years, business owners could deduct 50% of entertainment expenses related to their business. Now you can no longer write off entertainment expenses. The IRS says:
TCJA generally eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation.
Business owners can continue to deduct 50% of the cost of meals if certain conditions are met. Qualifying food and beverage purchases are not considered “lavish or extravagant.” Food and beverages served during an event may qualify for the 50% deduction if purchased separately from the entertainment. For all meals, the business owner or an employee of the business owner must be present during a meal with a client, customer, or another business contact.
New Paid Family/Medical Leave Credit
Businesses offering paid family leave or paid medical leave to their employees can qualify for a credit when certain requirements are met, including having a written policy in place.
While this is by no means an exhaustive look at the TCJA reform, these are some of the most pertinent changes to what your business is potentially allowed to deduct.
Continue reading to learn exactly what deductions your business may be eligible for.
What Is A Deduction?
The one thing that hasn’t change is the nature of deductions. A deduction is a business expense that you can use to reduce your total taxable income. According to the IRS, expenses that qualify for deduction must be “both ordinary and necessary.”
The IRS further explains:
An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
So what does this mean for you? Essentially, you can save a lot more money than you might think.
Top Small Business Tax Deductions
Here is a list of some of the most common tax deductions available for small businesses. Before reading anything further, note that not every business will be eligible for every type of deduction. To learn if you’re eligible for a deduction, double-check IRS regulations and always consult with your accountant.
Qualified Business Income Deduction
As we mentioned earlier, sole proprietors, S corporations, and partnerships with pass-through income may be eligible for a 20% deduction on their total income.
Car & Truck Expenses
Car and truck expenses can be calculated in two ways: by the standard mileage deduction or by actual expense cost. You can track your miles and get $0.58 per mile (according to the 2019 standard mileage rate), or you can track vehicle expenses (including gas, oil changes, maintenance and repairs, tires, registration, license, insurance, parking fees, garage rent, etc.).
Carefully consider how you use your vehicle to ensure you choose the right method to get the most money back. With either option, keeping good records is imperative.
Travel
In terms of travel, transportation between your home and a business destination can be deducted. Transportation via car, taxi, train, etc., is only covered if you are traveling from your lodging to a business-related destination. Additionally, lodging can count as a write-off as well as baggage, dry cleaning, and business calls. You can even count purchasing your passport as an expense if it’s for a business trip.
Keep good records of all this information to ensure you get the right deduction amount. Also, you can write off any travel arranged for job candidates being interviewed.
Home Office
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. This deduction is based on the size of the space and can be calculated in two different ways. The simplified method multiplies the square footage of your office by $5 for your total deduction. Or you can use the more complex calculation form. To see if you qualify for a home office deduction, consult the chart below.
Source: IRS
Office Supplies
Office supplies needed to run your business are deductible.
Tools & Supplies
Additional supplies and tools that are necessary for your business are also deductible. Certain tools, such as computers, cannot be deducted as usual and may need to be depreciated (see the section below for more details).
Repairs & Maintenance Costs
You can usually deduct the cost of repairs and maintenance of a property. Learn more about deductions for repair and maintenance.
Utilities
What’s covered under utility expenses? Heating, telephone services, electricity, sewage, and water are deductible, as long as they aren’t personal expenses.
Internet Services
You can write off the cost of your internet provider fees.
Software
If your business requires specific software to operate (such as accounting software), you can deduct the software cost or monthly subscription.
Employee Benefits
You can deduct the following employee benefits in most instances: health plans, sick pay, vacation pay, accident coverage, life insurance coverage, welfare benefit funds, cafeteria plans, adoption assistance, and dependent care assistance. For more specifics, go to the IRS’s business expense deductions publication.
Employee Wages
As long as you are paying reasonable wages to your employees for work or services performed, you can deduct this cost. Certain employee awards can also be deducted, although there is a deduction limit. Check with the IRS to determine whether or not you qualify for this deduction.
Contractor Labor
Independent contractor wages can also be deducted under the same stipulations as employee wages.
Employee Bonuses
In addition to wages, you can deduct bonuses for employees.
Employee Education
You can write off education expenses for your employees. You can also deduct the cost of your education, so long as it is related to your business.
Retirement Plans
You can write off the cost of your employees’ retirement plans.
Insurance Premiums
Insurance premiums for fire, storm, theft, accident, loss, liability, and malpractice are often covered as a deduction. Those who are self-employed can also benefit from the added health insurance deduction.
Taxes
Certain taxes also count as a deduction, believe it or not. For example, real estate taxes and income taxes often count as a deduction. Read the IRS’s business expense breakdown to learn more.
Legal Fees
Most legal fees are deductible. Examples of typical fees include franchise or trademark fees, business licenses, hiring a tax professional, and more.
Interest
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 learn more about insurance deductions.
Startup Costs
You can choose to deduct up to $5,000 of business startup costs and $5,000 of organizational costs, so long as they were paid or incurred after October 22, 2014.
Advertising Expenses
Usually, you can deduct all advertising expenses that are related to marketing your business.
Research & Experimental Costs
Instead of classifying research costs as a capital expense, you can opt to count these expenses as a deduction.
Credit Card Fees
Another surprise, you can even deduct credit card processing fees.
What Is Depreciation?
If you read the list above and thought something was missing, you’re not alone. What about machinery and equipment deductions? What about deductions for your property?
This is where depreciation comes in.
Depreciation sounds confusing, but it simply entails claiming a deduction over a period of years instead of all at once. This method is usually required for business assets or significant expenses, such as computers, company cars, office furniture, and property.
Due to the new tax reform laws, you may be eligible for bonus depreciation on certain fixed assets. Read the IRS’s rules for depreciation to see if you qualify for even more savings.
What If I Missed A Deduction?
Now you know that there are dozens of business deductions out there. But what if you missed a key deduction last year or didn’t take any deductions at all?
You’re not out of luck yet. Some deductions are retroactive, meaning you can have your tax filings reevaluated to include these deductions. Talk to your accountant to learn more.
Start Saving On Your Tax Return
Feeling overwhelmed yet? That’s okay. This post may contain a lot of information, but that means a lot of savings for you!
As the Tax Cuts and Job Act continues to be implemented, these new laws will only become clearer, and we’ll keep updating this post to make things as easy for you as possible. While this tax reform is still being fully realized, your accountant is your best friend. If you have any questions or concerns about which deductions you are eligible for and which 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 2019 Business Tax Prep Checklist. For additional help filing your taxes, read our article on how to get the most out of your accounting software this tax season. Happy filing!
Chelsea Krause
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Super very imformative
This comment refers to an earlier version of this post and may be outdated.
Thank you for your article.
I’m looking for an automatic MilageTracker and am interested in the trackers in Quicken Home & Business and QuickBooks.
I’ve used Stride and like it because it allows you to use a “Start Driveing” button and a “Finished Driving” button. It tracks both milage, time worked and calculates the milage tax deduction with on going totals.
Others chop up the data when you don’t move for 3 or 4 minutes and send an alert to you every time…. irritating.
Does Quicken H&B and/or QuickBooks Self-Employed function like Stride AND sync it from their phone app GPS tracker to their financial software?
Thank you
This comment refers to an earlier version of this post and may be outdated.
Hi James,
In theory, QuickBooks Self-Employed is supposed to have this function; however, the last time we reviewed QuickBooks Self-Employed there were a lot of user complaints about the mileage tracker not working in the correctly. Granted, there are some users who report positive experiences with the app, so it still might be worth a shot (especially if QuickBooks has updated the app to resolve the previous issues). As far as I know, mileage has to be entered manually into Quicken Home & Business.
If QuickBooks has worked out their mileage tracking kinks, that is probably your best bet, but I’ll leave this open for any other readers who may have found a good solution to this.
Best of luck,
-Chelsea Krause
This comment refers to an earlier version of this post and may be outdated.
Thanks for the info Chelsea ~ well written and informative.
I have a question about using a property as an office. I am looking at purchasing a small condo (about 350 sf) and using this only as an office. I would be living in another condo, so the smaller space would only be used for working. Would the entire cost of this property be deductible?
This comment refers to an earlier version of this post and may be outdated.
Hi Dave,
Thanks for reaching out! So long as the space is used solely for business purposes, you should be able to write it off in the same way you would write off a business rental. With business rentals, generally the cost of rent and utilities are deductible. However, I would check with your accountant to be certain and to learn which records you’ll need to keep in order to prove that you qualify for this deduction.
Best of luck,
-Chelsea Krause
This comment refers to an earlier version of this post and may be outdated.
Very Informative post. What about Renting or Leasing a commercial office space, I’m sure the Rent/Lease can be deducted as well?
This comment refers to an earlier version of this post and may be outdated.
Hi Cathy,
So long as the space was used solely for your business you should be able to deduct that as well!
Best wishes,
-Chelsea Krause
This comment refers to an earlier version of this post and may be outdated.
Hi Chelsea I just set up a home business selling collectibles on line. My question is can i deduct a sofa and love seat for my clients to sit in when they come to my home? It would be exclusively for business use within the home office square footage.
This comment refers to an earlier version of this post and may be outdated.
Hi Russell,
Thanks for reaching out! You should be able to write off office furniture so long as it is used exclusively for your business and within your home office (as you mentioned). However, I would double check with your accountant to be 100% certain. Sometimes taking certain deductions (particularly the home office deduction) can trigger a red flag for the IRS and lead to an audit. This doesn’t mean you should take the deductions you are eligible for, but it does mean you should enlist the help of a professional CPA or enrolled agent to advise you on the best way to file your taxes and deduct expenses.
Good luck!
-Chelsea Krause
This comment refers to an earlier version of this post and may be outdated.
Impressive post specially the points you mentioned about the strategies could help me in my business. Some of the points were familiar to me and some them is very new for me.
Thank you so much for sharing this post with us. I’ll follow your blog posts from today onward.
Great Job!
This comment refers to an earlier version of this post and may be outdated.
Glad you found the post helpful!
Best of luck this tax season,
-Chelsea Krause
This comment refers to an earlier version of this post and may be outdated.
Hi, I started a business TurboTax online let’s you claim office supplies such as TVs couches computer or laptop software for your business and you say you can’t and you can so why would you say you can’t but my first question is I’m building a app for my business can you write that off?
This comment refers to an earlier version of this post and may be outdated.
Hi Ronald,
To clear up any confusion, you can deduct office supplies (such as ink, paper, and even office furniture) and you can deduct software needed to run your business. We mention both of these deductions in our post. In regard to the other question, I would need to know more about the app to give an answer. I recommend speaking directly with an accountant to get the best tax advice about your current situation. I know that TurboTax has in-house CPAs that can help you file, which might be a good way to go in your case since you’re already using TurboTax.
Best wishes,
-Chelsea Krause
This comment refers to an earlier version of this post and may be outdated.
Nicely researched and then served to the audience. Not all bloggers do this. Thanx for delivering the genuine information.
This comment refers to an earlier version of this post and may be outdated.
Hi Susan,
I’m so glad you found this post helpful!
Best of luck this tax season,
-Chelsea Krause
This comment refers to an earlier version of this post and may be outdated.
Hi Chelsea!
Thank you for the informative content!
I would like to know if educational cost also includes purchasing courses in order to start a business including a course to learn drop shipping, print on demand, or affiliated marketing. What if we had a coach to help us get started? Are we able to include all of these courses and coaching cost under educational expenses? Is there a limit on what educational expense include?
Thank you for the clarifications!
Jenny
This comment refers to an earlier version of this post and may be outdated.
Hi Jenny,
Great question! Businesses can often qualify for educational deductions; however, this will vary significantly based on your business type and filing situation. Here is what the IRS has to say about business educations deductions. I highly recommend speaking with an accountant or tax professional to see if your particular business qualifies for this deduction.
Best wishes,
-Chelsea Krause
This comment refers to an earlier version of this post and may be outdated.
Thank you for these tips on the tax deductions. I’m needing help with my taxes. I’ll have to look into finding the best tax service in my area.
This comment refers to an earlier version of this post and may be outdated.
You’re welcome, Ellie! I’m glad you found these deductions helpful and wish you the best of luck with your business taxes this year!
Best wishes,
-Chelsea Krause
This comment refers to an earlier version of this post and may be outdated.
That is cool that you can count your passport purchase as a business expense. It would be nice to travel somewhere for work. Then I could have a passport and deduct the taxes.
This comment refers to an earlier version of this post and may be outdated.
Thank you for this wonderful article! Can I deduct clothes? I have to wear business casual clothes when I meet with clients.
This comment refers to an earlier version of this post and may be outdated.
Hi Tonja,
The IRS doesn’t allow you to deduct clothes that you can wear outside of work as well, so you won’t be able to deduct business casual clothes. If you were self-employed and had to buy specific clothing that is related solely to your job (like a hard hat for construction), then that would be deductible. Here’s an article with more information about clothing deductions. I hope that helps!
Best wishes,
-Chelsea Krause
This comment refers to an earlier version of this post and may be outdated.
Thank you for the info you post. Sometimes new businesses can not afford a tax service.
Question: I started a new wheel chair van transport service. We are on the road all day. Can I deduct meals ( MacD./BurgerK/Deli) as a business expense?
This comment refers to an earlier version of this post and may be outdated.
Hi there Tonja!
Thanks for reaching out. The new Tax Cuts and Jobs Acts has eliminated entertainment deductions, and as meals and entertainment were often lumped together, there has been some confusion as to whether or not meals can still be deducted. According to the Journal of Accountancy, you can still deduct meals; however, I would consult a tax professional for the most current information and the best advice on how to prepare your deductions.
Best wishes,
-Chelsea Krause
This comment refers to an earlier version of this post and may be outdated.
That is really interesting that you can deduct tax fees from office supplies needed to run the business. If I were going to start a business then it would be nice to be able to deduct that from taxes. That is something to keep in mind if I ever start a business.
This comment refers to an earlier version of this post and may be outdated.
Thank you Chelsea for writing this detailed post and i am really impressed from the way you explained things and make it easy to understand.
This comment refers to an earlier version of this post and may be outdated.
Hi there!
I’m glad you found this post helpful! We’ll be updating this post soon to reflect this year’s tax deductions more accurately. We’re also excited to have some new tax content in the pipeline for the spring, so stay tuned for more articles like this!
Best wishes,
-Chelsea Krause
This comment refers to an earlier version of this post and may be outdated.
Think theres some inaccurate info here. Recent tax cut act removed entertainment deduction as an example.
This comment refers to an earlier version of this post and may be outdated.
Hi Mike,
Thanks for bringing this to our attention. We haven’t updated this post since the recent tax changes but will be updating it in the next few weeks to ensure it’s 100% accurate before tax season. Stay tuned!
Best wishes,
-Chelsea Krause
This comment refers to an earlier version of this post and may be outdated.
Hi Chelsea – great article. I was wondering if Saas software such as NetSuite would qualify for the tax deduction?
This comment refers to an earlier version of this post and may be outdated.
Hi Crystal,
Thanks for reaching out! NetSuite should qualify as a deduction. However, I’d talk to your accountant to figure out the best way to deduct this from your taxes. Your accountant will also know how much you can deduct and the best way to mark this on your tax forms. I hope this helps!
Best wishes,
-Chelsea Krause
This comment refers to an earlier version of this post and may be outdated.