The 30+ Best Small Business Tax Deductions
Wondering what business expenses you can write off? Learn the most common tax deductions to help you save money on your tax return.
According to a study done by QuickBooks, only 56% of business owners take full advantage of small business tax deductions. Are you getting the most out of your potential tax deductions?
Many small business owners aren’t aware that many of their business expenses are deductible on their income tax returns. In this post, we’ve compiled a comprehensive list of small business tax deductions to use this tax season.
Keep reading to see how you can reduce your tax liability and keep more money in your small business or skip straight to the tax savings with our ultimate small business tax deduction checklist.
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Table of Contents
- What Is A Tax Deduction? The Quick Answer
- The Top 30 Tax Deductions For Small Businesses
- Qualified Business Income Deduction
- Mileage Deduction
- Deduct Car & Truck Expenses
- Travel Deduction
- Meals & Entertainment Deduction
- Home Office Deduction
- Office Supplies Deduction
- Cost Of Goods Sold Deduction
- Tools & Equipment Deduction
- Deduct Repairs & Maintenance Costs
- Rent Deduction
- Deduct Moving Expenses
- Utilities Deduction
- Deduct Internet Services
- Software Deduction
- Employee Benefits Deduction
- Employee Retention Tax Credit
- Commissions Deduction
- Employee Education Deduction
- Deduct Insurance Premiums
- Income Tax & Real Estate Tax Deduction
- Deduct Legal Fees
- Deduct Bank & Credit Card Fees
- Interest Deduction
- Startup Cost Deduction
- Advertising & Marketing Expenses Deduction
- Research & Experimental Costs Deduction
- Cleaning & Janitorial Expenses Deduction
- Intangibles Deduction
- Deduct Charitable Donations
- How To Save Money With Small Business Tax Deductions
- Tax Deductions For PPP & EIDL Loans
- How To Claim Small Business Tax Deductions
- The Bottom Line On Small Business Tax Deductions
- FAQs: Small Business Tax Deductions
- What can I write off for my business?
- How much can I deduct in business expenses?
- What is depreciation?
- Can I deduct health insurance premiums?
- Can I deduct purchasing a vehicle for my business?
- Can I deduct mortgage interest?
- Can I deduct education expenses for my business?
- Where can I find tax help?
- What can I write off for my startup?
- What is the 20% business tax deduction?
- What business expenses are not deductible?
What Is A Tax Deduction? The Quick Answer
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.” This simply means:
- Ordinary expenses: Common expenses accepted in your business or trade
- Necessary expenses: Expenses that are appropriate and helpful for your business or trade
Expenses that meet these requirements can be written off on your tax return, saving you hundreds or potentially thousands of dollars this tax season.
The Top 30 Tax Deductions For Small Businesses
This list includes 30 top tax deductions that your small business may be eligible to receive. 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.
Start saving with these tax deductions:
- 20% pass-through credit
- Car & truck expenses
- Home office
- Office supplies & furniture
- Cost of goods sold
- Tools & equipment
- Repairs & maintenance costs
- Moving expenses
- Internet services
- Employee benefits & bonuses
- Employee retention tax credit
- Employee education
- Insurance premiums
- Legal fees
- Bank & credit card fees
- Interest costs
- Startup costs
- Advertising & marketing expenses
- Research & development costs
- Cleaning & janitorial expenses
- Charitable donations
Qualified Business Income Deduction
For sole proprietorships, LLCs, partnerships, and S corporations, the business’s income does not get taxed at the corporate level and instead passes through and is taxed at the individual level via the business owners’ tax return. Since the business owner is then responsible for paying the business’s taxes on their individual taxes, they can now take 20% off of their taxable income.
There are many rules and regulations about how this tax break works, so talk to your accountant to see if you’re eligible.
If you drive your car for a business purpose, you can write these miles off as a deductible business expense. Qualifying mileage includes:
- 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.
You can choose either the mileage deduction or the vehicle expenses deduction, but you can’t choose both.
Read our full breakdown on mileage deductions to learn more.
Deduct Car & Truck Expenses
Car and truck expenses can be counted as a tax write-off. These expenses include:
- Oil changes
- Maintenance and repairs
- Parking fees
- Garage rent
If you choose to deduct your vehicle expenses, you cannot deduct your business mileage. Carefully consider how you use your vehicle to ensure you choose the right method to get the most money back.
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
Meals & Entertainment Deduction
According to the IRS, for meals to be a deductible business expense they must:
- Not be “lavish or extravagant”
- Be an “ordinary and necessary” business expense
- Must be purchased while the taxpayer is present
- Must be with a customer, employee, vendor, or business contact
If these requirements are met, you can deduct up to 50% of meal expenses. For 2022, 100% of the cost of food and beverages purchased from a restaurant for business purposes is deductible. Unfortunately, entertainment expenses are no longer deductible.
Home Office Deduction
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 using one of two calculation methods. The simplified method multiplies the square footage of your office by $5 for your total deduction. Or 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 Deduction
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 Deduction
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 Deduction
Tools and equipment that are necessary 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 (read more accounting terms in our guide) instead.
Deduct 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 under $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 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.
Deduct Moving Expenses
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
You may be able to write off a portion of your personal utilities for the business use of your home office. See the home office deduction for more information.
Deduct Internet Services
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:
- Accounting software
- Project management software
- Email marketing software
- Website builders
Employee Benefits Deduction
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 Retention Tax Credit
As long as you are paying reasonable wages to your employees for work or services performed, you can deduct your employee wages. Certain employee awards can also be deducted, although there is a deduction limit. Independent contractor wages can also be deducted so long as you are paying reasonable wages.
You can save even more on employee wages if your small business qualifies for the employee retention tax credit. The tax credit is for businesses that kept employees on payroll to offset wages. The best companies for ERC funding will assist will everything from checking if you are qualified for the ERC to helping you receive your ERC claim.
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.
Employee Education Deduction
If you offer education assistance to your employees, you can write off work-related education expenses for your employees, including:
- Books & supplies
- Lab fees
- Certain transportation & 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.
Deduct Insurance Premiums
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 Deduction
Certain taxes, including real estate taxes and income taxes, also count as deductions.
Deduct Legal Fees
Most legal and professional fees are deductible. Examples of typical fees include the cost of:
- Tax preparers
Deduct 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.
Startup Cost Deduction
If your business is a startup, the IRS allows businesses to write off $5,000 worth of startup costs.
To qualify for this tax deduction, your startup costs not exceed $50,000. If your business exceeds this limit, you may qualify for a smaller write-off amount. Taxpayers with startup costs of more than $55,000 do not qualify for this deduction.
Advertising & Marketing Expenses Deduction
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.
Research & Experimental Costs Deduction
If your business is conducting research or experiments, you may be able to write off all expenses related to that research. The Research and development (R&D) tax credit will credit you with any work your small business put into creating:
- New products
If you’re unsure of what qualifies as R&D costs, consult with your accountant for how to claim the R&D tax credit.
Cleaning & Janitorial Expenses Deduction
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 list of intangibles is long, so be sure to check out the IRS’s long list of rules and regulations regarding business expenses and tax deductions. 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.
Deduct Charitable Donations
Only corporations can count charitable donations as a write-off for their businesses. Business owners with a pass-through business structure can still write off charitable donations — the donations will just be considered a personal deduction on your individual tax return rather than a “business” deduction.
How To Save Money With Small Business Tax Deductions
Claiming tax deductions can get complicated and the process is time-consuming, but the savings on your tax return make it worth the extra time. Here’s an example of how you can save with small business tax deductions.
John is a sole proprietor that earned $100,000 in 2022. John is single with no dependents. John determines that he has $20,500 in deductible expenses. By subtracting his deductible expenses from his total income, John has a taxable income of $79,500. Since John has a pass-through business, he can deduct an additional 20% off of his taxable income — or $15,900 –through the qualified business income deduction. This lowers John’s taxable income to $63,600. Using the 2022 federal income tax brackets, John’s tax liability is $9,609.
On the other hand, let’s assume that John didn’t itemize his deductions and simply took the standard deduction of $12,950. This would leave John with a taxable income of $87,050. Using the 2022 federal income tax brackets shows that John’s tax liability is $14,768. By using itemized deductions, John saved $5,159.
Tax Deductions For PPP & EIDL Loans
While the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) programs for COVID relief have ended, you may still be wondering about their impact on your tax return.
Business expenses paid for with PPP, EIDL, and EIDL Advance funds are deductible on your business tax return. As with all other deductions, make sure that you keep all records and documentation surrounding your loan, grant, loan forgiveness, and expenses. Still have questions about what COVID relief means for your business come tax time? Learn more about how PPP loans and EIDL grants will affect your taxes this year.
How To Claim Small Business Tax Deductions
There are specific forms that you will 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
And if you missed a deduction from previous years, don’t worry. Some deductions are retroactive, meaning you can have your tax filings reevaluated to include these deductions. Talk to your accountant to learn more.
The Bottom Line On Small Business Tax Deductions
Maximizing your deductions can be 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, read our top small business tax filing tips. Happy filing!
FAQs: Small Business Tax Deductions
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