20 Tax Deductions for Small Business Owners

Running a small business can be rewarding, but also financially challenging. Finding ways to pay for your operation’s necessary expenses may be difficult when the cost of living keeps increasing. Luckily, there are various federal tax write offs for small businesses that may be able to help owners reduce their annual charges. Below is a list of 20 small business tax deductions that you may be eligible for and may reduce your tax expenses.

Vehicle-related deductions

If you use a vehicle for business-related purposes, small business owners may be able to deduct the amount of business miles driven according to the IRS’s standard mileage rate. This may include travel between worksites, deliveries, or other work-related activities. Additionally, deductions may be available for maintenance, repairs, and auto insurance that specifically pertains to the business.

Home office deduction

For those who run their businesses remotely, a home office deduction can be a valuable write off for small business owners. A portion of rent or mortgage payments, along with utilities like electricity and internet, may be deducted based on the square footage of the home office. This allows owners and entrepreneurs who work remotely to gain potential benefits regardless of where their office is located.  

Travel expenses

Traveling for business purposes often racks up expenses. Deductions may be claimed for transportation costs such as airfare and gas. You could also get a deduction for lodging, meals, and other necessary expenses during business trips. Though meals may be written off, extravagant or unessential purchases will not be considered a travel expense. Keeping detailed travel expense records may be important to receive this possible tax benefit.  

Meals and entertainment

Sometimes, business owners may be able to get business lunches and dinners deducted depending on what the event is or where it’s located. When discussing your operations over meals, owners may be able to deduct up to 50% of the cost. For company holiday parties, businesses may be able to write off the entire cost. But the meal can’t be lavish or overly costly, or else the write-off could be rejected. This deduction may also apply to meals with clients, partners, or potential customers, helping to foster business relationships.  

Professional services

Small businesses may require professional services and contractors to help with their operations. Deductions may be claimed for fees such as hiring lawyers, accountants, and consultants who provide essential services to a business. Keep a record of who you’re working with and their individual costs, since this may help your deduction’s credibility.  

Office supplies and equipment

Basic office supplies like paper, pens, and printer ink may be deductible expenses. Additionally, larger purchases, such as computers and office furniture, may also be deducted, if proven that they’re for business-related purposes.

Marketing and advertising

You may be able to write off marketing and advertisements that are directly related to promoting your business. Marketing and promotion for your operation could include online ads, print media, or hosting events. Getting a deduction for business promotion may help offset the costs of reaching new customers.

Employee-related deductions

Wages, salaries, and benefits paid to employees may be deducted from taxable income. Alongside wages, expenses related to employee training and education that enhance skills relevant to the business may also be deductible.

Insurance premiums

Small businesses often need a specific level of business insurance for their operations. This insurance may help businesses avoid financial losses from covered risks that are associated with running a company.

Deductible insurance costs may include worker’s compensation, property insurance, general liability coverage, and commercial auto insurance. Expenses related to a self-employed individuals’ health insurance may also be deducted.

Rent and utilities

If a business operates from a rented space, you may be able to write off your partial or full rent amount. Utilities such as electricity, water, and internet costs collected from running your business may also be counted as deductible expenses.

Depreciation

Small business owners often have a space their operations are based out of. Unfortunately, the building or equipment a business uses depreciates over time. Though this can be frustrating, small business owners may be able to claim depreciation to reduce a portion of their annual expenses during tax season.  

Interest on business loans

If a business has taken out loans, the interest paid on these loans typically increases over time. Sometimes, these increasing costs may be deducted if you meet certain requirements. This can help small business owners stay on top of their operations without worrying about climbing interest rates.  

Software and subscriptions

The costs associated with software and online subscriptions that are necessary for your business may be written off. This may include tools for accounting, project management, and other software that supports daily operations.

Education

Investing in further education may benefit both business owners and employees. Educational costs related to workshops, seminars, and courses that improve skills relevant to your business may be deducted.

Charitable contributions

If your business gives back to its community, it may be eligible for an income deduction for these donations. Giving money or goods to a tax-exempt organization may be claimed as a deduction. This incentive not only supports important causes and community restoration but may provide a financial benefit for your business to give back.

Repairs and maintenance

Expenses for repairs and maintenance of business property may be deductible. This may include costs to keep equipment, machinery, or business facilities in good working condition.

Taxes and licenses

Obtaining and renewing licenses for your business may lead to a tax deduction. Many small companies are required to get permits and licenses to operate legally, and those costs may be written off during tax season.  

Retirement contributions

Many business owners and workers in America look forward to retirement. Fortunately, a business that helps contribute to their employees’ retirement accounts may be deducted. For self-employed individuals, contributions to one’s personal retirement plan may also be a write off for taxable income.  

Inventory costs

Many businesses have stock or inventory that’s essential for their operation to run efficiently. For businesses that sell products, the cost of raw materials and goods may be expensive. If you have an inventory-based business, you may be able to deduct the cost of the goods you sell. To do so, you may need to record your inventory costs at the beginning and end of each year, which can help your deduction’s case.  

Miscellaneous deductions

Lastly, there are often random expenses your business may have that don’t fit into the categories addressed above. The IRS has a guide to miscellaneous expenses that your business may be able to deduct. This may include theft losses, impairment-related costs for disabled workers, and unlawful discrimination claims. Though daily expenses may not be tax deductible, it’s worthwhile to keep track of all business-related costs just in case.

Understanding and utilizing tax deductions can significantly impact a business's financial wellbeing. By being aware of these tax-deductible items for small businesses, owners can make informed decisions that may lead to long-term savings.