12 Small Business Tax Deductions
Updated March 22, 2024 | Published February 5, 2024
In many cases, it’s in a business owner’s best interest to itemize their tax deductions to maximize their tax return. According to the IRS, a business expense must be both “ordinary” and “necessary” to be deductible. Ordinary is defined as common and accepted in your industry and necessary is an expense that is helpful to your trade. For more information, see IRS publication 535.
Tax Deductions for Small Businesses
Some of the top itemized deductions for small businesses are:
1. Business Meals
Meals related to your business such as sales or client lunches can be deducted. Just keep your receipt and take note of who you met with and what you were meeting about, so you can itemize it later.
2. Office Supplies
Any office supplies including but not limited to; computers, printers, scanners, paper, pens, phones, desks, or chairs; can be itemized with your deductions. Again, make sure to save your receipts!
3. Travel Expenses
Business-related travel expenses can be written off as long as the expense is considered necessary for your business. These expenses can include mileage, airfare, rental cars, hotel stays, meals, etc.
4. Phone and Internet Expenses
Your phone service and internet costs can be deducted if it is essential to running your business.
5. Legal & Professional Service
If you pay a lawyer or accounting professional to help you run your business, you can write that off. Use IRS Publication 334 to help you determine what is considered professional service.
6. Software Fees
Any computer software considered essential to running your business can be deducted. This could be accounting software, reporting software, email software, etc.
7. Salaries & Benefits
Small business owners with employees can write off salaries, benefits, bonuses, and even vacation pay for their employees. Your business must meet certain requirements to do this. Those are: the employee is not a sole proprietor, LLC member, or partner of the business, the salary is reasonable and necessary, and the services delegated to the employee were provided.
8. Home Office Expenses
To qualify for a home office expense deduction, your office must be used exclusively for work. You can’t claim your living room if you work with a laptop on your couch. Further, you must be self-employed using the space regularly for your primary location of conducting business. Working remotely for a larger company won’t count. The IRS guidelines for this deduction state you can claim five dollars per square foot of home office space up to 300 square feet.
9. Business Insurance
You can deduct the cost of your business insurance.
10. Loan interest
If you have a small business loan, the interest from those loan payments is usually fully deductible as long as the loan is from a traditional lender. If you took out a mortgage or home equity loan for the purpose of building or improving your home office, that mortgage interest is deductible too.
11. Marketing and Advertising
Expenses for advertising your business are fully deductible. This can include billboards, mailers, digital advertising, posters, website design, logo design, business cards, thank you cards, and more.
12. Education and Training
Money spent on training your employees can qualify for deductions. As long as that training is related to your business or trade, you can deduct seminars and webinars, conference tickets, books, and publication subscriptions, for example.
Consult with a Tax Professional
These are just some of the most popular deductions small business owners could take. There are many more items that could qualify. Consult with a tax professional to help you decide how to file, and if it would benefit you to itemize rather than taking the standard deduction.
Whether you claim these as part of your personal income tax, or a corporate excise tax will depend on how your business is organized. For example, LLCs have the choice of filing business taxes as a sole proprietor or a corporation.
To find more resources on all things small business taxes, see irs.gov/businesses/small-businesses-self-employed. For small business taxes in Massachusetts, see mass.gov/business-taxes.
Sources:
https://www.irs.gov/publications/p535
https://www.irs.gov/publications/p334#en_US_2017_publink1000313545
https://www.irs.gov/businesses/small-businesses-self-employed/simplified-option-for-home-office-deduction
https://www.mass.gov/info-details/learn-about-business-and-professional-income
https://www.freshbooks.com/hub/expenses/tax-deductions-small-business