As a small business owner, there are a number of expenses that can be deducted from your return in order to reduce your tax burden. Some potential small business tax deductions are obvious, but some may be surprising. The best way to make sure your business is deducting as much as possible while staying within IRS guidelines is to hire a certified public accountant who can provide financial and tax advice.
Small Business Tax Deductions
Here are 20 small business tax deductions to talk to your financial professional about:
Advertising and Marketing
Some of the advertising expenses small businesses owners can deduct include online marketing expenses, branding expenses, TV and radio advertising, marketing agency or consultant fees, printing costs, and promotion-related events.
Automobile Mileage
Mileage incurred strictly from business travel can be a small business tax deduction (commuting expenses do not qualify). Small business owners who use a vehicle exclusively for business purposes may be able to deduct the full cost of operating the vehicle.
Bank Service Charges
If a small business owner is charged a monthly or annual service fee for any bank accounts used in the business, the fees charged qualify as a tax deduction.
Business Gifts
Business gifts to either clients or employees are generally deductible up to $25 per recipient per year, regardless of how much was spent on the gift.
Charitable Contributions
There are many types of charitable contributions that are tax deductible for small businesses. The Small Business Administration website has a thorough explanation of legitimate charitable contribution tax deductions.
Continuing Education Expenses
Education and training expenses that maintain or improve a small business owner’s skills that are directly used in operation of the business may be tax deductible.
Cost of Goods Sold
If a small business manufactures or purchases and stores products for resale (i.e., inventory), the cost may be deductible. In order to use this deduction, the business must value inventory at the beginning as well as at the end of each tax year to determine the cost of goods sold.
Equipment
Small business owners can deduct the cost of equipment used in the operation of the business, including: computers, servers, printers, copy machines, cash registers, phone systems, tools, manufacturing equipment, and machinery.
Home Office Expenses
If a small business owner uses part of his or her home for the business, the related expenses may qualify for a tax deduction. This applies to homeowners and renters in all types of homes. The IRS website provides more guidelines for home office deductions.
Insurance
Some insurance premiums may be deducted, including: liability insurance, malpractice insurance, and workers’ compensation insurance.
Legal and Professional Fees
Payments made to lawyers, tax professionals, or consultants can generally be deducted in the year they are incurred.
Licenses
A small business that is required to have specific licenses or permits in order to operate may deduct the cost of those licenses on the tax return.
Office Furniture
Any furniture used in a small business office or waiting room qualifies as a tax deduction. The cost can either be deducted fully in the year of the purchase, or it can be depreciated over several years.
Office Supplies
There is a wide variety of office supplies that can be deducted, including: paper, paper clips, legal pads, pens, ink and toner cartridges, file folders, etc. It’s important to keep receipts for all of these purchases in order to include the expenses as a deduction.
Professional Association Dues
Small business owners can deduct association dues if the owner belongs to a professional organization, and membership is an ongoing and necessary expense.
Rent
Rent can be included as a tax deduction if a small business owner rents a property that is used exclusively for the business.
Retirement Contribution
Contributions made to SEP IRA plans, SIMPLE IRA plans, or other qualified plans can be deducted from a business owner’s personal income tax return.
Software
Any software purchased for the business may be tax deductible. This can include downloadable or boxed software, as well as software subscriptions.
Start-up Expenses
New small businesses can deduct $5,000 in the first year of business, although there are a number of restrictions based on how much was spent to start the business. Read more about start-up expense deductions at About’s U.S. Business Law/Taxes site.
Travel and Entertainment
Transportation, including rental car fees, and hotel costs are fully deductible when traveling for work. Dining while traveling is deductible at 50%.
Make sure you verify that your business qualifies for any small business tax deductions by working with a tax professional. As you go through the process of preparing your taxes to be filed, make sure you avoid these biggest tax filing mistakes small business owners often make.
