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Running a small business isn’t easy. Between managing day-to-day operations, keeping your customers happy, and staying on top of your finances, there’s a lot on your plate.
And while taxes are a big part of the financial puzzle, one of the most overlooked opportunities for saving money is through small business tax deductions. Understanding these deductions can significantly lower your tax liability, ultimately helping you keep more of your hard-earned money in your business.
If you’re looking for ways to trim your tax bill, you’re in the right place! In this blog, we’ll break down some of the most common small business tax deductions and show you how to make the most of them. Let’s dive in!
Tax deductions are essentially one of the best tools a small business can use to save money during tax time. In simple terms, a tax deduction allows you to subtract specific expenses from your taxable income, meaning you pay less in taxes. These deductions apply to qualified business expenses, and knowing which ones you can claim will make a real difference when tax season rolls around.
It’s pretty straightforward—the lower your taxable income, the less you’ll owe. And here’s the good news: the IRS offers a variety of small business tax deductions to help business owners like you hold on to more of your profits.
But which expenses qualify as deductions? Let’s explore some of the most common types of small business tax deductions for which you might be eligible.
Several small business tax deductions can drastically reduce your tax burden. Below are some of the most popular deductions that you’ll want to take advantage of.
Starting a business is no small task, and the IRS acknowledges that. When you first launch your business, you’re likely to incur expenses like legal fees, licensing, or even market research costs. These fall under capital expenses, and the IRS allows you to deduct up to $5,000 of startup costs and $5,000 of organizational costs in your first year. Any leftover costs can be spread out (amortized) over 15 years.
Also read- Simple Steps to Delete Portfolio Recovery from Your Credit Report.
This deduction is a great way to lessen the financial burden of getting your business up and running, so remember to claim it!
Are you taking a client out for lunch or grabbing coffee for a business meeting? You can deduct 50% of your qualifying meal expenses as long as they’re business-related. However, be sure to keep your receipts and make a note of the business purpose and who attended the meal. Documentation is essential here!
While it may seem like a small deduction, those meals and coffee breaks can add up over a year, giving you a nice bit of savings come tax time.
When traveling for business, the IRS allows you to deduct your travel-related costs. This includes expenses like airfare, hotel stays, transportation, and even meals in some cases. Just make sure that the trip is primarily for business—if not, the IRS may challenge your deduction.
As always, save your receipts and maintain a detailed travel log to prove the trip’s business purpose. This will protect your deduction if questions arise later.
If you use your car for business purposes, you can deduct vehicle-related expenses in one of two ways: track your actual expenses (fuel, maintenance, insurance, etc.) or use the IRS mileage rate, which is 65.5 cents per mile as of 2023.
Whichever method you choose, keeping a detailed log of your business mileage and related expenses is crucial to qualify for this deduction.
Are you paying employees? The IRS allows you to deduct employee wages and benefits, including salaries, bonuses, and contributions to retirement plans. Offering competitive pay and benefits not only helps retain top talent but also provides a valuable tax deduction.
Are you looking to save on your taxes this year? Discover how these small business tax deductions can significantly lower your tax bill and keep more money in your business. Consult us today to get started!
Next up, let’s talk about how your home office can actually help you save money on your taxes if you run your business from home!
Many small business owners work from home, and luckily, the IRS offers a home office deduction to help cover some of those costs.
If part of your home is used exclusively for business, you’re eligible to deduct a portion of your housing expenses. There are two methods for calculating this deduction: the simplified method and the regular method. The simplified process allows you to deduct $5 per square foot of your home office, up to 300 square feet. The regular method lets you deduct a percentage of your home expenses based on the size of your office relative to your home.
It’s a fantastic way to reduce housing costs if you run your business out of your home.
Running a business from home means a portion of your utilities, phone, and internet usage is likely dedicated to business purposes. You can deduct the part of these bills that’s related to your business. For example, if 30% of your internet usage is for business, you can deduct 30% of your internet bill.
Keep your bills and document your business usage so you can maximize this small business tax deduction.
Now, let’s look at another expense category: insurance and interest.
Both insurance premiums and interest on business loans can be deducted, making them excellent ways to manage ongoing business costs.
Most small businesses need some insurance, whether it’s general liability, workers’ compensation, or property insurance. The good news? The premiums you pay for these policies are deductible.
Track your insurance payments throughout the year so you can claim them as small business tax deductions.
If you’ve taken out a business loan or used a line of credit to help fund your business, the interest paid on those loans is deductible. This deduction can be beneficial if you’re managing debt while growing your business.
Next, let’s discuss how professional services, like legal or accounting help, can also be deducted from your taxes.
Hiring professionals to help with certain aspects of your business is often necessary, and fortunately, the IRS allows you to deduct these expenses.
Whether you’re working with a lawyer to draft contracts or hiring an IT specialist to keep your systems running smoothly, the fees you pay for professional services are fully deductible.
This also covers compliance-related services, such as audits or consulting, making it an essential tax break for your business.
If you hire an accountant or tax professional to manage your finances or prepare your tax returns, you can also deduct these fees. It’s an excellent way to offset the cost of ensuring your business stays compliant and financially sound.
Also read- Common Tax Deductions and Credits for Individuals
Let’s now explore how depreciation and the cost of goods sold can also help reduce your tax bill.
Some business expenses don’t hit all at once but are spread out over time. This is where depreciation and cost of goods sold come into play.
If your business owns assets such as equipment, machinery, or furniture, you can deduct their depreciation over their useful life. The IRS allows you to claim a portion of the asset’s value each year, which helps offset the cost of replacing or upgrading equipment when needed.
If your business involves manufacturing or selling products, you can deduct the cost of producing those goods—referred to as the cost of goods sold. This includes the cost of raw materials, labor, and overhead related directly to production.
Let’s wrap up with deductions tied to advertising, marketing, and miscellaneous expenses.
Every small business needs to market itself, and the IRS understands this by allowing advertising-related deductions.
All costs associated with promoting your business—whether through social media ads, print campaigns, or even events—are deductible. So, the money you spend on marketing not only boosts your business but also helps reduce your tax bill.
Purchases such as office supplies and equipment necessary for running your business are also deductible. Small purchases can be written off in the same year, while more oversized items, like computers or printers, may need to be depreciated over time.
Let’s wrap everything we learned in the next section.
When it comes to lowering your tax bill, small business tax deductions are one of the best tools in your toolbox. By understanding which expenses qualify, you can strategically plan your spending and maximize your savings. Whether it’s your home office, travel expenses, or asset depreciation, these deductions can make a noticeable impact on your bottom line.
To get the most out of your deductions, it’s always wise to consult with a CPA or tax expert who can guide you through the process and help ensure you’re making the most of all available tax benefits.
Still, trying to decide which small business tax deductions you qualify for? Reach out to us today to ensure you’re taking advantage of every possible deduction and keeping more money in your business.
