Small business owners are busy entrepreneurs who love being the boss, choosing when and how they work, and the freedom they have to realize their dream careers. Small business owners also get to do their own special kind of taxes (not to be confused with their own special kind of hell lol), something that isn’t a perk but definitely comes with the territory.
There are many small business tax deductions available to help small businesses manage their tax burden. There are eligible deductions for every kind of small business—sole proprietors, LLCs, partnerships, and corporations.
You do not need an LLC or a corporation to deduct your business expenses.
Before we get into the deductions, we want to say that spending money unnecessarily is not the best approach to lowering your tax burden. Please spend wisely (and keep receipts!).
Without further ado –
The following is a breakdown of some of the most common deductions and a few that might be surprising!
- Advertising and Marketing
- Affiliate Commissions
- Charitable Contributions
- Commissions and Fees
- Computer Equipment
- Continuing Education
- Cost of Goods Sold
- Dues and Subscriptions
- Employee Benefits
- Employee Salaries
- Guaranteed Payments to Partners
- Home Office
- IT Support
- Lease Payments
- Legal Fees
- Licenses and Permits
- Merchant Fees
- Office Equipment
- Office Supplies
- Online Business Manager (OBM)
- Parking and Tolls
- Postage and Delivery
- Printing and Stationery
- Professional Development
- Professional Services
- Repairs and Maintenance
- Research and Development
- Retirement Plan Contributions
- SEP IRA
- Software and Applications
- Start-Up Costs
- Vehicle Expenses
- Virtual Assistant (VA)
- Website Fees and Maintenance
Hey! It’s not our fault this is first on the list. It’s in alphabetical order 🙂 It’s definitely our favorite deduction, though.
Any fees you pay for your business accounting, bookkeeping, tax prep, budgeting, and the like, is fully deductible.
Advertising and Marketing
Businesses don’t succeed by magic; in addition to a great product or service, they need advertising and promotion. Advertising, marketing and promotion costs can be deducted on your small business taxes. Everything from business cards, branding, digital ads, your MailChimp subscription, traditional print advertising to website creation are eligible deductions. Even the cost of a marketing consultant or social media manager can be deductible.
If you use affiliates to spread the word in your business, don’t forget to include that as an expense on your taxes! You will also want to make sure you are collecting a W9 from each of them and possibly issuing 1099s at the end of the year.
Amortization is the process of slowly expensing something over time. It’s like depreciation, but for something intangible. A total snooze fest if you ask us, lol.
But seriously though – some of the more common forms of amortization for small business owners would be if you have start-up costs in excess of the standard amount you can deduct, you’ll amortize them over the designated term. Or if you have costs related to your intellectual property such as copyrights, trademarks and patents.
Did you hire a cool firm to bring your business to life? It’s an expense! The branding expense can also fall under advertising and marketing, professional services, or even something that might need to be amortized. If you’re unsure, check with your tax professional.
The big takeaway is that any money you invest into personifying your business is a write-off for you! $$$
Small businesses may deduct donations to charitable organizations, but there are qualifiers. If your business is an LLC, sole proprietorship, or partnership, those donations are deducted from the owner’s personal taxes, not business taxes.
If the business is set up as a corporation, it can deduct some charitable contributions. To be deductible, the donations must be made to recognized, qualifying organizations, and cannot be made in the form of volunteering time.
Pro tip: if the donation is made in the business’ name, for the purpose of advertising or marketing (think: donating to little league and your business’ name and logo are on the back of the jerseys) then it can be deducted through the business as an advertising expense.
If you need to hire or bring in any consultants for your business, it’s a deduction. You will want to make sure you are collecting a W9 from each of them and possibly issuing 1099s at the end of the year.
Commissions and Fees
Need a new laptop for your business? Deductible! What about an iPad? Yup!
Just as long as the piece of equipment is used for business, you can and should be deducting it on your taxes.
Make sure you keep your receipt and let your tax preparer know that you bought some new computer equipment so they can properly deduct the expenses.
Do you or your staff need continuing education credits to keep or maintain your license in your business? You guess it – it’s deductible.
Seminars, classes, workshops, online courses, and even books (print or audio) are all examples of eligible education expenses, as long as they pertain directly to the business.
Oh thank goodness for copywriters! Without them, would this website even exist? I mean, really. We aren’t all born with the gift of gab. Copywriters make the world go round and keep us all looking good on the internets.
If you work with a copywriter in your business, it’s definitely a business expense. These costs could fall under other categories as well, such as advertising and marketing, branding, professional services, subcontractors, or website fees and maintenance.
Wherever or however you record your copywriting costs in your business, just know that it should end up on your taxes.
Cost of Goods Sold
Your cost of goods sold (COGS) is essentially the value of the inventory you sold during the year, and it’s a write-off on your taxes. Other costs can and will be included in your COGS such as direct labor, packaging and fulfillment costs.
The equation to calculate your COGS is:
Beginning Inventory + Inventory Purchases – Ending Inventory = Cost of Goods Sold
We’re not going to lie – depreciation is a little complicated. Basically, there’s a concept that expenses should line-up with the year the benefit is received – make sense, right? And that expenses should be deducted over their useful life. Also makes sense!
Let’s take a new laptop – you’ll likely have it for a few years – instead of deducting the entire cost at once, the expense needs to be depreciated, or allocated, over the laptop’s useful life.
Where things start to get murky is that there are elections that can be made to deduct a fixed asset in full in the year of purchase, too, if eligible.
Because of the different types of depreciation that can be claimed, and the process needed to determine the amount of any eligible deduction, this is an area to discuss with a small business accountant.
What you need to know is that depreciation is a thing and as you buy fixed assets (aka – furniture, fixtures, vehicles, equipment, property, or make improvements to real estate), it’s not guaranteed that you’ll be able to deduct 100% of your purchase the year that it’s made. Keep good records of your fixed asset purchases and don’t forget to share the info with your small business tax accountant.
Dues and Subscriptions
Any fees you pay for business memberships and subscriptions, like trade organizations or business leagues, can be deducted from your taxes.
Some common expenses we see in this category are annual membership fees on business credit cards, memberships to organizations (whether in person or online), subscriptions for online services (can include some streaming services), and publication subscriptions.
The thought process to keep in mind here is that if you are paying for a subscription of any kind that is touching, improving, affecting, influencing, or otherwise being used in and for your business, it’s probably a deduction.
Go through your personal bank and credit card statements – we would not be surprised if there are things you’ve subscribed to along the way that you use in and for your business that aren’t being deducted. Don’t leave money on the table!
It’s a rare small business that never requires its owner to educate themselves on innovation or other industry-specific topics. A creative business owner may want to invest time and money in gaining new skills or honing their craft.
Seminars, classes, workshops, online courses, and even books (print or audio) are all examples of eligible education expenses, as long as they pertain directly to the business.
Contributions to health insurance plans, education, pension plans, and other benefits for your staff (possibly you as well!) are deductible. Even employee paid vacation time, employee travel, and some employee meals and social gatherings can be counted as deductions.
Check with your tax professional on the specifics of your employee benefits.
We know this one is a bit obvious – yes, the salaries you pay your employees (this might include you as well!) in your business are deductible. Whew. That’s a relief, right?
If the business is a sole proprietor or single member LLC that is not taxed as a corporation, the owner should not be on payroll and should not be considered an employee. Any funds paid to the owner are considered distributions. Any distributions the owner takes are not considered salaries and are not deductible.
Equipment and Furniture
Small businesses have more than one option for deducting equipment and furniture expenses. They can be deducted in full the year they are purchased or deducted through depreciation over a period of years.
The equipment and furniture needs to be used for business purposes to qualify for a tax deduction.
Have a home office? Don’t forget that any furniture, equipment, and furnishings you invest into your home office space are deductible. Save receipts and carefully document that these items are solely used for business.
Business gifts are deductible and they are subject to a $25 per person limit, per year. We know this is a little ridiculous since it’s hard to buy a decent gift for $25. If it helps at all to know – small, incidental charges are not included in the $25, such as engraving. So maybe you can get it up to $26.99 lol.
Some good news though – if you are buying a gift for a corporation that could be enjoyed by any number of people, like a fancy gift basket, there is no limit.
Guaranteed Payments to Partners
Partners in a partnership or members in a multi-member LLC are not considered employees of the business and should never be on payroll. Payments are instead considered guaranteed payments and unlike distributions, they are tax-deductible to the partnership.
At the most basic level – guaranteed payments are for the partner’s time and distributions are for the partner’s ownership percentage. Please keep in mind this is a very simple example for a very complicated topic. Please check with your tax pro on your specific circumstance.
The IRS has two specific requirements for home offices. The space must be used regularly and exclusively. It must also be the primary office from which the business is run.
What if you don’t have a separate room? That is okay! The deduction is not disallowed if you do not have a separate room. A desk in the corner of a room counts as long as that desk is in is used regularly and exclusively.
Home office deductions can be calculated using either a flat rate per square foot, or a percentage of the total home expenses. It is a wise practice to have a copy of your floorplan and current photos of any home office used as a tax deduction.
Some of the indirect home costs that are eligible are your rent, mortgage interest, home depreciation, insurance, property taxes, utilities, cleaning, maintenance, landscaping, trash removal – basically every cost that goes into your home is eligible for a percentage, at least.
If the costs are for your home office and your home office only, they’re considered direct costs and can be deducted in full. Some examples would be if you had to paint your home office only. Or if your home office was in a separate area of the house that was on a separate electric meter.
You wanna know what is even more dry than tax? Insurance.
At least it’s deductible, amirite?
And lucky, or unlucky, for you – there’s a lot of it to go around. Several different types of insurance payments are tax deductible for small business owners.
Business insurance covering buildings and their contents is deductible from small business taxes. Also included is insurance that covers theft, disaster, or business interruption. If a small business is run from a home office, a portion of the homeowner’s or renter’s insurance is deductible.
Let’s not forget about insurance for vehicles (used for business, of course), malpractice insurance, professional and general liability insurance, worker’s compensation insurance, and employee life insurance may all be eligible for tax deductions depending on the specific circumstances and business.
And last but not least – personal health and dental care insurance premiums paid might be deductible as well. Even for the owner’s dependents and spouse under some circumstances.
If a small business takes out a loan for investment purposes, the interest on that loan is eligible for a tax deduction. The deduction is based on the amount of money earned on the investment.
Ah, the internet. Can we really do business without it? You wouldn’t be able to read this fancy blog post without it.
Any internet you use for business is deductible.
If the internet is shared (like with a home office) you’ll want to deduct your percentage of use. Most people deduct between 60-80% of their internet use for their home office.
Your internet is not deducted in the same manner as other home office expenses (ie, according to the size of your home office) but instead as a percentage of use. Why is this important? Well, most home offices are less than 20% of the total home but the total business use of the internet could be much higher.
Generally, inventory is not an expense until it’s sold and at that point, it’s deducted as a Cost of Goods Sold.
Taxpayers can get in trouble if they sink all of their money into inventory thinking it will be a writeoff, have a bunch on hand at the end of the year, and then need to pay tax on money that they don’t have. If you are in a business that deals with inventory, make sure you are discussing your inventory and its deductibility with your CPA.
Do you work with an IT Support company to keep your business secure? Those costs are definitely deductible. They could also fall under professional services or subcontractors, depending on your company and your chart of accounts.
We’ll dive more into this in the Vehicle Expenses section, but for now, keep in mind that you can write off a portion of your car lease payment and other costs like gas and repairs.
Business legal fees like negotiating contracts with customers, declaring business bankruptcy, business attorney fees or court costs may be eligible for tax deduction.
Licenses and Permits
Need a business license or permit to run your business? You can write it off on your taxes. These include state, local and federal licensing requirements for occupations like owning a restaurant or operating a hair/nail salon.
Just like their big corporate counterparts, small businesses can deduct reasonable meal costs from their taxes. The meals category is comprised of business meals with clients (in or out of a restaurant), office snacks and meals (in or out of a restaurant), and company-wide parties. These categories do not include entertainment.
In order to be deductible, the meal will need to be with a client or business associate that isn’t lavish. Meals by yourself do not count unless you are traveling.
Credit card fees and transaction fees are better known as merchant fees (like if you use Stripe or PayPal to receive payments), and you can write them off from your taxes.
Costs for networking include joining your local Chamber of Commerce, attending business mixers, or joining a mastermind. These costs could also fall under different categories such as dues and subscriptions, advertising and marketing, or even educational, depending on the situation.
If you use heavy duty office equipment like printers, computers, and even furniture, go ahead and deduct it from your tax bill! These items may also fall under computer equipment or furniture. Don’t forget they may be subject to depreciation!
No matter what the business, there are always going to be expenses related to keeping a functioning office—even a home office. Pens, paper, staplers, checks, cute stationery, calendars in the shape of cats, bulletin boards, and even plants – could qualify as a deduction. An office supply is something you use in your office, for your business.
Online Business Manager (OBM)
Are you lucky enough to work with an OBM that keeps you and your business in tip top shape? Don’t forget to include the costs of this angel in with your business expenses. The expense could also be considered a professional service or even a subcontractor. Whatever it is, it’s great and deductible!
Parking and Tolls
If a small business owner or sole proprietor drives to visits at client offices or travels frequently, they are inevitably going to pay for parking and tolls. This is one of those deductions that a business might overlook, but the expense can add up over the course of the year, especially in cities where parking is scarce and expensive. Those costs are tax deductible and they are in addition to any standard mileage deduction you may take, so make sure you are tracking them separately from any other auto costs such as fuel, insurance, repairs, or maintenance. You’ll want to call these out specifically to your tax preparer.
Did you hire a photographer to help with your branding? Or to shoot your products for your website or lookbook? Any costs you pay to a photographer for work done on your business can be deducted on your business taxes. These costs may also fall under advertising and marketing, professional services, or even branding. You will also want to make sure you are collecting a W9 from each of them and possibly issuing 1099s at the end of the year.
Postage and Delivery
Actual postage, shipping costs, freight, fulfillment, or even a PO Box can all qualify as an expense in your business.
Printing and Stationery
Business cards, office supplies, annual holiday cards, and stickers are some examples of costs in the printing and stationery categories. As long as the end product is to be used in, on, or for your business, they’re eligible to be deducted from your tax bill.
This category can be similar to education. Or perhaps you work with a coach to help you in your business? Even a therapist could qualify if your sessions are centered around work (the deduction should be limited to the percentage specifically related to your business). Any money you invest into your professional development within your business could qualify as a business deduction.
Small business owners wear many hats but are not generally lawyers, accountants, marketing consultants, online business managers (OBMs), virtual assistants (VAs), or IT support staff, all rolled into one.
Any outside professional you need to work with or bring into your business, can fall into this category.
If any of these professionals provide services that combine business and personal, only the percent specifically for the business can be deducted.
Hired an amazing team to help you grow your business? The expenses that come with it, like paying to post job ads or even hiring a recruiter are tax-deductible.
What’s considered rent is not just reserved for office space; renting a car or other piece of equipment could fall into this category as well. Rent on a piece of equipment might also be called a lease payment. Note that rent on a home or apartment with a home office is not deductible on its own, rather it is figured in as part of the home office deduction.
Repairs and Maintenance
Any business-related repairs and maintenance are eligible to write off your tax bill. Some examples might be repairing your laptop, having the rug in your office professionally cleaned, or fixing the lock on your office door.
If you are in the real estate business and own property, this category will get a lot of use! Keep in mind that some things you might think are repairs are actually capital improvements and need to be depreciated over time. Check with your tax professional.
Research and Development
Have to research ways to improve software for your business app, or develop and design your product? What about ever buying a competitor’s product to take it for a test drive in creating your own? These fees are tax deductible. They could also entitle you to some sweet ass R&D Credits. Check-in with your CPA on this.
Retirement Plan Contributions
Every small business owner should have a SEP IRA or a 401k. There are a number of rules governing this type of deduction so make sure you check-in with your CPA. You can read more about the differences between SEP IRAs and 401k here.
Software and Applications
Any payments you make to use business-related software and apps are tax-deductible. We suggest tracking this category separately in your accounting software so you can easily monitor it. We find that clients accumulate a lot of software costs that they aren’t using and forget to cancel.
If there’s a software you know you cannot live without, sign up for their annual plan, you can easily save 10-20% on the service and this really does add up over time.
A start-up cost is technically a cost that was incurred before you were open for business. An easy example of this would be a restaurant. Think about all of the costs that come into play before a restaurant can serve their first customer. Plates, silverware, ingredients, equipment, tablecloths, menus, the list goes on! Those are start-up costs. There are special rules for deducting them and costs in excess of the limit generally need to be amortized.
The costs incurred for using subcontractors in your business is a deduction. Your subcontractors are not employees of your business – they should be sending you invoices for the time and costs of their services, like any other vendor would.
Make sure you are collecting a W9 from each of them and possibly issuing 1099s at the end of the year. Pro Tip: Use Gusto to pay your contractors and you’ll never have to think about W9s or 1099s again.
The category is supplies is used as a more general term for all the business supplies you purchased to help you work. So, we’re talking office supplies, specific supplies related to your line of work, prop supplies, any thing you need to move your business forward, that you use in your business that is a supply would fall into this category. It’s more of a general catch-all. In your accounting software, don’t call it just “supplies” – try to be more descriptive.
Yes, you can deduct taxes from your taxes, but only if they are business taxes. You cannot deduct your personal taxes. Business taxes include payroll taxes, state income tax, and state unemployment insurance contributions. This can be a tricky one, so make sure you check in with your small business accountant.
We use our phones for just about everything nowadays, so don’t forget to deduct your phone from your taxes. Don’t forget – unless the phone is only used for work (if you don’t have a second line it’ll be hard to justify this) you need to apply a percentage to the total cost. Most people write off between 60-80%.
Any tools you use in your business might also be called supplies. Or perhaps you’re in construction or real estate, and you’re actually purchasing tools. Either way, these tools that you use in your business are deductions. Also, depending on the type of tool, it might need to be depreciated. Check with your tax pro.
Some small business owners travel quite extensively. Some go on only one or two trips a year and others don’t travel at all. Travel expenses are deductible, but this is another area where it is imperative that expenses are documented and receipts kept.
The IRS official definition of travel is, “…if your duties require you to be away from the general area of your tax home for a period substantially longer than an ordinary day’s work, and you need to get sleep or rest to meet the demands of your work while you’re away.”
So travel does not necessarily mean that you get on a plane and fly to a new state, traveling a couple of hours from your tax home could possibly count, too, depending on the circumstance.
Whether it’s for your business office or home office, you can deduct expenses like electricity, trash Utilities include electric, internet, telephone, trash removal, security system, water, gas, and the like. If the costs are not associated with a home office or any other personal use, you’ll deduct the costs as you incur them. If you have a home office, you’ll deduct them as a percentage through your home office deduction. Any utilities with a personal component will need to be reduced accordingly.
You can deduct all expenses related to a vehicle that is used solely for business purposes, including gas, maintenance, and insurance. However, most small businesses have cars that are used for both personal and business activities.
There is more than one way to calculate exactly how much your deduction should be for a personal vehicle used for business. Some people use a standard cost per mile, others prefer to keep close track of actual expenses. A small business accountant can help business owners figure out which method results in a larger deduction for their individual business.
When tracking your vehicle expenses, don’t forget to track your parking and tolls separately.
Virtual Assistant (VA)
We have a serious question here – could this blog post been published without the help of a VA?! We think not. If you have a VA in your business’ life, the costs for that literal gem of a human are fully deductible in your business. Any expenses related to your VA may also be deducted as a professional service or a subcontractor, so if you have those categories in your accounting software, you can use them.
Website Fees and Maintenance
Costs included in this category would be domain names, web hosting, website design, or even a subcontractor to maintain your website. These expenses are tax-deductible.
We know this may seem like an overwhelming number of possible small business tax deductions (and this list is not exhaustive), but it was generated to give you a good starting place with lots of overlap between accounts. Depending on the structure of the small business, the industry, and other factors, there may be more deductions—or fewer—that apply.
Please reach out, we’d love to help!
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Countless assumes no liability for actions taken in reliance upon the information contained herein.