Are you taking advantage of all of the tax deductions applicable to you as a small business owner? Read on to learn more to make sure you're taking full advantage of every deduction available to you. You’ll also discover some of the top deductions for small businesses and self-employed individuals.
What Are Tax Deductions?
A tax deduction will reduce your taxable income and, by default, your tax liability.
In most cases, a tax deduction is an expense that you incur throughout the year. When you go to file your taxes, that expense then gets subtracted from your gross income and lowers the total amount of money that you’ll owe to the IRS.
Top 12 Tax Deductions for Small Business Owners
There are lots of tax deductions that are available to small business owners. If you’re not sure whether or not something is tax-deductible, then this list can help:
1. Business Meals
Small business owners are able to deduct 50 percent of qualifying food and drink purchases. As long as these purchases are related to your business (you’re buying lunch for a client, for example), they qualify for the deduction. Don’t forget that you also must keep all documentation (e.g., receipts) related to food and drink purchases to verify them when you’re filing your taxes.
2. Travel Expenses
Business-related travel expenses are also tax-deductible. The following are some of the most common travel expenses that might apply to your situation:
- Rental Car Expenses
- Dry Cleaning Costs
- Meals purchased while traveling
The IRS website features a full list of business travel expenses that qualify for this deduction. Keep in mind, too, that the trip must be considered necessary to your business and take your away from your tax home for longer than a typical workday.
3. Car Use
You’re also able to deduct certain car expenses that are related to your business. If you have a car that you only use for work, you can deduct all of the costs associated with driving and maintaining it (the cost of gas, oil changes, repairs, etc).
For those who drive a car for both business and personal reasons, you can still deduct the costs that are related to business use. This might include the miles you drive to and from work.
Check out our FAQ page for more information on writing off vehicles.
4. Business Insurance
Some business owners are hesitant to invest in business insurance because of the extra expenses associated with it. Remember, though, that you can deduct the cost of your business insurance premiums when you file your taxes.
For those who run a business out of their home, they can also deduct a portion of their owner’s/renter’s insurance premiums.
5. Home Office Costs
Speaking of running a business from your home, other home office costs are also tax-deductible. This includes the cost of mortgage interest, property taxes, office supplies, and office furniture. There’s also a deduction for the office itself: five dollars per square foot that you use for running your business (up to 300 square feet).
6. Phone and Internet Bills
If you run a business that requires phone and internet usage (basically every business these days), you can deduct the cost of your phone and internet bills from your taxes. Keep in mind that, as is the case with car-related deductions, you can only deduct the percentage of the cost of these bills that goes toward running your business.
7. Business Interest and Fees
Have you borrowed money to get your business up and running? If so, you can deduct the interest from your loan, as well as other bank fees and charges (such as credit card fees or service fees), from your tax bill.
8. Professional Service Fees
In addition to deducting bank fees, you can also deduct the fees associated with professional services that benefit your business. If you work with a bookkeeper or accountant, for example, you can subtract the fees that they charge from your taxes.
9. Employee Salaries and Benefits
Many business owners are surprised to learn that they can deduct employee salaries and benefits (including their vacation pay) from their taxes, too. There are a few specific boxes that you’ll need to check before taking advantage of this deduction, though, including the following:
- The employee cannot be a sole proprietor, an LLC member, or a partner in your business
- Their salary must be considered necessary and reasonable
- The employee must provide the services assigned to them
10. Education Costs
If you invest in education that helps you to run your business better or improve your skills, the cost of that education is tax-deductible. The following are examples of applicable education costs:
- Courses and classes that relate to your field of work
- Work-related webinars and seminars
- Subscriptions to trade publications
- The cost of industry-related books and training materials
11. Energy-Efficient Expenses
If you take the time to make your business more energy-efficient, the IRS will reward you by allowing you to deduct certain expenses from your taxes. For example, if you have a home office and install solar panels on your house, you can deduct 30 percent of the cost of the panels from your tax bill.
12. Startup Expenses
Finally, you can also deduct a certain amount of startup expenses in the first year after launching your business.
The IRS allows you to deduct up to $5,000 in startup expenses. These expenses might include things like travel, training costs, and the cost of marketing and promoting your business.
Take Advantage of These Tax Deductions Today
As you can see, there are lots of tax deductions that you can take advantage of as a small business owner. Be sure to keep this list in mind so that you’re prepared when tax season rolls around.
Don’t hesitate to reach out to the team at J. Hall & Company for help as well. They can inform you of other potential deductions and help you make sure your taxes are filed properly. Please reach out to Josh Hall at firstname.lastname@example.org or schedule a free consultation call for more information. From tax filing strategies to tips on bookkeeping and accounting, we’ve got you covered.