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Top 10 Tax Deductions Small Businesses

Tax deductions are one of many perks of owning your own business. A tax deduction (or "tax write-off") is a deductible expense from your taxable income. You take the expense amount and deduct it from your taxable income. Tax write-offs essentially allow you to pay a lower tax bill. However, the expense must meet the IRS criteria for a tax deduction. Here's a list of tax deductions that can save you some money this tax season...

Top 10 Tax Deductions for Small Businesses

1. Business Meals

In general, you can deduct 50% of qualifying food and beverage expenses. To be eligible for the deduction:

  • The meal can't be too lavish or fancy

  • The business owner or an employee must be present at the meal

  • The food and beverages are provided to a taxpayer or a business associate

Try to keep an itemized receipt that includes as much detail as possible as well as the date and location of the meal, and the business relationship of the person with whom you dined.

2. Travel Expenses

All business travel expenses, including airfare, hotels, rental car expenses, tips, dry cleaning, meals, and more, can be deducted at tax time. Your trip must meet the following to qualify as work-related:

  • The trip must pertain to your business (not your trip to Disney World)

  • The trip must take you away from your tax home, i.e. the city or area in which your company conducts its business

  • You must be away from your tax home for more than a normal work day, and you must sleep or rest during the trip

Remember to keep receipts for each expense, as well as dates of return/departure, trip details (who you met with), a mileage log if you drove your own vehicle, and the business reason for the trip.

3. Home Office

Do you use a home office for your business? You may be able to deduct a portion of your housing expenses from your business income. Home office expenses can be deducted in two ways.

Simplified method:  You can deduct $5 per square foot of business space in your home, up to a maximum of 300 square feet.

Standard method: Keep track of all actual home maintenance expenses, such as mortgage or rent, utilities, real estate taxes, housekeeping and landscaping services, homeowners association fees, and repairs. Multiply these costs by the percentage of your home that is used for business.

4. Education

When education costs add value to your business and increase your expertise, they are fully deductible. The IRS will decide whether the expense maintains or improves skills required in your current business when determining whether your class or education materials qualifies. Some examples of education include:

  • Webinars or seminars

  • Workshops

  • Classes related to your line of work

  • Books or materials related to your business

5. Your Car (Business Use Only)

If you only use your car for work, you can deduct all costs associated with operating and maintaining it. If you use your car for both business and personal reasons, you can only deduct costs related to the business use of the vehicle. You can deduct the actual miles driven for business or use the standard mileage deduction of $0.56 per mile driven to claim the mileage you use for business driving.

Remember that you can only deduct for business use so it may be helpful to keep a log to track your mileage.

6. Phone & Internet

You can deduct phone and internet expenses if they are necessary for the operation of your business. If you use the phone and internet for both work and personal reasons, you can only deduct the portion of the cost that is related to your business. For example, if you use the internet for business purposes roughly half of the time, you can deduct 50% of your internet expenses for the year.

7. Interest & Bank Fees

The bank will charge you interest if you borrow money to fund your business activities. When it comes to tax season, you can deduct interest on both business loans and business credit cards. You can also deduct any fees and additional charges associated with your business bank account and credit card, such as monthly service fees and annual credit card fees.

8. Professional Fees

Legal and professional fees that are directly related to the operation of your business are deductible. Fees charged by lawyers, accountants, bookkeepers, tax preparers, and online bookkeeping services like Quickbooks fall into this category.

If the fees include payments for personal services, you can only deduct the portion of the fee that is related to the business.

9. Depreciation

When you deduct depreciation, you are deducting the cost of a large-ticket item, such as a car or equipment, over the useful life of that item, rather than deducting it all at once for a single tax year. Long-term business investments that are more expensive are typically depreciated so that the expense is reimbursed over the item's useful lifetime.

10. Salaries & Benefits

If you own a small business and have employees, you can deduct their salaries, benefits, and even vacation pay on your tax returns. There are a few requirements for deducting salary and benefits:

  • The employee is not a sole proprietor, partner, or LLC member in the company.

  • The salary is fair and necessary.

  • The employee provided the services that were given to them

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