When you’re a small business owner, it’s natural to want to know all the ins and outs of the tax code. But sometimes you have so many expenses that it’s hard to keep track of which ones can be written off. As a result, you may miss out on deductions that could add up over time. In this article, we’ll go through several of the most common expenses for small businesses and help you decide which ones are worth taking a closer look at.

Which expenses can a business owner deduct?

With such a staggering array of expenses, it isn’t easy to know which of them can be deducted, what you should focus on to save the most money, and how to do it correctly. Here are 14 expenses you can deduct from your taxes.

Utilities: Unlike the rules governing personal taxes, which do not allow deductions for these personal expenses, utilities such as electricity, gas, oil, water, trash and telephone bills, can usually be deducted for businesses. With the amount most businesses pay annually on these resources, it pays to keep track of your numbers and look for this deduction.

Insurance: The majority of businesses take out some form of insurance, if not several. The cost of health coverage for the business owner, as well as business continuation insurance are deductible. Other types of deductible insurance policies include liability coverage, property insurance, malpractice, worker’s compensation, auto insurance on company vehicles, and employee life insurance paid for by the company. When it comes to health insurance, a small business may qualify for up to a 50% tax credit under the qualified small employer health reimbursement arrangement (QSEHRA).

Rent on Business Property: If you rent your business property, you may deduct your rental payments or lease from taxes. If you run your business from home, you can do an eligibility test with the IRS to see if you are entitled to any deductions based upon home use. Certain types of deductible home business expenses include insurance, utilities, mortgage interest, repairs, and depreciation. There are specific rules to abide by and limitations that apply when calculating expenses and deductions as it pertains to the use of your home for business purposes. To learn more, see IRS Publication 587. And whenever questions arise, consult with a qualified accountant for answers.

Auto Expenses: If you have a car specifically for business, you can usually deduct anything considered a car expense such as payments, fuel, repairs and insurance. You must keep records that prove business usage and record mileage. You can rely on the IRS standard mileage rate, which is $0.58 cents per mile.

It is important, though, to keep in mind that if you use your car for both business and personal purposes, you need to divide your expenses based upon actual mileage used for each purpose. You may refer to IRS Publication 463 for more information regarding travel, entertainment, gift, and car expenses.

Office Supplies: Boxes, paper, pens, pencils, paper clips, staplers and staples, copier and printer ink, you name it. All these costs may be deducted from taxes.

Office Furniture: Furniture is generally considered an office supply, so can therefore be deducted as a qualified expense. 

Travel Expenses: If, as a business owner, you are frequently on the move, it is worth researching this deduction. Types of deductible expenses include airfare, lodging, tolls and taxis (UBER & Lyft). Certain limitations apply: You must be away from the area or city where you regularly conduct business and you must be away from your tax home for more than a full workday.

Employee Salaries: Usually, your employee salaries are tax deductible, including bonuses and commissions. These deductions, however, do not apply to sole proprietors, LLC members and partners, as these members are not considered employees.

Advertising & Marketing: If you can prove it is directly related to your business, you may deduct regular advertising and marketing costs, including business cards, billboards, print and digital ads and more. It also includes contracting individuals to design logos, write copy for content marketing, write scripts for video ads, or design and implement any other marketing or advertising tool.

Interest: If you have one or more business loans, you’re making interest payments. Those payments are usually tax deductible as long as you’re using the entire loan strictly for business purposes. To qualify, it must be a traditional loan through a lender, like a bank or credit union. It can’t be a personal loan from a friend or family member. The business owner must also be legally liable for the debt.

Contracted Labor: If you use independent contractors as part of your workforce, you can deduct compensation made to these individuals. To do so, you must issue a form MISC-1099 to any contracted worker making over $600 (cumulative annually), and a 1099-K if they are paid by credit card or with PayPal or similar apps.

Legal and Professional Fees: Whether it’s an attorney, a team of lawyers, or a professional accountant, you can deduct 100% of these fees.

Rent and Depreciation on Equipment and Machinery: If you lease equipment for your business, you can deduct these costs. Whether it be office machines like fax, phone, computers, monitors, copiers and printers, transport vehicles like trucks and vans, or heavy machinery for production or farming, you can take advantage of this deduction. You must deduct it over the course of several years. You need to claim a Section 179 deduction. This allows business owners to deduct up to the limit of $1,050,000 and a maximum value of $2,620,000 for property during a single tax year. For many businesses, this can be a significant deduction, given the volume of equipment many companies use.

Start-up and Organizational Costs: To be honest, this one isn’t actually a deduction. The IRS sees start-up costs as a capital expense. They are viewed simply as an investment since the money invested hasn’t left the business; it has merely been transformed into an asset. Capital expense deductions are usually calculated over several years. This is called amortization. This enables businesses to accurately assess their profitability. For specific information on this process and your possible savings, see IRS publication 535.

This is not an exhaustive list. There are many more deductions available to business owners. Take time to study your options. Seek information from the IRS and meet with an accountant to discuss all your options. It is important that you file correctly when claiming deductions and that you don’t miss out on additional savings. A qualified accountant can make sure you’re covered.

What are some things you can’t deduct from your taxes?

Gifts: This one is mixed. You can deduct the first $25 of gifts to clients. After that point, there is no deduction.

Regular Commute: Mileage incurred while driving to and from your regular place of business cannot be deducted. However, there are a few exceptions. You must have a qualifying home office and be forced to commute each day to a temporary mobile workstation/location outside of your metropolitan area. This exception is decided upon on a case by case basis by the IRS. You must consult a tax professional for more information.

Penalties and Fines: You cannot deduct the cost of fines and penalties, even if you incurred them during business activities. Sorry, no breaks for parking and speeding tickets, or other similar penalties.

The importance of documenting everything and keeping receipts

When it comes to your business expenses, it’s important to keep thorough records. This will help you if you ever have to dispute your deductions for any reason, whether it be during an audit or in hopes of getting approved for a loan. Plus, maintaining complete records ensures you have the best chance of tax savings. Keeping meticulous records can seem like a hassle at first, but it will actually make things easier down the line because you’ll know exactly what the IRS needs from you.

These days, there are so many programs that help us keep track of our expenses much easier than we used to. From QuickBooks Online and Xero, to apps like Evernote and others, many programs allow you not only to enter your figures manually, but even take photos of receipts and categorize them. Whether you box up your receipts or take photos of each one, make sure you have a visual record of them all.

The importance of quality accounting professionals during tax time

When it comes to finding and understanding every possible tax deduction, one of the most important investments is to hire a great accountant. When you hire an accountant, they’ll be able to keep track of your income and expenses, but they’ll also be able to save you money by catching mistakes and helping you reduce your tax bill.

They also help you spot patterns and make better, more strategic decisions about the direction of your business. It’s vitally important for small businesses to have a quality bookkeeper or accountant who can handle the complicated process of filing taxes correctly and helping the owner manage their finances with confidence.

Conclusion

Business tax deductions can save you a lot of money. And there are a lot of them to make use of. Study up, consult with a tax professional and hire an experienced accountant to get the most out of your deductions.

Sound Accounts can help you get the most out of your business tax deductions. We help business owners from every market sector understand all their tax options, save money, manage their accounting, and make the most of their resources. Reach out to us today for the accounting and tax support you need.  

For quick info about small business tax deductions, check out our frequently asked questions and answers below. 

FAQ

Why is it important to understand business tax deductions? 

There are countless expenses involved in running a business. Many of them provide you with the possibility of tax savings, sometimes significantly. It is important to have a firm understanding of these, both so you can save the most money possible, and so that you file everything correctly to avoid costly errors. 

What expenses can I write off?

There are too many to list here. But they include rent, utilities, equipment and machinery, travel expenses, interest payments on loans, office supplies, salaries, contracted work, legal fees and much more. Both the IRS and a qualified accountant will help you better understand how to navigate the world of business tax deductions. 

How do I make sure I’m filing my taxes correctly?

The best way to ensure accuracy is by hiring a qualified accountant. They will help you make sense of your expenses, find every possible deduction that might save you money, and educate you on what to do in the future to stay organized.