Small Business Tax Deductions: Everything You Can Write-Off

By

Jordan Kennedy

updated on

October 28, 2023

How much do you spend on equipment, office supplies, professional services, and everything else that goes into running your business? Many small businesses don't take advantage of everything they can claim as a tax deduction.

So what are some useful ways in which you can reduce your tax liability this year? In this guide, we'll walk you through the biggest deductions you could be taking advantage of to lower your taxes owed and put money back into your pocket.

What Are Tax Deductions?

Itemized decuctions is a way that you can save significant money on your taxes. Deductions are expenses that can be deducted from your business's taxable income. This means that you don't have to pay taxes on some of your business's expenses. These expenses include things like office supplies, advertising costs, employee salaries, and much more.

The obvious benefit of tax deductions is the money you can save, but there are other benefits to these deductions. For example, reinvesting the money you save back into your business or reducing any debt or overhead in your business.

How Do I Know If a Purchase Is Tax Deductible?

It's not always easy to know whether or not an expense is tax deductible, especially if you're new to doing your taxes. There are a few simple rules you can use to help determine whether or not something will be deductible.

The IRS is pretty clear about what expenses are tax deductible. Generally, you can deduct any expense that you paid in connection with your job. If it's a purchase you made strictly for business use, it's likely deductible.

If it's a personal expense, it probably won't be deductible. Personal expenses include anything related to your personal life—things like clothes, groceries, but also things like transportation costs (like parking fees), fast food, and entertainment (like movie tickets).

However, there are some expenses that may be partially deductible. You may be able to deduct the cost of your flight if it's part of a trip to another city or country for business purposes. For example, if you're attending a conference in another state and decide to stay an extra day to visit some tourist attractions, then you can deduct the some of the cost of your flight because it was part of your business trip.

Common Tax Deduction Categories with Examples

Advertising & Marketing

One of the best ways to keep your taxes as simple as possible is to take advantage of advertising and marketing tax deductions. This section of the tax code allows you to deduct expenses related to advertising and marketing, including direct costs (such as printing flyers or posters), indirect costs (like staff salaries), and overhead (like rent or office supplies).

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  • Advertising
  • Agency fees
  • CRM platforms
  • Customer surveys
  • Design (website, print advertising, and more)
  • Gifts to customers
  • Online advertising
  • Photography
  • Printed materials (newspapers, magazines, billboards)
  • Promotional merchandise (bags, hats, pens)
  • Sales and marketing automation tools
  • Social media tools
  • Sponsorships
  • Telemarketing
  • Television and radio
  • Tradeshows and other events

Bank Fees

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Bank fees are considered tax-deductible if they're related to the cost of doing business. This means that you'll only be able to deduct your bank fees if they're incurred for business-related reasons, not if they're incurred for personal use.

  • Advisory fees
  • ATM fees
  • Credit card interest, annual, and late fees
  • Overdraft charges
  • Retirement planning fees

Business License

When you start a new business and get the required permits, licenses and other documentation from the city or state in which you operate, you will typically have to pay an upfront fee for those documents. So if you're wondering whether or not these fees qualify as tax deductions, then the short answer is yes!

  • Articles of Incorporation
  • Business filing fees
  • Business license
  • Business permits

Commissions & Fees

A sales commission is a sum of money paid to an employee when he or she completes a task, usually by selling a certain amount of goods or services.

Contract Labor

If an individual is not on your payroll, but offers services and invoices for work completed, then this would be considered a independent contractor.

Charities

charity

The IRS allows both cash and non-cash donations, such as goods, inventory, or property. You must have proof of your donation to be able to claim it on your taxes.

You may be able to deduct expenses for volunteering at a qualified service project or charitable event. It doesn't include the value of your time, but it will allow you to recoup gas and mileage necessary to attend an event, as well as any supplies that you donate to a cause.

Education & Training

education and training

If you're looking for tax deductions for education and training, you may be surprised to find out that there are many types of education-related expenses that are deductible. There are tons of types of deductions available to you, including:

  • Books tailored to your industry that improve or maintain skills in your field
  • Education courses and seminars
  • Self study materials
  • Trade publications and newsletters
  • Workshops to increase or maintain your expertise and skills

Employee Benefits

employee benefits

If you have employees, and if you offer them certain kinds of benefits, you can deduct the cost of those benefits from your taxes.

  • Achievement awards
  • Dental plans
  • Health care plans
  • HRAs
  • Life insurance
  • Office renovations for accessibility
  • Paid employee leave
  • Retirement plans
  • Tools and resources
  • Tuition reimbursement
  • Vision plans

Equipment Rental

Because all equipment or machinery you lease for your business, including items like copiers and printers, or trucks and vans, are fully deductible. You can also claim depreciation on these items.

Insurance

insurance

Generally, insurance premiums are a deductible expense for small businesses. Small businesses can take advantage of a number of insurance deductions, including general liability insurance, property insurance, and more:

  • Business income insurance
  • Commercial property insurance
  • Data breach insurance
  • General liability insurance
  • Professional liability insurance
  • Workers’ compensation insurance

Interest Paid

interest paid

Interest paid on a loan used to purchase property to be used in your business is a tax deduction. This includes loans from banks, credit unions and other financial institutions.

  • Business lines of credit
  • Loans for buying other businesses
  • Short-term loan
  • Term loans

Inventory

inventory

Inventory small business tax deductions are a great way to keep your business running smoothly. By taking advantage of inventory small business tax deductions, you can reduce your tax liability, which will leave more money in your pocket.

  • Factory overhead
  • Freight
  • Products or raw materials
  • Storage

Legal & Accounting

legal

The legal and accounting fees tax deduction allows you to deduct any expenses related to the business that were paid for during the year. This includes payments for services rendered by lawyers and accountants.

  • Attorney fees
  • Business immigration expenses
  • Business tax fees
  • Court costs
  • Drafting contracts and reviewing contracts
  • Fees paid to certified public accountants
  • Legal fees to file for bankruptcy
  • Real estate closings for commercial properties

Meals & Entertainment

meals

If you incur expenses for business travel or entertaining clients, you can deduct those costs as long as they are necessary to conduct your business. In order to qualify, the meal or entertainment must be directly related to your business—for example, if you're attending a conference, it's likely that any meals or entertainment will be considered directly related.

  • Business meals with clients
  • Company-wide party
  • Dinner provided for employees working late
  • Employee meals at a conference
  • Employee meals while traveling
  • Food and drinks provided free of charge for the public
  • Food for a board meeting
  • Meals with a client where work is discussed
  • Office snacks and meals
  • Your own meals as part of doing business

Office & Software

office and software

Office supplies are one of the most common tax deductions for small businesses, but not all expenses are eligible. These expenses can include pens and paper, as well as any office equipment that is used for work purposes. In order to be considered a business expense, it must be something that was used directly in your business operation such as computers or telephones. If you buy something for personal use, it cannot be deducted as a business expense.

  • Cellphones and tablets
  • Cleaning materials
  • Computer software
  • Desk calendars
  • Desktop or laptop computers
  • Domain names
  • File folders
  • Ink cartridges
  • Light bulbs
  • Merchant fees
  • Office phone systems
  • Paper
  • Paper clips
  • Pens
  • Tape
  • Web services

Property Rent or Lease

For many small businesses, the cost of renting an office or facility can be a substantial portion of overhead costs. Qualified business expenses are deductible for all types of businesses as long as the rental property is used in a trade or business.

Payroll

Payroll deductions are all the costs taken out of a paycheck before it is paid out to employees. There are three categories of payroll deductions: employee tax withholding, pre-tax, and post-tax. Pre-tax deductions—such as health insurance—reduce the amount of payroll tax both your business and your employee pay.

Taxes

taxes

The Internal Revenue Service allows you to deduct the state income taxes paid by your business on its federal return. As an employer, you can also deduct your share of the workers' employment taxes.

  • Excise taxes
  • Fuel taxes
  • Payroll taxes
  • Personal property taxes
  • Real estate taxes paid on business property
  • Sales tax
  • State income taxes

Travel

travel

If you run a small business and travel for work, you may be able to deduct some of your expenses as tax write-offs. Deductible travel costs include airfare, car rentals, and lodging. You can also deduct related expenses such as meals, tips, parking fees, tolls, and other incidentals while traveling. If you're driving to work-related events instead of flying or taking the train, you may be able to deduct the mileage between your home and destination.

  • Airline travel
  • Baggage charges
  • Bus travel
  • Cleaning and laundry expenses
  • Gas
  • Hotel expenses
  • Oil changes
  • Parking fees
  • Taxi fares
  • Tires
  • Tools
  • Train Travel
  • Vehicle maintenance
  • Vehicle mileage
  • Vehicle parts
  • Vehicle washing

Utilities

utilities

Utilities are an important part of running any business, but they are often overlooked when calculating taxes because they are not always considered necessary to run the business. However, if your business uses electricity and water throughout the day then it is important that these costs be included in your tax return so that they do not get overlooked.

  • Electricity
  • Natural gas
  • Telephone
  • Trash
  • Water

How to TrackYour Expenses

If you operate a small business, it's always a good idea to keep careful records of your expenses throughout the course of the year. Not only do you need to know how much money is coming in, but you also need to know how much is going out.

There are a few software options out there that can help with this. Quickbooks and Xero are two options you could look into to see if it can work for you, but the software can be complex and confusing.

For a simple way to keep track of your expenses (and income) give Balance Pro a try. It has a built-in receipt scanner that uses AI to intelligently scan your receipts. It's a great way to keep track of all your business expenses.

A Tax Professional Can Help

If you're a small business owner, it's probably worth it to use a tax professional to file your taxes. It can help you save time—you don't have to spend hours researching and filling out forms yourself.

A tax pro may be able to get you more money back from the government. They know exactly how to maximize your deductions so you get more money back from the government.

They can also help prevent mistakes When doing your own taxes, you risk making mistakes that could cost you money or even get you into trouble with the IRS.

With a professional helping you, there are fewer chances of mistakes being made because they're trained on what needs to be done and how best to do it

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This post is for informational uses only and is not legal, business, or tax advice. Please consult with an attorney, business advisor, or accountant with concepts and ideas referenced in this post. Balance Pro assumes no liability for actions taken in reliance upon the information contained in this article.

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