Small-Business Tax Deductions You Should Know About

Owning a small business or being self-employed comes with some challenges and, usually, its share of expenses. So, it’s key that small-business owners know and understand where they can save money, including on their annual tax bill.

Tax deductions, or tax write-offs, are expenses that qualify to be deducted from your business’ gross income. But some small-business owners may not be aware of all the expenses they incur that qualify as tax deductions. Work with a licensed tax professional to ensure you’re filing correctly and getting the most out of eligible tax deductions.

20 Tax Deductions For Small-Business Owners

If you own a small business, these 20 small-business tax deductions could help you save on your tax bill.

1. Travel Expenses

Anytime you have to travel away from the place you typically work and conduct your business there for longer than a full workday, expenses related to that travel may be deductible.

Examples of expenses that the Internal Revenue Service (IRS) has approved as deductible for business travel include:

• Transportation to and from the destination
• Transportation once you’re there, including taxis, ride-shares, etc.
• Lodging
• Meals
• Parking

Be sure you keep accurate records of any travel expenses to ensure you won’t have issues deducting them at tax season.

2. Business-Related Car Expenses

If you use your vehicle for business purposes, you can deduct car expenses – such as gas, mileage and wear and tear – on your tax return. However, this can get tricky if you use your car for both business and personal reasons.

If that’s the case, you can only deduct the costs associated with business use, and this will require a little math on your part.

You can write off a car for business in one of two ways – by calculating the actual costs or using the IRS’ standard mileage rate. Calculating actual expenses means you document everything, including car insurance, repairs, any fees and gas. Once you come up with a figure, you multiply it by how much you used the vehicle for your business.

The standard mileage rate means keeping track of how many miles you traveled for your business and going with the IRS’ standard mileage rate, which was 65.5 cents per mile in 2023.

3. Marketing And Advertising

Advertising your business and running marketing campaigns is extremely important for many small businesses, and related expenses can be tax-deductible.

Any money spent on print or internet ads, business cards, website design and billboards is deductible. If you pay a marketing agency or freelancer to help with these marketing-related activities, you can deduct those expenses from your yearly income, too.

4. Office Supplies

Any office supplies you purchased and used during the year for which you’re filing taxes are deductible from your tax return.

Whether it’s something as small as pens and pencils or a larger item such as a printer, it’s worth taking advantage of this tax deduction.

5. Startup Costs

This isn’t exactly a tax deduction but rather a way to recover some capital expenses you incurred when starting your business. Only certain costs can qualify for this deduction, so be sure to determine whether this is applicable to you.

What differentiates startup costs from other deductions is that capital expense deductions can extend (amortize) over several years. IRS Publication 535, particularly chapters 7 and 8, can provide more information on deducting startup costs.

6. Payments For Renting Or Leasing

If you conduct your business out of a property space you rent or lease, you can deduct it as long as you don’t own the space in any capacity.

Conversely, if you run your business out of your home, you can see if any of your home expenses are deductible. Such expenses may include utilities, mortgage insurance and home repairs. The IRS has all the information you need to know about deducting expenses incurred in connection with using your home for business purposes.

7. Electronics And Software

Using software for your business operations can improve workflows and increase output. And, thankfully, you can deduct from your taxes any software you purchase or have a yearly subscription to.

So, whether you’re using accounting software, Microsoft Excel, or a scheduling app for your social media management, keep your receipts to deduct the costs from your tax bill.

Additionally, you can deduct electronics such as laptop computers if you purchase and use them for your business during the year for which you’re filing taxes.

8. Home Office

You can claim the home office deduction if your home office is your principal place of business. According to the IRS, this means you use the office “exclusively and regularly for administrative or management activities of your trade or business” and you don’t have another location where you conduct a substantial amount of business.

The IRS also offers two methods – the simplified option and the regular one – for claiming the home office deduction. The simplified method allows you to claim $5 per square foot of your home office and involves less paperwork than the regular option. However, the regular method has no deduction limit. Determine prior to filing your taxes which option best suits your situation.

9. Employee Wages

Not every small-business owner has other employees, but if you do, you’re in luck. Employee wages are entirely deductible from your taxes, and these include commissions and bonuses.

As long as the employees aren’t partners in the business and don’t have other involvement in the ownership of the business, their salaries are tax-deductible.

10. Employee Benefits

In addition to employee salaries, employee benefits are tax-deductible.

These benefits include vacation time, contributions to certain retirement accounts, and health insurance premiums.

11. Depreciation On Business Expenses

Depreciation is a tax deduction that can apply to a number of items you use or purchase as a small-business owner. These include vehicles, machinery and furniture.

However, instead of deducting the cost once in one tax year, you spread the cost over a handful of years until you fully recover the cost of the item. A tax professional can help you make the most of this deduction.

12. Business Meals

If you plan to take a client out for dinner or provide lunch for your staff, those meals are deductible. To qualify as a deduction, of course, business meals must meet certain requirements. For example, the meal must be directly related to your business in some way, perhaps for the purpose of business promotion, and it can’t be extravagant in cost.

It’s worth noting, too, that not every business meal is 100% tax-deductible. Generally, business meals are deductible up to 50%, but meals you provide to your employees at a summer work picnic or office party are 100% deductible as long as the primary benefit is for employees, not shareholders.

13. Entertainment Expenses

Networking can take your business to the next level, and anytime you entertain current or prospective clients, you can deduct those expenses from your tax bill.

As long as the entertainment is clearly related to your business, with an objective such as securing new clients, showing appreciation to current clients or hosting a staff training event, it’s deductible. Entertainment for clients is deductible up to 50%, and events for employees are 100% deductible.

14. Training And Education Expenses

Training and education programs can add a lot of value to your business and benefit you and any employees you may have.

Any courses, seminars, workshops, webinars or publications related to your trade that improve your expertise or professional knowledge are deductible.

15. Interest

Running a business sometimes requires using a credit card or taking out a loan, and the interest you pay on either is tax-deductible.

As long as the debt incurred from the business loan or business credit card belongs to you as the business owner, the interest is deductible.

16. Business Insurance

Business owners often pay for a number of insurance products, and the good news is they’re all tax-deductible. Types of insurance that you can deduct include:

Health insurance for the business owner

• Liability insurance
• Renter’s or mortgage insurance if you have a home office
• Auto insurance
• Workers’ compensation costs

17. Taxes

This one might seem a little wacky, but it’s true – you can actually deduct any business-related taxes.

These deductible taxes include property taxes, sales taxes, and state and federal taxes. Real estate taxes and unemployment taxes are also among the taxes you can write off.

18. Retirement Plans

Contributions to employees’ retirement plans are deductible expenses and, in certain cases, so are contributions you make to your own IRA – depending on the type of account you have.

The IRS provides more in-depth information about calculating retirement deductions for self-employed individuals.

19. Bad Debt

Unfortunately, some business decisions can leave you high and dry. For instance, perhaps you loan money to a client or employee who doesn’t repay you.

If you can prove this decision was related to your business and not a personal loan, and if you can show the loss accounted for in your books, you can claim it as bad debt and recoup some of the money you lost.

20. Freelancers And Contracted Labor

Have you considered hiring a contract worker or freelancer but you’re not sure if you could justify the cost? In the same way you can deduct full-time and part-time employee wages, you can deduct payments made to freelancers and independent contractors.

For any non-employee you work with, you’ll have to file a 1099 Tax Form, most likely the 1099-NEC, to write off the payments you make to them.

How To Claim Small-Business Tax Deductions

Taxes can be complicated even if you don’t own a business. How you claim tax deductions for a small business will depend in part on whether your business is an LLC, a sole proprietorship, an association or a corporation.

Since many small businesses are owned by sole proprietors, those business owners will need to fill out a Schedule C Form. The Schedule C Form determines how much taxable profit your business made throughout the tax year.

The Bottom Line: Get Creative With Tax Deductions For A Small Business

As a small-business owner, you’re probably always looking for ways to manage costs. A good place to start is by checking with the IRS and creating a small-business tax deductions checklist to ensure you’re getting as many tax write-offs as possible.

And, don’t forget to save all your receipts and document every expense thoroughly so you’re covered when it’s time to file your taxes. Speak with a tax professional if you have questions or concerns about what’s tax-deductible and what isn’t.

Sign up for the Rocket Money℠ app today for help managing your expenses and tracking your spending as a small-business owner.