36 Business Expense Categories for Small Businesses and Startups

small business tax deduction

Finally, using a provision of the tax law called the “de minimis safe harbor,” a business may deduct in a single year any tangible personal property that costs $2,500 or less, as stated on the invoice. You must file an election with your tax return to use this deduction. Many small-business owners—especially contractors and freelancers—need a home office. If you use a home office, you might be able to deduct the costs of creating and maintaining your workspace. If you’re a small-business owner with one or more employees, you can deduct the cost of the employees’ salaries, benefits, and vacation pay. Business meals for employees, clients, and potential clients can be tax deductible, depending on the purpose of the meal. Are you taking clients out for dinner and drinks but not discussing business?

Postage, shipping meter subscriptions, delivery charges—they’re all deductible come tax time. Still, you’re better off paying less for shipping in the first place. Our Endorsed Local Providers take the stress out of tax season by helping you claim all the deductions you qualify for and save time in the process. Okay, no matter what kind of business you run, you probably have to stock up on traditional office supplies—whether it’s printer ink, pens or Post-it notes. Remember, the IRS only allows you to claim this deduction if you use your home office exclusively for business purposes on a regular basis.

What Else Can I Deduct as a Business Expense?

In this guide to small business tax deductions, we’ll tell you which deductions are available, note important changes from last year, and identify potential ways to save money on this year’s tax bill. Travel expenses may be tax deductible if they are ordinary and necessary for your business.

small business tax deduction

You can reduce your total income tax bill by claiming these tax deductions. Some deductions are directly related to your business operations, while other tax deductions are more personal. As you read through, you will become aware of this distinction.

Need help with your taxes?

This includes expenses like raw materials, employee wages and storage.3 But this deduction can get a bit technical, so you’ll want to consult a tax pro. Human Resources Hire, onboard, manage, and develop productive employees. Time and Attendance Track employee time and maximize payroll accuracy. 401 and Retirement Help employees save for retirement and reduce taxable income. Employee Benefits Offer health, dental, vision and more to recruit & retain employees. Business Insurance Comprehensive coverage for your business, property, and employees.

What deductions can I take for a small business?

  • Business Meals.
  • Work-Related Travel Expenses.
  • Work-Related Car Use.
  • Business Insurance.
  • Home Office Expenses.
  • Office Supplies.
  • Phone and Internet Expenses.
  • Business Interest and Bank Fees.

Contribution limits vary by plan type, and the IRS adjusts the maximums annually. Of course, you can’t contribute more than you earn, and this benefit will only help you if your business leaves you enough profits to take advantage of it. Lea has worked with hundreds small business tax deduction of federal individual and expat tax clients. Whether you’ve started a small business or are self-employed, bring your work to life with our helpful advice, tips and strategies. You pay a freelance editor to proofread monthly blog posts for your business’s website.

Final words on small business tax deductions

When you’re calculating the $25-per-person limit, there’s no need to count gifts that cost you $4.00 or less that have your business name on them, like stickers or stress balls. If you and your spouse both give gifts to the same person, the two of you count as one taxpayer. Business bad debt can happen if you sell a good or service to a customer with the understanding that they’ll pay you later , and it becomes clear you’re not going to get paid. If you travel to meet a client, to attend a conference, or for any other business-related reason, you can deduct your expenses. The salaries and benefits must have been paid in the year in which you are claiming the deduction. The American Rescue Plan extends a number of critical tax benefits, particularly the Employee Retention Credit and Paid Leave Credit, to small businesses. You can temporarily deduct 100% for qualifying business meals through Dec. 31, 2022.

  • Reasonable costs incurred to advertise your business are tax-deductible.
  • Luckily, a large percentage of these activities can be tax-deductible in the right circumstances.
  • You pay a freelance editor to proofread monthly blog posts for your business’s website.
  • This isn’t a comprehensive list of tax deductions available to small businesses , but it’s a great starting point before working with a CPA, who can ensure you get all of your relevant deductions.
  • If you don’t have a good DIY setup you’re happy with, check out Bench.

Health insurance premiums are deductible if not paid by an employer (either yours or your spouse’s). If you pay for your own insurance, and your spouse and children are covered under your policy, you can also deduct that.

Both methods require that you track your business miles for the year. You can keep a detailed log of your business miles, use an app to track your trips, or reconstruct a mileage log using other documents, such as calendars or appointment books. If you keep a mileage log, clearly document the miles driven, time and place, and business purpose of your trip. Be sure to keep documentation https://www.bookstime.com/ for the outing that includes the amount of each expense, the date and place of the meal, and the business relationship of the person you dined with. A good way to do this is to record the purpose of the meal and what you discussed on the back of the receipt. By locating the $6,000 in contractor expenses, Bench was able to reduce Joe’s tax liability by over $1,500 dollars.

Credit card processing fees, tax preparation fees, and repairs and maintenance for business property and equipment are also deductible. Other business expenses can be depreciated or amortized, meaning you can deduct a small amount of the cost each year over several years.

A tax deduction only gives you back some of your money, not all of it, so try to avoid borrowing money if possible. The simplified option lets you multiply an IRS-determined rate by your home office square footage.

  • That means taxpayers cannot deduct losses of more than $524,000 if married and filing jointly or $262,000 if single.
  • If you use your phone or the internet for work, you can deduct the costs of their use for business.
  • Just make sure you issue the right IRS form (1099-NEC or 1099-K, depending on how you pay them) to any freelancer or contracted worker who you pay $600 or more.