The Small Business Tax Deductions You Need to Know

Use these small business tax deductions to potentially save money come tax time.

No matter your industry, core offering, or size, the opportunity to maximize your small business tax deductions is music to your ears.

Many eligible expenses, which can be defined as those that are considered ordinary and necessary for your industry, may be deducted from your taxable revenue and save you thousands of your hard-won dollars. In order to potentially claim these deductions and cover yourself in the event of a potential audit, however, you should keep careful records, including receipts and context around the business purpose of the expense. Any expense that is partially used for personal benefit (like the cost of a tax professional who prepares both your business and personal tax returns) should be accounted for as such, as a separate set of rules apply to the deductibility of personal expenses that might mean that the expense is not deductible for business purposes at all. If you’re unsure of what’s deductible or what documentation you need, consult an accountant or other advisor for advice.

Here are some examples of tax deductions for small businesses that might save you money come tax time:

Business development expenses

Attracting and retaining the right type of clients is the lifeblood of your business. But did you know that many activities you focus on to engage those customers could be eligible tax deductions? Whether it’s money spent on Facebook ads, content marketing, direct mail, or live events, these marketing expenses might be tax-deductible.

Plus, the IRS generally allows you to deduct 50% of the cost of meals and entertainment incurred for a specific business purpose—dinner while traveling to a conference, for example, or the cost of entertaining a client at a concert or sporting event—and business-related travel may be fully deductible. 

Facilities expenses

If you operate out of an office space, warehouse, or brick-and-mortar store, then you know that commercial space isn’t cheap. Fortunately, many of the costs related to maintaining a physical space for your business—from monthly rent to mortgage-related interest—may actually reduce your tax bite. Even business owners with home offices can potentially enjoy a tax deduction.

On top of that, the cost of typical utilities such as heating, cooling, gas, water, trash removal, electricity, and telephone service could be deductible—the same goes for office supplies, furniture, or other goods used for operating your business. 

Operational expenses 

Operational expenses and fees, which may not be obvious to an outsider but are likely second-nature to small business owners, require considerable sums of money. Say, for instance, you need a business license or certification to operate in your state or municipality, or you need an attorney to incorporate your business or a bookkeeper to track income and expenses. Cheers! Each of these could be legitimate deductions that can decrease your taxable business revenue.

In addition, business insurance premiums—such as liability insurance, workers’ compensation insurance, malpractice insurance, auto insurance, and business interruption insurance—are generally tax-deductible.

Software and subscriptions applicable to your business might also fall under this category, including expenses such as a subscription to Harvard Health Journal for healthcare practitioners, a licensing fee for sales agents using customer relationship platforms such as Salesforce, or even the cost of the latest Adobe offering for graphic designers.

Labor expenses

Labor costs are a huge part of a business’ budget, especially as you scale up. Fortunately, commissions and/or salaries paid to employees, contractors, and non-employees may be tax-deductible (in most cases—note that payments to sole proprietors, partners, and LLC members are not).

Equipment expenses

Machinery and equipment owners, rejoice! The cost of rent or repairs on these items might be able to be deducted from your tax bill. Be aware, however, that if you buy that equipment outright rather than renting or financing it and its use lasts beyond that calendar year, that’s typically declared a capital expense (which is not eligible for a full tax deduction in the year it was purchased).

Vehicles are another major expense for many businesses. If you fall into that category of business owners who use a vehicle for work purposes, you may be able to deduct many related expenses—including the itemized cost of tires, maintenance and repairs, gas and oil, and more—or take the standard mileage deduction (which is 53.5 cents per mile driven for business for 2017). Either way, you could potentially also deduct tolls and parking fees, vehicle loan interest, and vehicle registration fees and taxes.

For many pieces of business equipment, such as computers, furniture, and vehicles, the concept of depreciation might also apply. Instead of taking the full deduction for an item at once, depreciation allows you to deduct the reduced value of an asset over time as it ages. (Keep in mind that you must own the item outright to be eligible to deduct depreciation.)

Yearly taxes can be a source of dread for some, but these small business tax deductions may add a little surprise and delight to your filing. While these are just some of the elements you’ll want to keep track of, be sure to seek guidance from a tax professional if you’re at all unsure of whether a specific item constitutes a valid deduction or which IRS form to use.

This article is intended for informational purposes only. Readers should consult their own financial advisers, attorneys or other tax advisors regarding any financial or tax strategies mentioned in this article.

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