Ultimate List of Tax Deductions for the Small Business Owner


December 5, 2023

Here is a handy cheat sheet of tax deductions for the self-employed. This comprehensive list of business tax write-offs will help you determine whether you are taking advantage of all the tax saving opportunities available to you as a business owner. As always, we recommend working with your CPA to figure out which deductions you are eligible to take. Read on for your ultimate checklist of small business tax deductions.

 

Marketing and Advertising

The expenses you incur to market and advertise your business are tax- deductible. Whether you use Google Ads, Facebook Ads, or other forms of online advertising, or you pay for marketing materials like fliers, brochures, or postcards, you can potentially deduct all of these expenses from your tax bill. Be sure to keep good records of your marketing and advertising expenses throughout the tax year.

Business Insurance Deduction

The premiums you pay for insurance policies to protect your business, such as fire insurance, flood insurance, car insurance for a business vehicle, or business liability insurance, are tax-deductible. If the insurance policy pertains to some aspect of your business, then it is an eligible business tax deduction. Share all relevant insurance information with your CPA.

Health Insurance Deduction

Similarly, the premiums you pay for health, dental, and long-term care (LTC) insurance for yourself, your spouse, your dependents, and your children younger than age 27 at the end of the tax year are tax-deductible as a self-employed individual. You must not be eligible to participate in your spouse’s health insurance plan offered through their employer. You can calculate the amount of your deduction using the Self-Employed Health Insurance Deduction Worksheet in IRS Publication 535.

Home Office Deduction

The expenses associated with a workspace you use regularly and exclusively for your business can be deducted with the home office deduction. The IRS has more complex guidelines when it comes to taking the home office deduction if your workspace is used part of the time for personal use. You can read more about the home office deduction here.

Business Startup Deduction

The expenses incurred through getting your business up and running are treated by the IRS as capital expenses, as you are investing in your business, and these are tax-deductible. However, deducting capital expenses typically takes several years through a process called amortization. Talk with your CPA about a plan for deducting startup costs for your business.

Office Supplies

The various supplies and equipment needed for your business are tax- deductible. Office supply expenses may include: paper, ink and toner, business envelopes, postage and mailing supplies, pens and pencils, office furniture, office technology, folders, binders, notebooks, planners, and calendars, staplers, staples, tape, rubber bands, paper clips, scissors, and the like, office storage, like filing cabinets, drawers, and bins, as well as safety and cleaning supplies. According to the IRS, these business expenses must be “ordinary and necessary,” and you must use them exclusively for your business.

Software and Electronics

As with office supplies, the software and electronics you use for your business are also tax write-offs. Accounting and bookkeeping programs, Microsoft Office products, and industry-specific software programs are examples of tax-deductible business technology expenses. Computers, printers, copy machines, and other electronics also fall into this category.

Phone and Internet

Business phones, as well as the business use of personal phones are tax- deductible expenses, as is Internet access for your business. You can only deduct the fees that are directly associated with your business. For example, the IRS will not permit you to deduct your entire monthly bill for a phone you use for both business and personal uses.

Meals Deduction

Meals can be tax-deductible business expenses when you are travelling for business, attending a business conference, or dining with a business client. You have two options: you can either deduct 50% of the meal’s actual cost
if you kept the receipt or 50% of the standard meal allowance if you didn’t keep the receipt but have record of the time, place, and business purpose of the meal. Remember, you will have to keep proper records to demonstrate that meals deducted were both “ordinary and necessary.”

Business Travel Deduction

In addition to meals, other business travel-related expenses, including the cost of transportation to and from your destination, transportation within your destination, and lodging, are tax-deductible. You’ll want to keep good records of your travel expenses because the IRS keeps a close eye on those claiming business travel deductions to make sure taxpayers aren’t taking advantage. Business travel expenses for 2023 are 50% deductible.

Rent

Rent paid for an office or workspace you do not own that you use to run your business is 100% tax-deductible.

Utilities

All necessary utilities for your brick-and-mortar office or workspace, including gas, electricity, trash, and water, are tax-deductible. Different rules apply if you have a home office and are taking the home office deduction.

Vehicle Expenses

Business use of your vehicle is tax-deductible, provided you keep detailed records of the purpose, date, and mileage of each trip. You can either take the standard mileage rate deduction, determined by the IRS on an annual basis, or the actual expenses deduction, which requires more precise calculation and recordkeeping. Talk with your CPA about which method of deduction for the business use of your vehicle is better for your circumstances.

Employee Wages and Contract Labor

All wages paid to full-time or part-time W-2 employees are tax-deductible. In addition, all payments made to freelancers, contractors, or other non- employees qualify as tax write-offs as well. Be sure to send a 1099-NEC form to any non-employee whom you pay $600 or more per year by the January 31 st filing deadline.

Professional Services and Fees

Any professional services you use for your business, such as legal or financial services, and their associated fees, can be deducted as business expenses.

Interest and Bank Fees

Business-related interest charges from a business credit card or a small business loan are deductible, as are the maintenance fees associated with your business bank account.

Memberships and Subscriptions

Professional membership dues and subscriptions to publications specific to your business are deductible.

Education and Professional Training

Education and professional training to improve skills or advance knowledge related to your business are deductible. These items may include:

  • Professional courses and classes
  • Textbooks and other curriculum materials
  • Seminars, webinars, and conferences
  • Degree or certificate programs
  • Travel expenses incurred from attending educational or professional training classes
Charitable Contributions

Charitable contributions to qualifying charities are tax-deductible. How to deduct charitable contributions on your tax return will depend on how your business entity is structured. Keep proper documentation and discuss tax saving strategies for charitable donations with your accountant.

Self-Employment Tax Deduction

The self-employment tax refers to the required Medicare and Social Security taxes that self-employed individuals must pay. You can deduct half of the self-employment tax from your net income when you calculate your income tax. As of 2023, the self-employment tax rate is 15.3%, which breaks down to 12.4% for Social Security and 2.9% for Medicare, and an additional 0.9% Medicare tax rate applies if your income exceeds a certain threshold.

Retirement Plan Contribution Deduction

If you participate in a simplified employee pension individual retirement account (SEP-IRA), savings incentive match plan for employees (SIMPLE IRA), or a solo 401(k), then your contributions to these plans are tax- deductible. You could write off as much as $66,000 in retirement plan contributions for the 2023 tax year, with additional catch-up contributions applicable if you are age 50 or older. Contribution limits vary by plan type, and adjustments are made by the IRS on an annual basis.

 

We hope this list provides helpful insight into the many tax write-offs available to business owners. Be sure to discuss tax deductions with your CPA, as they can offer guidance as to which deductions you are eligible to take. Your accountant can also point out other tax savings opportunities, such as the Qualified Business Income (QBI) deduction, that may be available to you.

 

Reach out to the tax experts at Honest Buck.


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