Tax Deductions Checklist: What Your Small Business Can Claim Every Tax Season

small business tax deductions checklist

As a small business owner, you’re always looking for ways to lower your taxes. One of the simplest ways to reduce your income tax bill is to take advantage of all the tax deductions available to your small business. You can submit various deductions each tax year to lower the amount you owe, saving you hundreds or even thousands of dollars come tax time.

Let’s find out more!

What exactly is a tax deduction?

A tax deduction is an amount that you can subtract from your taxable income. Simply take the amount of the expense and subtract it from your taxable income, allowing you to pay a smaller tax bill.

31 Common tax deductions: A checklist for small businesses 

Avoid losing even a penny related to government taxes by going over this checklist before submitting your tax return to the IRS. 

  1. Self-employment taxes  
  2. Bank interest and bank fees 
  3. Legal and professional fees 
  4. Rent 
  5. Home office
  6. Office supplies
  7. Work-related car use 
  8. Business travel expenses
  9. Phone and internet expenses
  10. Advertising and promotion 
  11. Retirement plans
  12. Subscriptions
  13. Bad debt
  14. Employee benefits and salaries
  15. Medical expenses
  16. Furniture
  17. Shipping
  18. Business meals
  19. Business insurance
  20. Leasehold improvements
  21. Independent contractors
  22. Depreciation on equipment
  23. Education
  24. Moving expenses
  25. Taxes and licenses
  26. Inventory
  27. Utilities
  28. Decor
  29. Loan interest
  30. Employee gifts
  31. Conventions and tradeshows

We will walk you through the first 10 deductions listed above in detail because we think they are the most common for small businesses. 

You might also be interested in: What Are The Differences Between Tax Deductions And Tax Credits?

The top 10 small business tax deductions

1. Self-Employment Taxes

As a small business owner, contractor, or freelancer, you need to pay a 15.3% self-employment tax which goes towards Social Security and Medicare. Some find this tax slightly unfair as standard employees pay 7.65%, with their employer paying the remainder. 

As you are ‘self-employed,’ you need to pay the 7.65% employer share and the 7.65% employee share. 

However, you can claim 50% of your self-employment tax as an income tax deduction. 

Related: For Self-Employers: Beginner’s Guide To The Self Employment Tax Form

2. Bank interest and bank fees

Certain fees charged by your bank or credit card provider, such as yearly or monthly service charges, transfer fees, or overdraft fees, are deductible. If you own an online store, you can also deduct merchant or transaction costs paid to payment processors like PayPal or Stripe.

Bank interest on any loans you took out to fund your business activities can also be deducted.

Just remember, you cannot deduct fees related to your personal bank accounts or credit cards.

3. Legal and Professional Fees

Any professional service fees necessary to the functioning of your business, such as fees charged by lawyers, accountants, and bookkeepers, are deductible for tax purposes. For example, if you get tax advice or pay a management consultant, you can deduct these fees.

4. Rent

Rental real estate expenses are fully deductible. It doesn’t matter if you’re renting a whole office building or a desk in a co-working space. You can deduct the rental payments as a business expense.

Even if you have a home office, rent paid on your house should not be deducted as a business expenditure. Rent is deductible as part of your home office costs.

5. Home Office

Small businesses and freelancers based at home can deduct $5 per square foot of their home used for business purposes, up to a maximum of 300 square feet. However, your home office space must be used regularly and only for business needs. This means you can’t deduct your dining room square footage if you only work on your laptop at the dining room table during the day! 

6. Office Supplies

You might not think you purchase many office supplies throughout the year, but these costs do add up. 

Most people automatically just think of the basic office supplies such as paper, pens and pencils, post-it notes, etc. 

However, office supplies can also include more significant purchases, such as computers, smartphones, printers, and software which can add up to a significant amount. This means you can reduce your tax bill quite a bit by claiming a reduction on these items.

Keep track of your office supplies costs, and remember to keep your receipts!

7. Work-Related Car Use

You can deduct the entire cost of operating your vehicle if you use it only for business purposes. If you use it for both work and personal trips, however, you can only deduct the costs associated with running your business. 

You can deduct the actual miles driven for business or utilize the standard mileage deduction of $0.56 per mile driven to claim the mileage you use for business driving.

Remember, you can’t claim the miles driven between your home to your workplace. These costs are seen as personal commuting expenses.

8. Business travel expenses

First of all, the trip must be necessary to your business, be outside the tax area you do business, and be longer than a normal working day.

If it is, all expenses related to your business travel can be deducted at tax time, including the cost of flights, your hotel costs, and your rental car expenses. The IRS website has a handy list of all deductible business travel expenses. 

If you combine business and pleasure by taking a friend or family along, you can only deduct your expenses, not theirs.

9. Phone and Internet Expenses

The phone and internet are vital to running any business these days, and you can deduct these expenses. It can get tricky if you don’t use a dedicated phone and internet service for your business. You can only deduct the percentage of these costs for your business use. So, if 70% of your internet and phone usage is business-related, you can only write off 70% of those expenses for the year.

10. Advertising and promotion

You can fully deduct expenses related to promoting your business, including digital and print advertising, social media marketing campaigns, website design and maintenance, logo and branding design costs, sponsoring an event, and even the cost of printing business cards, brochures, and flyers.

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Final thoughts

A penny saved is a penny earned. That’s why you should be very cautious and serious when filing your deductions, as you will lose money for every missed claim. But don’t be too worried! Use our checklist and save your pennies!

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