If you own a small business, you know that every dollar counts. When it comes to tax time, you want to make sure you take all the tax deductions you’re entitled to. Lower taxes means more money you can either put in your pocket or invest back into your business. Check out this ultimate list of small business tax deductions to see if you’re getting every advantage you can.
It’s important to realize that, for business owners who report their business income on individual tax returns (sole proprietors, partnerships, LLCs, S corporations), most of these are “above-the-line” deductions. That means you can deduct them whether or not you itemize personal deductions on your tax forms. In other words, you can adjust your gross income with eligible business expenses and still take the standard personal deduction.
Here are a number of business expenses the IRS allows you to deduct:
- Cost of Goods Sold or Services Rendered – If you incur any direct costs in manufacturing goods or rendering services, you can deduct these.
- Advertising and Promotion – Any money your spend on advertising and promoting your business can be deducted, including flyers or brochures, signage, Facebook or Google ads, or website updates.
- Donations Made for Marketing Purposes – You can deduct donations or in-kind gifts you make to charitable organization as a business expense as long as your business receives some sort of acknowledgement or recognition for the donation. This would be considered advertising. You cannot, however, deduct the cost of pro bono services, though some expenses you incur in providing pro bono services may be deductible. C corporations operate under different rules and can make cash donations without any marketing motive.
- Office Supplies – Anything you need to keep in stock to operate your business can be deducted.
- Telephone and Internet Expenses – These are deductible but must be prorated if you use them for personal matters as well.
- Rent – If you rent office or work space, you can deduct it as a business expense. If you claim a part of your home as an office, you can deduct the portion of your rent that corresponds to the square footage of your office space in relationship to your entire home, even if it’s an apartment.
- Real Estate Taxes and Mortgage Interest – If you own your office or work space, you can deduct real estate taxes and mortgage interest. If you work out of your home, you can deduct the portion of these that corresponds to the square footage of your office space in relationship to your entire home.
- Utilities – If you pay utilities for an office or other work space – such as a shop, studio, or warehouse – those are deductible in whole. If you claim a home office, you can deduct the portion of the utilities that corresponds to the square footage of your office space in relationship to your entire home.
- Capital Assets – Real estate structures, office equipment, and other larger assets, like a van or car dedicated to your business, can be depreciated and claimed as deductions.
- Business Use of Your Car – You typically deduct the business use of your car by carefully tracking your mileage whenever you use it for a business purpose. For 2018, you can claim $0.545 per mile (which will rise to $0.58 in 2019). In lieu of using the mileage rate, you may deduct actual expenses, which requires you to carefully track and document each expense.
- Business Meals – You can deduct 50 percent of business meals with clients when the main purpose of the meeting is to discuss business. Under certain circumstances, you may also deduct meals when you treat employees.
- Travel Expenses – Any unreimbursed expenses you incur while traveling for business, such as lodging, airline flights, cabs, and tolls, may be deducted.
- Business Moving Expenses – You can deduct the cost of moving equipment, supplies, and inventory from one office to another.
- Personal Moving Expenses – You may also deduct your cost, as a business owner, of moving to a new location in order to open a business, providing the move is at least 50 miles further than your commute to your old job or place of business. If you are self-employed and moving to a new location, you must work full-time at least 39 weeks during the first 12 months, for a total of at least 78 weeks in the first 24 months, in order to claim this deduction.
- Professional and Legal Fees – Fees you are charged for legal or professional service, like bookkeeping and tax preparation, are deductible.
- Professional Development – You may deduct the cost of any work-related professional development you undertake, including online classes, as long as the purpose is to maintain or improve your skills in your present job, career, or profession. You can’t, though, deduct expenses you realize in order to train or qualify for a new position.
- Business Interest and Bank Fees – Interest on business bank loans and on business credit cards can be deducted, as well as any fees your bank charges you to maintain your business accounts.
- Retirement Contributions – You can deduct the amount you contribute to a tax-qualified retirement account, unless the retirement account is a Roth IRA or Roth 401(k). If you have incorporated your business, the corporation can deduct as a business expense contributions that it makes on your behalf.
- Self-Employed Health Insurance Premiums – If you’re self-employed, you may be eligible to deduct premiums that you pay for medical, dental, and qualifying long-term care insurance coverage for yourself, your spouse, and your dependents.
- Salaries and Benefits to Employees – If you have employees, you can deduct the full value of any salaries and benefits you provide them, including health insurance, bonuses, employee discounts, and certain payments to benefits plans. Payments for contract labor are also deductible.
- Qualified Business Income Deduction – The Tax Cuts and Jobs Act of 2017 currently provides small business owners with a deduction on business income from a qualified trade or business. Businesses operated as a pass-through entity (a sole proprietorship, partnership, LLC, or S corporation) may be entitled to a deduction of up to 20 percent of qualified business income (QBI).
There are many other business expenses you can also deduct. A knowledgeable tax accountant can help you to understand and take full advantage of all the tax benefits you deserve.