The Ultimate Small Business Tax Deductions Checklist

If you dread tax season every year, you’re not alone. It’s easy to wait until the last minute to prepare and file your small business tax return. No one likes the idea of losing money, and the complex record-keeping and paperwork required can make the whole process an ordeal.

But it doesn’t have to be like that! When you file your return and pay your final income tax due, you’re not losing money; you’re putting money back into the system that supported you. You’re laying the groundwork for more families and businesses to flourish in the future.

And if you take the time to work through the admittedly complicated tax process, you’ll discover that the law gives you countless opportunities to adjust and reduce your tax burden with applicable credits and deductions.

If you put time and effort into the process or work with a tax accounting professional, you might find you’ve been paying far more in taxes than you were supposed to. You can get started by learning about the many different deductions available for business expenses.

What Expenses Can Small Business Owners Deduct?

Running a business is expensive; it costs money to make money. Fortunately, many of those everyday costs of running a business are not meant to be included in your taxable income. That’s what it means for business expenses to be tax-deductible.

Business expenses represent the cost of carrying on a trade or business, and these expenses are usually deductible if your business operates to make a profit. Deducting business expenses is only possible if the expenses are ordinary and necessary for your business’s operation.

Your expenses have to be relatively normal in your industry, and they must be clearly supportive of your for-profit business’s fundamental operation. You also need adequate supporting documents and accounting records to provide evidence for the expense itself and its purpose.

Small Business Tax Deductions Checklist

Of course, even given those requirements, that leaves you with a massive range of possibilities for business expenses that you could deduct from your taxable income.

Tax deductions work by reducing your taxable income and therefore lowering your taxes overall. They essentially exempt portions of your income from being taxed. Here is a list of significant deductions you could be claiming:

1. Start-up and Organizational Expenses

Most, if not all, of your start-up costs should be eligible for deduction as business expenses. This includes the cost of setting up business entities and filing with state and federal authorities. Any of the costs of starting the business before the business is in operation are included here.

This includes equipment, hiring costs, even the software you buy to use in your accounting system.

2. Labor Costs

Paying your employees is one of the necessary and ordinary costs associated with running a business. Your payroll and contract labor costs, including administrative expenses, should be tax-deductible.

If you are reimbursing your employees separately for expenses they make on behalf of the business, you may also be able to claim those as tax-deductible expenses, but you will need to make sure all of those expenses are well documented.

3. Operating Expenses

What are the other expenses you make every day as part of the work of your business? Capital and supply costs count, which means big expenses like new buildings or equipment, and smaller costs like raw materials and ongoing maintenance needs can be recorded and claimed as business expenses.

What was the cost to you for every good you sell? That cost of the good was an investment you made, so that portion of the selling price should not be counted as income on your tax return.

4. Advertising and Marketing

Advertising and marketing are crucial for businesses to find clients and establish themselves in their industries. Therefore, most advertising and marketing expenses can be claimed as tax-deductible expenses.

Business advertising expenses are deductible as long as they only serve an advertising purpose instead of a personal purpose. You can’t deduct the costs of personal events just by inviting prospective customers along for the ride.

Buying signs or other materials for advertising purposes also may not count as an advertising expense. If you are buying something to use for advertising, it is an asset that you have purchased. You can still deduct the cost of that asset over time as it depreciates.

5. Building Costs

Do you rent an office space for you and your employees? Rent, utilities, and other costs associated with maintaining this space should also be eligible for claiming as tax deductions. If the space is used solely and explicitly for business purposes, it all counts as a business expense.

This can also include telephone and internet costs and anything else related to the building that is necessary for the work you do.

6. Depreciation 

When you buy property or make other relatively large investments in your business, you can’t deduct the whole cost of the investment right away. What you can do, however, is claim deductions for depreciation over time.

When you claim a deduction to depreciate property, you ask for a tax deduction to make up for the loss of value over time. Your capital or property investment slowly degrades, so you claim a tax deduction for that slow degradation from your original investment.

7. Professional Fees

Do you hire a lawyer, accountant, or some other professional to work with you and your business at times? Those fees are usually tax-deductible because they are a normal part of doing business.

This also applies to fees you may pay for membership in certain businesses, professional networks, or organizations. If your membership or subscription is entirely used for business purposes, those costs should be tax-deductible.

8. Business Travel and Transportation

Business travel is any travel outside of your home city for an entire day or more intended entirely for business purposes. You should be able to deduct all business travel expenses that meet these requirements.

Keep records of the money you spend on transportation, lodging, meals, parking, even the tips you give to waiters and airport shuttle drivers. All of these are deductible business travel expenses.

9. Vehicle Use

Do you use a personal vehicle for work purposes? Even if you also use it for your own personal transportation needs, you should be able to claim a tax deduction for any vehicle used for business purposes.

The simplest way to do this is to document and record your precise mileage when using the vehicle for business purposes. Then you will claim a deduction rate based on your recorded mileage for business use of your personal vehicle.

This does not include travel to and from your office and residence.

10. Home Office Deduction 

If you run a small business out of your home, you might be able to deduct a portion of your housing costs as business expenses. This requires an accountable plan to qualify for reimbursement.

It would be best if you had an area of your home used for business purposes only. The home office deduction will then allow you to deduct a portion of your rent, utilities, mortgage, and other housing-related costs corresponding to the portion of your home used for your business.

Other personal properties you make use of for business purposes may also qualify. The office space must be your principal and regular place of work, and you should be able to support your claim with clear documentation.

11. Education Costs

The world is changing quickly, and the businesses that keep learning are the ones that survive and adapt. Attending professional conferences and seminars and continually educating oneself about your industry changes are important and necessary for running a business. Don’t forget to deduct these costs as well.

12. Insurance, Taxes, Licenses, and Permits

All of these are ordinary and necessary costs of doing business. If your business has to pay to renew a license to operate regularly, that should qualify. Business insurance premiums and normal taxes paid by the business may be costs you can deduct on your federal income tax return.

Deductible insurance costs include business insurance policies on your equipment and property and the costs you pay to cover your employees’ insurance policies.

13. Banking Costs

You have to maintain a bank account to run a business, so any costs associated with that account are deductible business expenses.

Interest from a bank account or business loan is tax-deductible, although it must be clearly meant for business purposes. The IRS also tends to be critical of loan agreements between individuals with a personal connection that goes beyond commercial ties.

Don’t Leave Any Deductions Behind

No one wants to pay any more in taxes than they’re truly supposed to. Every dollar you deduct from your taxable income is a dollar you can use to keep reinvesting, supporting your staff, and building your business.

If you’re not sure what to claim a deduction for or not, work with a tax accounting professional who can guide you through the process. An expert can help you maximize your savings without losing time figuring out how to navigate the complex tax system.


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