Tax Deductions Every Small Business Owner Should Know About
Tax deductions are amounts subtracted from your taxable income to lower the amount you owe in taxes and what your final bill will be. While credits chip away at that final number dollar for dollar, the value of a deduction depends on the tax bracket.
Using all the eligible deductions you can help lower your overall liability and save some cash. That said, make sure to talk to an expert who knows their way around a tax form.
Home Office Deduction
For those working or doing extra work from home, here’s how to take advantage of the home office deduction
Home offices regularly used solely for business may qualify as a deduction under either the actual expenses method or simplified option.
Business Vehicle Deduction
Section 179 tax deductions give small business owners who use vehicles in their operations a way to lower their taxes. Instead of using standard mileage rates as a deduction method, this type lets them write off actual vehicle expenses — but only if they keep good records!
Consulting a pro is probably best to figure out which method meets your needs, and watch out for bonus depreciation options.
Business Insurance Deduction
Small businesses often look past this one, but it’s there: The business insurance deduction allows them to write off any policies related to general liabilities, property or errors and omissions policies as deductions on their taxes.
Again, only fees associated with your personal bank account or credit card can be deducted from your tax bill as expenses — not monthly service charges or wire transfer costs.
Business Travel Deduction
As long as business is the primary purpose of a trip and all its expenses are reasonable and necessary, small businesses get 100% of their travel expenses back at tax time. Your CPA can plan trips that fit those requirements.
Your family’s house isn’t necessarily your “tax home,” so make records detailed enough that the IRS would never second-guess them. And use an all-in-one mileage tracker like driversnote.com to make sure you’re getting every inch of your deductions.
Business Entertainment Deduction
Thanks to the 2018 tax reform law, business owners can no longer write off expenses for things like concert tickets or rounds of golf with clients. That’s a bummer for those who used those activities as entertainment expense deductions.
To deduct the full cost of an entertainment expense, keep records that always include time, place and business purpose — for any kind of entertainment-related expenditure.
Business Entertainment Expenses
Remember: Deductions are expenses that reduce your liability, but not all expenses count as deductions.
Example: You can’t claim as a tax deduction the cost to entertain either your spouse or someone else’s unless it directly relates to or associates with business discussions.
Business Travel Expenses
If it qualifies as “ordinary and necessary,” any travel expense is probably tax deductible. The IRS defines this term as trips taken primarily for business if it takes you away from your tax home for more than an ordinary workday — think airfare and hotel stays or taxi fares and ride-hailing services among other examples.
Meals qualify when they’re associated with the travel, but pleasure trips don’t count toward deductions.
Business Phone Deduction
Small business owners often qualify for a cell phone deduction if they only use it for work, and any apps downloaded are also considered work-related, such as a weekly planner or mileage tracker.
If you keep detailed receipts, these expenses are usually tax deductible. But speak to your tax professional to find out what needs to be tracked specifically.
Business Phone Expenses
Personal phones can be used for business purposes too, which makes their expenses count as tax deductions. Keep evidence of how much the device was used in that way and claim up to 50% of costs as a tax credit.
Don’t forget about other fees that may have been required like international roaming charges. In the past, keeping logs of everything was important but now with de minimis safe harbor election, it should be easier.
Business Travel Expenses
Expenses from traveling may also count as a tax deduction if they were purely made for business trips — no pleasure involved.
Meal expenses can also be deducted too if you met with clients or employees over some food — just remember it’s only 50% (this will change in 2023).
Also note that the IRS requires you to spend more than an average working day away from your “tax home” (the city where your business resides) in order to qualify.