There’s an old saying that it takes money to make money, and that’s often the case for small business owners. It’s common to incur expenses on everything from marketing and travel to supplies and insurance.
The good news is, you can write off a wide range of business expenses, and every deduction will help to reduce your taxable income.
Not sure where to start? Here are 10 small business tax deductions you don’t want to miss.
1. Vehicle Expenses
If you use your car for business purposes, you might be able to deduct car-related expenses such as depreciation, toll payments, insurance, parking fees, registration fees, repairs and tires.
[READ: Everything You Need to Know About Claiming a Mileage Tax Deduction]
The IRS offers two ways to do so; using the standard mileage rate or deducting your actual car expenses.
If you opt for the standard mileage rate (65.5 cents per mile for tax year 2023), you calculate your deduction based on the miles you drive for business in a given tax year. If you opt for the actual car expenses method, you skip the mileage rate and itemize your actual car expenses.
“Whether you log miles for client visits, deliveries or business errands, the standard mileage rate can add up to significant deductions,” Sean Lovison, a certified financial planner, CPA and the founder of Purpose Built, said in an email.
2. Travel Expenses
Travel expenses can be deductible if the purpose of a trip involves business. For example, if you’re speaking at an industry conference out of town, you may be able to write off the:
— Cost of transportation to and from the conference.
— Transportation fares once you’re at the destination.
— Baggage fees.
— Lodging.
— Meals (50%).
— Laundry.
— Tips.
The amount you can deduct, however, can vary based on the type of expense you’re deducting and the percentage of the trip you spend on business activities. It’s also important to note that a regular commute to the office won’t qualify.
“Commuting expenses are not tax deductible, even for business owners,” Milla Liberson, an accountant, licensed tax expert and president of OnPoint Business Solutions, said in an email.
3. Home Office Expenses
Running your business from a dedicated space in your home on a regular basis can also qualify you for a deduction.
“If you have a dedicated workspace at home, the home office deduction can be one of small businesses’s most powerful tax breaks,” Lovison said.
You can opt for the simplified or actual expense deduction method. The actual expense method allows you to deduct direct expenses for the business part of your home in full. Plus, you can deduct a percentage of your home’s overall expenses such as rent and utilities.
The simplified method, on the other hand, is when you multiply the square footage of the area you use for business, up to 300 square feet, by $5 to get your deduction.
4. Advertising and Marketing Expenses
Customers don’t typically flock to a business unless it’s promoting itself. Luckily, the IRS allows you to write off the money you spend bringing in and keeping customers. That said, your expenses have to pass the ordinary and necessary test.
“Spending money to get your business out into the world is an expense for almost every business,” Christian Maldonado, CEO and founder of the US-based accounting firm Finsult, said in an email.
He explained that sometimes businesses use so many forms of marketing and advertising, that some of the expenses go under the radar.
“For example, tape with your business logo, online media buying, billboards, flyers, etc.,” Maldonado said.
To avoid missing deductions, keep meticulous records of all of your advertising and marketing expenses throughout the year.
5. Work-Related Education Expenses
Have you been thinking about upskilling? You can write that off, too.
The IRS allows self-employed individuals to deduct expenses for education. The key requirement? The program has to help you maintain or improve the skills you need for your present work.
[Related:How to File Taxes When You’re Self-Employed]
“Investing in yourself is investing in your business. The cost of courses, conferences and certifications directly related to your field can often be deducted,” Lovison said. Deductible expenses can also include tuition, books, supplies, travel and certain transportation costs.
6. Insurance Premiums
Business insurance is also deductible. If you have policies in place that protect your business, you can generally deduct all the premiums you pay in a given tax year.
“Insurance is your safety net, and the premiums you pay for liability, professional indemnity and other essential business insurance policies are often tax-deductible,” Lovison said.
7. Business Supplies and Materials
Supplies and materials are another deductible expense. For example, you can likely write off items such as paper, light bulbs, staples, printer cartridges, trash bags and cleaning products.
The key is that the items must be inexpensive, $200 or less, or consumed within a year. The IRS categorizes items that last longer or cost more as capital assets (which can’t be deducted).
8. Taxes
You can also deduct a variety of taxes that are directly attributable to your business. For example, state income tax on your gross business income, employment taxes you pay for employees, half of the self-employment tax and real estate taxes on business property can all be deductible.
[Related:9 States With No Income Tax]
9. Legal and Professional Fees
If you hire professionals to help you with different aspects of your business, such as an accountant or lawyer, you can deduct the ordinary and necessary fees they charge.
If the professional helps you with both business and personal matters, you can deduct only the fees for services related to your business.
[See: Answers to 15 Common Tax Questions]
10. Interest on Business Loans
Have you taken out a loan and used the proceeds on business-related expenses? If so, the IRS allows you to deduct the interest you paid on the loan during a given tax year.
However, if you use a loan for both business and personal expenses, the amount of interest you can deduct will depend on the percentage of the loan you use for your business. For example, if you spent 75% of a loan on your business and 25% on personal expenses, you could deduct 75% of the interest.
To ensure you deduct all you can and avoid mistakes, consider enlisting the help of a reputable tax professional.
“Tax laws are an ever-changing maze, and a seasoned tax advisor can guide you through it. Their expertise can maximize your deductions and ensure compliance,” Lovison said.
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10 Small Business Tax Deductions Worth Knowing originally appeared on usnews.com
Update 03/15/24: This story was published at an earlier date and has been updated with new information.
