Small Business

Small Business Tax Deductions Checklist

Aug 29, 2024

Small business owners have a lengthy list of expenses that are part and parcel of running a business. However, many of these expenses can be deducted when it comes time to calculate your taxes. Another way to take advantage of tax benefits is to open a business bank account. In fact, it's wise to have multiple business bank accounts.

Whether purchasing office supplies and equipment or professional services, you can save money at tax time. These small business tax write-offs will help soften the blow of your startup and operating expenses.

Here are some of the most common small business expenses you can deduct from your taxes.

1. Home Office Expenses

Running a business out of your home? You’re not alone — the Small Business Administration estimates that about 15 million businesses in the U.S. are home-based. That represents approximately half of all businesses in the country.

Home office expenses include utilities, maintenance, insurance, rent, and mortgage interest.

According to the Internal Revenue Service, there are two general requirements to qualify your home expenses as tax deductible.

Those requirements are:

A portion of your home must have an exclusive use for business, and it must be used on a regular basis.
Your home must be the main location for business operations. You can still qualify in some cases if you conduct business outside your home but still perform management or administrative tasks at home.

2. Office Supplies

Chances are you’re going to need office supplies, and those also qualify for small business deductions. This covers everything from big-ticket items such as computers and printers to small items like pens, staplers , and notepads.

Software subscriptions also count. For example, if you use accounting software or payroll software, add that to your list of deductible business expenses. Business supplies is one area where the total cost can add up in a hurry, so you’ll need to account for every expense to maximize your deduction.

3. Vehicle Expenses

Depending on your type of business, the full cost associated with your vehicle can vary greatly. If your business requires a lot of travel for consultations or deliveries, among other reasons, you’ll need to pay close attention to a few data points.

Of course, you’ll need to track the mileage accrued on your vehicle for business travel. Other things that contribute to your vehicle tax deduction are money spent on gas — or charging stations if you have an electric vehicle. General maintenance and car insurance are other expenses you can deduct.

4. Marketing and Advertising

How do you make your product or service known to your customers? You’ll generally need a budget for marketing and advertising what your business is selling.

Here are a few expenses you may incur for marketing and advertising your business:

Website design and maintenance
Digital and print ads
Paid social media campaigns
Direct mail materials

While there’s no one correct approach to marketing or advertising, the Small Business Administration recommends using 7-8% of your gross revenue on marketing. For example, if your gross revenue is $50,000, spending 8% would mean a business expense of $4,000 toward marketing.

5. Professional Services

As a business owner, you have many responsibilities. But when it comes to certain tasks, it’s best to leave the work to professionals. While setting up or running your business, you may enlist the services of a lawyer, financial advisor, tax professional, accountant, or various independent contractors.

While it would be helpful to have these expenses deducted for personal use, that doesn’t qualify. Any one of the professional services must be specifically used for your business to be tax deductible.

6. Employee Expenses

If you run a business with employees, there are several things you can deduct from your taxes. This includes employee wages and employee benefits.

The IRS separates employee expenses into two buckets — ordinary and necessary expenses related to the job. Ordinary expenses are “common and accepted” in your business or profession. Necessary expenses are “helpful and appropriate” for your business.

Professional development can also qualify for tax deductions. However, the training in question must provide your employee s with skills that are specific to the job they perform for your business only.

7. Insurance Premiums

Protection for your business is paramount. That protection comes in many forms through insurance. And while you have to shell out the money to pay your insurance premiums, you can recoup some of that money through business deductions.

Accidents can and will happen, which is why you need to be covered. The following list includes several different types of business insurance that can qualify for deductions.

Liability insurance
Property insurance
Unemployment insurance
Worker’s compensation
Disability insurance
Business interruption insurance
Credit insurance

8. Phone and Internet

Every business needs a dedicated phone number and internet access. Customers will need a way to contact you, and chances are you’ll have social media accounts and/or a website for your business.

The good news is you can save money on business usage of phone and internet. However, there is a limit to how much you can deduct as business expenses. The amount is dependent on how much of your time on the phone is for business.

For example, if 50% of your phone usage is for business, you can deduct 50% of your expenses. You may want to retain an itemized phone bill if you need to prove this usage to the IRS.

9. Even More Deductions

Here are a few more categories to consider when making tax deductions for your business.

Travel expenses: Food, lodging, and other travel-related expenses can be deducted. Remember to keep meticulous records and track all your receipts.
Interest on loans: You can claim a tax deduction for business loans. According to the IRS, you must meet three requirements — you are legally liable for the debt; you and the lender agree the debt will be repaid; there is a debtor-creditor relationship between you and the lender.
Bad debt: You may be eligible for a bad debt deduction if one of your customers or a debtor refuses to pay money they owe. This usually happens when they dispute the amount due, their business closes, or they are unable to pay the debt.
Business entertainment: Having an office party, team bonding retreat, or other social activity for your employees? These entertainment expenses could be deductible. But the IRS says the expenses must be “necessary” and “ordinary.”

Get More Back for Your Business

Use this checklist to ensure you’re getting the most money back for what you put into your business. This is not an all-inclusive list – there are other expenses you can deduct as well. But let this be your starting point and guide toward saving more of your hard-earned money.