Top Tax Deductions for Your Small Business

Top Tax Deductions for Your Small Business

Auto Expenses

If you use your car for business or your business owns its own vehicle, you can deduct some of the costs of keeping it on the road.

The two methods of claiming expenses are:

• Actual expense method. You keep track of and deduct all of your actual business-related expenses
• Standard mileage rate method. You deduct a certain amount for each mile driven, plus all business-related tolls and parking fees.

If your auto is used for both business and pleasure, only the business portion produces a tax deduction. That means you must keep track of how often you use the vehicle for business and add it all up at the end of the year.

Expenses of Going Into Business

Once you’re running a business, expenses such as advertising, utilities, office supplies, and repairs can be deducted as current business expenses—but not before you open your doors for business.

The costs of getting a business started are capital expenses, and you may deduct $5,000 the first year you’re in business; any remainder must be deducted in equal amounts over the next 15 years.

Books and Legal and Professional Fees

Business books, including those that help you do without legal and tax professionals, are fully deductible as a cost of doing business!

Fees you pay to lawyers, tax professionals, or consultants generally can be deducted in the year incurred.

Insurance for Small Business

You can deduct the premiums you pay for any insurance you buy for your business as a business operating expense, including:

• medical insurance for your employees
• fire, theft, and flood insurance for business property
• liability insurance
• professional malpractice insurance
• workers’ compensation insurance
• business interruption insurance
• life insurance covering a corporation’s officers and directors if you’re not a direct beneficiary under the policy
• unemployment insurance contributions
  • bank service charges
  • business association dues
  • business gifts (limited to $25 per gift)
  • business-related magazines and books
  • casual labor and tips
  • casualty and theft losses
  • coffee and beverage service
  • commissions
  • consultant fees
  • credit bureau fees
  • office supplies
  • parking and meters
  • petty cash funds
  • postage
  • seminars and trade shows, and
  • taxi, bus, and Uber-type fares.
  • Note: Just because you didn’t get a receipt doesn’t mean you can’t deduct the expense, so keep track of those small items.

Travel for Small Businesses

When you travel for business, you can deduct many expenses, including the cost of plane fare, costs of operating your car, taxis, lodging, meals, shipping business materials, cleaning clothes, telephone calls, and tips.

What about combining business and pleasure? It’s okay, as long as business is the trip’s primary purpose. But if you take your family along, you can deduct only your own expenses.

Interest

If you use credit to finance business purchases, the interest and carrying charges are fully tax-deductible. The same is true if you take out a personal loan and use the proceeds for your business.

Small Business Charitable Contributions

If your business is a partnership, LLC, or S Corp, your business can make a charitable contribution and pass the deduction through to you, to claim on your individual tax return. If you own a C Corp, the corporation can deduct the charitable contributions.

Education Expenses

You can deduct education expenses if they’re related to your current business, trade, or occupation. The expense must be to maintain or improve skills required in your present business.

Advertising and Promotion

The cost of ordinary advertising of your goods or services—websites, business cards, Google Adwords, and so on—is deductible as a current expense.

Promotional costs that create business goodwill—for example, sponsoring a peewee football team—are also deductible as long as a clear connection exists between the sponsorship and your business.

Pass-Through Tax Deduction

Tax deduction for individuals who earn income through pass-through businesses.

Such individuals may deduct an amount up to 20% of their net income from each pass-through business they own. This deduction is in addition to all their other business deductions. The pass-through deduction is a personal deduction pass-through owners can take on their returns whether or not they itemize. This deduction is scheduled to last from 2018 through 2025.

However, this deduction is limited for people whose business is providing personal services, including people providing services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any business where the principal asset is the reputation or skill of one or more of its owners (but there is an exception for architects and engineers).

A business owner who provides such services is entitled to the 20% pass-through deduction only if their 2022 taxable income from all sources after deductions is less than $340,100 if married filing jointly, or $170,050 if single ($329,800/$164,900 for 2021).

This deduction is scheduled to end on January 1, 2026.

Easily Overlooked Business Expenses

Here are some additional routine deductions that many business owners miss (keep your eye out for them):