Fortunately, entrepreneurs in the U.S. have plenty of potential deductions to save money where they can. But to use any of these deductions, the proof is essential. It means that you should have all these receipts – in an organized fashion.
Most free tax preparation software, as long as it’s from a reputable company, will have guided prompts to assist you. However, when you get into the realm of deductions, things can get tricky. It would be beneficial to talk to a tax professional or advisor so that you’ll know which ones you can use and when you can use them. Ask your tax advisor to make sure you’re not overpaying or underpaying. Check out the 25 most common small business tax deductions.
1. Home Office
A portion of personal expenses of a home as a business expense if you use the house regularly and exclusively as the principal place of business, a place to meet or deal with customers or clients, or as a separate structure used in the business. Deductions include both direct and indirect costs.
2. Office Expenses
Expenses used to beautify your office like magazine subscriptions, flowers or aquariums are fully deductible.
3. Vehicle Expenses
Small businesses use a car, a truck or a van. Deduct your cost of operating the vehicle for business purposes. Use the standard mileage rate whether you own or lease a vehicle. However, you will need a record of the business mileage whether it’s for actual costs or standard mileage rate.
4. Mortgage Interest
If your business owns realty, then you can deduct mortgage interest. There is no cap on the size of loans on which interest can be claimed except interest on a personal residence.
5. Salaries and Wages
Any payment given to employees like their salaries, wages, commissions, bonuses, and taxable fringe benefits is a deductible business expense for the business.
Fully deductible costs are for ordinary repairs and maintenance. Costs that add to the property’s value are capitalized and recovered through depreciation.
Taxes that you can deduct are licenses, regulatory fees, and taxes on real estate and personal property, employer taxes, the employer share of FICA, FUTA, and state unemployment taxes.
You can also deduct in full of your business owner’s policy, flood insurance, malpractice coverage, cyber liability coverage, and even business continuation insurance.
The cost of transportation (airfare) and lodging for business travel are fully deductible. Of course, you need to meet requirements to claim travel deductions.
You can deduct ordinary advertising costs in full.
Meals are deductible only up to 50%. You can only claim this tax deduction if you support the expense.
The cost of items used in a small business like postage is a deductible business expense in full.
Your facility uses utilities like electricity, mobile phone chargers, and even a second landline – all of which you can fully deduct as a utility cost.
This is pin money for the cost of purchasing a property for your business. The depreciation category includes a bonus depreciation allowance – it is another kind of write-off in the year costs that were paid or incurred. For properties acquired and placed in service this year and last year, the limit is 100%.
If you had a bad past year, you may still have a net operating loss carryover that you can use to reduce your current income and cut your tax bill. You can also check for a home office deduction carryover that was formerly barred because of a taxable revenue limitation.
16. Bad Debts
Unpaid debts or accounts receivables are reported businesses can be deducted. Small businesses should take a deduction for anything worthless.
17. Contract Labor
Small businesses use independent contractors or freelancers to meet their labor needs. This kind of cost is deductible, use Form 1099-NEC.
18. Rent on Business Property
You can deduct in full the amount you pay for renting a space for your office, storefront, factory or warehouse.
19. Commissions and Fees
Commissions and fees are fully deductible but you will need to report them on Form 1099-NEC. Commissions paid for realty are not deductible because they are added to the basis of the property and are recovered through depreciation.
20. Legal and Professional Fees
Accounting fees, reviewing a contract, and lease are fully deductible but depending on what you use them for. Handling the closing on a property purchase is not deductible.
21. Rent on Machinery and Equipment
Fees paid for leased or rented machinery and equipment used in your businesses are deductible in full.
22. Interest on Business Indebtedness
Deduct interest on loans that your business takes as an expense. Be able to differentiate business interest from an owner’s investment or even passive activity interest which is not a business deduction.
23. Employee Benefit Programs and Qualified Retirement Plans
Employee benefit programs can be deducted like education assistance, dependent care assistance and contributions to employees’ qualified retirement plans.
24. Miscellaneous Business Deductions
If there is an expense that doesn’t fit into any of the categories listed above, you may still find it deductible as long as it is ordinary and necessary for the business.
25. QBI Deductions
The quality business income (QBI) deduction lowers the effective tax rate paid on business profits on the owner’s returns. This is a 20% of QBI deduction.