Top 16 small business tax deductions
The following list of deductible business expenses highlights potential opportunities to reduce your tax liability:
1. Startup costs
Some startup costs can be tax-deductible, including the following:
- Advertisements for a grand opening
- Costs of training employees and paying instructors for training
- Fees for conducting studies to explore market conditions, labor supply and competitors
- Money paid to consultants, attorneys and accountants
- Travel expenses related to establishing relationships with initial suppliers, distributors or customers
Most other startup costs fall under the category of capital expenses, which you usually amortize over a set number of years rather than deduct all at once.
“As a business owner, I’ve learned that keeping clean records and asking questions early can make a big difference at tax time. I’ve observed small businesses miss savings simply because they didn’t realize an expense might qualify. Working with a certified public accountant (CPA) can help you stay compliant and feel more confident in your filings.”
—Ashlee Malet, MBA in accounting
2. Insurance
Premiums paid for most types of business insurance are generally deductible, such as:
- Business auto insurance
- Business continuation insurance
- Business owners’ health insurance
- Business property insurance
- Liability insurance
- Life insurance used for succession planning
- Malpractice insurance
- Workers’ compensation insurance
3. Utilities
You can normally deduct the cost of utilities paid at your place of business. Common utilities may include:
- Cable television
- Electricity
- Gas
- Heating and cooling, if it doesn’t fall under electricity or gas
- Internet
- Landline telephone service
- Sewage
- Trash and recycling
- Water
If you maintain a home office, there may be some restrictions on deducting utility expenses. For example, you normally can’t deduct the cost of your main home landline, but second lines used exclusively for business may typically be deductible.
4. Inventory
Companies that manufacture or purchase products to sell may be able to deduct the cost of inventory. Normally, this involves valuing your inventory at the beginning and end of the year and calculating the cost of goods sold. Some things that contribute to the cost of goods include the following:
- Factory overhead
- Freight
- Labor costs
- Raw materials
- Storage
5. Rent payments
If your business rents space, your rent payments may be tax-deductible. This usually includes both your base rent and any common area maintenance (CAM) fees you pay. Additional expenses paid to your landlord for property management, security and other services may also be deductible.
You may also be able to take small business tax deductions on any money that you paid to rent or lease office equipment, office furniture, tools and machinery. In some cases, you may also claim depreciation on leased and rented equipment to reduce your tax liability further.
6. Automobile expenses
You can normally deduct expenses related to the purchase and upkeep of company-owned vehicles from your taxes. If you use your car, mileage accrued for business purposes may also be tax-deductible. However, you’ll typically need to keep detailed records of the following:
- Where your trip started
- Destination
- Miles traveled
- Purpose of travel
If you handle both personal and business matters on one trip, you can count only the mileage related to your stated purpose. For example, if you drive 50 miles to attend a business meeting with a client and an additional 10 miles on the way back to stop at the grocery store, you typically need to subtract the additional mileage to reach the store.
7. Charitable donations
Monetary gifts given to tax-exempt charitable organizations by your business may be tax-deductible. You may also be able to write off other donations, such as giving away merchandise to a local nonprofit for use as a prize in a fundraising event.
8. Office supplies and furniture
The total amount you spend on office supplies and furniture in a year is usually tax-deductible. Save receipts and track how much you spend on items, such as the following:
- Calendars and planners
- Chairs
- Desks and tables
- File folders
- Filing cabinets
- Ink and toner
- Light bulbs
- Notebooks
- Packing supplies and boxes
- Paper
- Paper and binder clips
- Pens and pencils
- Staples and staplers
- Tape
9. Software
Any software you purchase for your company may be tax-deductible. You may also be able to deduct the cost of monthly or annual subscriptions for software and online applications.
10. Business meals
A portion of the cost of business meals purchased from restaurants may be tax-deductible. For tracking purposes, you typically need to save the receipts and keep records of the following:
- Date and time of the meal
- Location of the meal
- Who you dined with and how they relate to your business
- Total costs
11. Travel expenses
Expenses accrued while traveling exclusively for business in an area outside your company’s location may be tax-deductible. Normally, the trip must last longer than a typical workday and involve either staying overnight or stopping to rest. For trips that qualify, you may be able to deduct the following:
- Airfare
- Automobile expenses
- Bus, rail and subway fares
- Dry cleaning
- Hotels
- Meals
- Parking and valet service
- Rental car fees
- Taxis or ride-sharing
- Tips
- Tolls
12. Interest and bank fees
Interest paid on business loans and business credit cards may qualify for deductions as business expenses. You may also be able to deduct the cost of fees assessed by your financial institutions. Fees for online payment processors may also be deductible.
13. Professional services and contractors
If you hire independent workers who require you to send Form 1099-NEC, you may be able to deduct the fees for their services. In addition, fees for professional services, such as those paid to a CPA or attorney, usually qualify for small business tax deductions.
14. Salaries and benefits
Salaries paid to employees who are not partners in the business or limited liability company (LLC) members are usually tax-deductible. You may also be able to add the cost of providing health insurance and other benefits, such as paid time off, to your deductible business expenses.
15. Education
Education that helps you or your employees perform job duties more effectively or expands expertise may be tax-deductible. Some business expenses that may qualify as educational deductions include the following:
- Books on general business topics or subjects related specifically to your field
- Continuing education courses required to maintain a license or certification
- For-credit and non-credit courses and classes
- Seminars
- Trade publications and journals
- Webinars
16. Advertising and marketing expenses
Money you spend to promote your business to new or existing customers may be tax-deductible. Some costs to consider include the following:
- Billboards and posters
- Business cards
- Direct mail
- Email mass messaging services
- Event sponsorship and attendance fees
- Influencer marketing
- Marketing research
- Newspaper and magazine ads
- Paying an advertising or marketing firm
- Printing costs for flyers, signs and other materials
- Promotional merchandise, such as branded clothing, office supplies or drinkware
- Radio ads
- Search engine ads
- Social media ads
- Television ads
- Website domain registration and renewal fees
Why you may want to enlist the help of a CPA
The previously listed business expense deductions outline potential areas for tax savings. However, your business may not qualify for all of them. Tax laws are complex and change often. Hiring a certified public accountant (CPA) can ensure that you take full advantage of all deductions for business expenses and fully comply with tax laws.
By strategically considering these 16 small business tax deductions, you may lower your tax liability while maintaining full compliance. With complex and changing tax laws, enlisting a CPA can also help ensure you maximize every eligible saving and file with confidence.
