Top small business tax deductions

1. Startup costs

Some startup costs may be tax deductible, including:

• 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.

2. Insurance

Premiums paid for most types of business insurance are tax-deductible, such as:

• Business auto insurance
• Business continuation insurance
• Business owner’s health insurance
• Business property insurance
• Liability insurance
• Life insurance used for succession planning
• Malpractice insurance
• Worker’s compensation insurance

3. Utilities

You can normally deduct the cost of utilities paid at your place of business. Common utilities 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 utilities. For example, you normally can’t deduct the cost of your primary telephone landline, but second lines used exclusively for business may be deductible.

4. Inventory

Companies that manufacture or buy 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 that 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 can also claim depreciation on leased and rented equipment to further reduce your tax liability.

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 personal car, mileage accrued for business expenses may also be tax deductible. However, you’ll need to keep detailed records of:

• Where your trip started
• Destination
• Miles traveled
• Purpose of travel

If you handle personal and business matters during one trip, you can usually only count the mileage related to your stated purpose. For example, if you drive an hour to attend a business meeting with a client and then go to the grocery store on the way home, you would 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 for a local nonprofit to use as a prize for a fundraising event.

8. Office supplies and furniture

The total amount you spend on purchasing office supplies and furniture during a year is usually tax deductible. Save receipts and track how much you spend on things like:

• 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 that 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

Some of the cost of business meals purchased from restaurants may be tax deductible. For tracking purposes, you will need to save the receipts and keep records of:

• 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 only for business in an area outside of your company’s location may be tax deductible. Normally, the trip must last longer than a usual work day and involve either staying overnight or stopping to rest. For trips that qualify, you may be able to deduct:

• 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

Normally, any interest paid on business loans and business credit cards can qualify for deductions for business expenses. You may also be able to deduct the cost of fees assessed by your financial institutions. Fees for online payment processors like PayPal 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 like 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 LLC members are usually tax deductible. You also may be able to add the cost of providing health insurance and other benefits, such as paid time off, to your business expenses deductions list.

15. Education

Education that allows you or your employees to perform your job duties more effectively or expands your expertise may be tax deductible. Some possible business expenses that may qualify as educational deductions include:

• 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:

• 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 should enlist the help of a CPA

The above business expenses deductions list outlines potential areas for tax savings. However, your business may not qualify for all of them. Tax laws are complex and change often. Hiring a CPA can help you ensure that you take full advantage of all deductions for business expenses and still comply fully with tax laws. Not only will you get the peace of mind that your taxes are being filed correctly, but you may also be able to deduct their fees.