Top Tax Deductions for Small Business

Here is a list of top tax deductions for your small business. Remember to check with a tax professional if you have questions or concerns about your deductions.

  1. Home Office. To calculate how much of the home-related expenses are tax deductible, measure your work area and divide by the square footage of your home. The resulting percentage is the fraction of rent, mortgage, insurance, electricity, housekeeping, etc. that you can claim. Make sure your home office is dedicated to your business work.
  2. Telephone and Internet. Any dedicated services for your business are deductible. If you use your home or personal cell phone for business, you may only deduct the portion used for business purposes.
  3. Auto Maintenance and Mileage. There are two ways to calculate vehicle deductions: standard mileage rate or actual expenses (such as gas and maintenance). Use the method that results in a larger deduction.
  4. Advertising and Marketing. As long as they are directly related to your business, you can deduct the cost of ordinary advertising (business card purchases, yellow page ads, and so on), as well as promotion costs for good publicity (such as sponsoring a local sports team).
  5. Inventory (Cost of Goods Sold). Businesses that manufacture products or purchase them for resale can deduct the cost of goods sold.
  6. Office Supplies. Pens, paper, staples, thumb tacks, etc are deductible. Just keep your receipts!
  7. Bad Debts. Your bad debt is deductible only if the amount owed to you was previously included in gross income.
  8. Education. This includes seminars and trade shows, but don’t forget any magazines, books, CDs and DVDs that are related to your business or industry. They are all 100% tax deductible.
  9. Legal and Professional Fees. Accountants, lawyers and other professional consulting fees are fully deductible.
  10. Travel Expenses. Nearly all business travel expenses are 100% deductible. These include airfare, hotels, and other on-the-road expenses. Eating out on the road is also deductible, but only up to 50%.
  11. Entertaining. Eating out with colleagues on a day-to-day basis is not deductible, but if you bring along a client or prospective client, that meal is 50% deductible. Taking a current or prospective client out for drinks or a show is also 50% deductible, but it has to be within a business setting or take place before or after a business meeting.
  12. Furniture. You can either deduct the entire cost in the year of the purchase or depreciate it over several years.
  13. Office Equipment. That new fax machine, copier, or computer is also 100% deductible. You can take it all in one year or depreciate it.
  14. Depreciation. If you buy property to use in your business, you generally can’t deduct the entire cost in the year of purchase — but you can spread the cost over more than one tax year and deduct part of it each year.
  15. Startup Expenses (Capital Expenses). You can choose to deduct up to $5,000 of startup costs, which include any research costs incurred for creating your business.
  16. Interest. Mortgage interest, finance charges (like credit cards), interest on payment plans, and interest paid on other loans are all 100% deductible.
  17. Software. Boxed or downloaded software are included. With more software being made available as a service, software subscriptions are also tax deductible.
  18. Taxes. Taxes paid in running your business are deductible.
  19. Charitable Contributions. If you contribute $250 or more, and claim the deduction, you need to have a letter from the organization which verifies your donation.
  20. Rent. You can deduct rent as an expense if the rent is for property that you use for your business. However, you can’t deduct the rent if you have even partial equity (or will receive equity) in the property.
  21. Utilities. The water, power, trash, and telephone bills at your office are all 100% deductible as regular business expenses. If you have a phone line that has a mix of business and personal calls, highlight the business calls and deduct only the business related portion of the bill.
  22. Repairs and Maintenance. The cost of repairs to keep your business property and equipment in operating condition is deductible.
  23. Petty Cash and Tips. Just because you didn’t get a receipt doesn’t mean you can’t deduct the cost, but you should have some documentation. It’s as much for you as for a potential audit.
  24. Service Fees. Fees for processing credit cards are 100% deductible.
  25. Licenses. License fees, as well as regulatory fees, are deductible.

Personnel Deductions:

  1. Employees’ Pay. You can deduct the pay you give your employees as long as the pay is in cash, property or services.
  2. Employee Benefits. Benefits like health plans, adoption assistance, educational assistance, and life insurance for your employees are generally tax deductible.
  3. Profit-Sharing or Pension Plans. You can deduct contributions you make to your employees’ SEP, SIMPLE, and other qualified plans.
  4. Insurance Premiums. You can deduct premiums that you pay for credit, liability, malpractice, and workers’ compensation insurance, among others.
  5. Freelancers. If you hire an independent contractor, you can deduct their pay as a business expense.

For more information on small business tax deductibles, check the IRS website.


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