17 Small Business Tax Deductions

1. Startup costs

Before you start or buy a business, you’ll likely go through a long process of analysis and research. You can usually deduct the money you spend on market research, product development, office space, advertising, and other business-related activities. These expenses are considered Investigation Costs. Most other startup costs fall under capital expenses, which you usually amortize over a set number of years rather than deduct all at once.

***IRS Guidelines for 2023 as follows (https://www.irs.gov/publications/p535).

However, there are situations where you can deduct total startup costs, in full, without amortization. Some startup costs may be tax deductible, including:

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, and Worker’s compensation insurance.

3. Utilities

You can normally deduct the cost of utilities paid at your place of business. Common utilities include: internet, landline telephone, cell phone, cable television, electricity, gas, heating and cooling, water, trash, and sewage. If you maintain a home office, there may be some restrictions on deducting utilities. For example, you usually 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 inventory cost. 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, and storage.

5. Rent payments

If your business rents space, your rent payments may be tax deductible. This usually includes 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 take small business tax deductions on any money you paid to rent or lease office equipment, furniture, tools, and machinery. Sometimes, you can also claim depreciation on leased and rented equipment to further reduce your tax liability.

6. Automobile expenses

You can typically 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, your destination, the miles traveled, and the 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

You might take deductions for the Monetary gifts given to tax-exempt charitable organizations by your business. You can also write off other donations, such as giving away merchandise for a local nonprofit to use as a prize for a fundraising event. The IRS says you can deduct 50% of your income, but it might be less, like 20-30%, depending on your situation.

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 pay for your business, such as calendars and planners, chairs, desks and tables, carpet, file folders, shelves, filing cabinets, ink and toner, light bulbs, notebooks, packing supplies and boxes, paper, paper and binder clips, pens and pencils, staples and staplers, tape and other business related office supplies and furniture that would be specific to your industry and business.

9. Software

Whether it is marketing or for your accounting needs, 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. Therefore, if you are subscribed to zoom, DocuSign, accounting software, salesforce, or inventory-tracking software, use this tax deduction for your business. At The Accounting Detective, we highly recommend Quickbooks Online to keep a record of all your expenses and Jirav for developing dashboards for your business. To track your expenses, save receipts. Keep records of the meal’s date, time, location, people you ate with, their business relationship, and the receipt.

10..Business meals

Some of the cost of business meals purchased from restaurants may be tax deductible. To track your expenses, save receipts. Keep records of the meal’s date, time, location, people you ate with, their business relationship, and the receipt.

If you use software like Expensify or any small business Accounting SaaS, you can upload your receipt directly into the online portal and match it with your expense transaction. Also, most accounting software has APPs allowing you to upload your receipt from your phone, therefore keeping all your records in one place.

2023 Meals and Entertainment Allowable Deductions

It is probably more helpful to discuss what can still qualify for the meals and entertainment tax deduction in 2023. Here are some potential tax deductions that may be between half to fully deductible.

• Business meals with clients (50%)
• Food items for the office (50%)
• Meals while traveling for work (50%)
• Meals at a conference (50%)
• Food for company holiday parties (100%)
• Food and beverages given to the public (100%)
• Dinner for employees working late at the office (100%)

For 2023, most business meals are just 50% deductible, according to the IRS rule. Let’s say you take your favorite client to a wonderful dinner (to discuss business); you can deduct half the cost of the meal. On the other hand, if you go out for a meal with a client with no business purpose, the meal is not deductible.

11.. Travel expenses

Whether you are traveling to attend a conference, traveling for a business meeting, or attending a training session, expenses accrued while traveling only for business in an area outside of your company’s location may be tax deductible. The trip must typically last longer than a normal work day and involve staying overnight or stopping to rest. You can deduct expenses for qualifying trips. These expenses include airfare, car costs, public transportation fares, dry cleaning, hotels, meals, parking, rental car fees, taxis, tips, and tolls.

12.. Bank fees, credit card fees and interest expense

Interest paid on business loans and business credit cards can qualify for deductions for business expenses. You can also deduct the cost of fees assessed by your financial institutions and merchant services. Fees for online payment processors like PayPal, Intuit, Venmo, Wise (etc.) may also be deductible.

13.. Salaries and benefits

Salaries paid to employees who are not partners in the business or LLC members are usually tax deductible. You can deduct health insurance and other benefits, such as paid time off, from your list of business expenses.

14.. Education

Education that allows you or your employees to perform your 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 explicitly related 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, licenses, and other educational expenses, that would benefit the success of your business.

15.. Advertising and marketing

The 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, radio ads, search engine ads, social media ads, television ads, website domain registration, and renewal fees, LinkedIn, google or yelp marketing subscriptions and expenses, related to digital marketing.

16.. Professional fees

If you hire independent workers who require you to send Form 1099-NEC, you may be able to deduct the fees for their services. Prices for professional services, such as accounting firms, tax advisors, and marketing agencies, can be deducted from small business taxes. This also applies to independent workers like forensic accountants, analysts, attorneys, writers, website designers, logo designers, and bloggers. Independent contractors can be engaged directly by your company or through staffing agencies. These arrangements offer increased flexibility and a lower commitment and are tax deductible.

17.. Fixed assets

There are several types of assets. That said, all purchases are the same because they have financial value to a business (or individual). Common fixed assets for small businesses include computers, phones, tablets, equipment, printers, tools, vehicles, furniture, and machinery owned by the company. Small businesses can decide, for the tax benefit, to write off all assets purchased during the year under $2,000 and fully expense them instead of depreciating them over the asset’s life.

Conclusion

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 skilled accountants and tax professionals can help you maximize deductions for business expenses and stay compliant 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.