Complete list of tax deductions for small business
Whether you’re incorporated or running a sole proprietorship, you should probably hire an accountant to prepare your tax return. However, it’s essential to know what tax deductions are available so you can save the proper receipts and make wise choices.
You don’t want to wait until April to find out some of your expenses aren’t deductible. Equally, you don’t want to discover missed deductions at the last minute and scramble to recover lost receipts.
1. Home Office Deduction: While employees are no longer eligible for the home office deduction, self-employed people and small business owners are still eligible. According to the IRS, your home office qualifies as deductible when you meet two requirements: The area is used “exclusively and regularly for your trade or business,” and your home is your principal place of business when you qualify for the home office deduction; you also qualify for deducting a portion of utilities and other household bills. However, be careful with this deduction and verify that your claim is legitimate. If your office doesn’t have walls or some kind of partition, or if you need to walk through your office to get to other house areas, it’s better not to claim the home office deduction.
Further reading: Maximize Your 2024 Tax Deductions with Tax Write-Offs: Big Savings for Small Business with Key Business Tax Strategies
2. Vehicle-related expenses: Small businesses can deduct certain vehicle-related expenses on their tax return, including vehicle depreciation, lease payments, gas, tires, repairs, insurance premiums, and registration fees. This is 58 cents per mile for business purposes, 20 cents per mile for medical or moving purposes, and 14 cents per mile while driving for a charitable organization.
3. Holiday parties and business meals: Entertainment, amusement, and recreation expenses are no longer deductible, but some related deductions are still available. For instance, business meals can be deducted from 50% of the cost of the food that isn’t considered “lavish or extravagant.” Holiday parties are fully deductible, and meals employees buy during business travel are 50% deductible. Until 2025, employers can deduct employee meals if they come from an employer-operated cafeteria.
4. Depreciation: If you’ve missed the depreciation deduction, it’s back. Qualifying assets are those with an expected lifespan of 20 years or less. This includes machinery, computers, appliances, and furniture. Qualifying assets purchased (and put into service) after September 27, 2017, are eligible for a 100% bonus depreciation deduction. After 2022, the deduction will decrease by 20% until it’s gone.
5. The section 199A deduction (qualified business income deduction): The qualified business income (QBI) deduction is available to some sole proprietors, partnerships, and S corporations, along with certain trusts and estates. This deduction is one of many created by the 2017 Tax Cuts and Jobs Act. The qualified business income deduction allows pass-through businesses to deduct the cost of the following:
- Up to 20% of qualified business income
- 20% of qualified real estate investment trust (REIT) dividends
- 20% of qualified publicly traded partnership (PTP) income
Further reading: Tax Deduction Write-Offs: How do Deductions Work for Small Businesses
The IRS FAQ page states that the QBI is subject to limitations that include the type of business, the amount of W-2 wages paid by the business, and the unadjusted basis immediately after acquiring qualified property held by the business. If the taxpayer patronizes an agricultural or horticultural cooperative, the QBI deduction might also be reduced.S corporations and partnerships don’t qualify for this deduction directly. The shareholders or partners are responsible for claiming their deductions. QBI income thresholds for doctors, lawyers, and other professionals to qualify must earn $207,500 if single or $415,000 if married and filing jointly. Who is not eligible for the QBI deduction? According to the IRS, income earned through a C corporation or providing services as an employee is not suitable for the QBI deduction.
6. Employee family and medical leave tax credit: A new tax credit was established to encourage small businesses to help employees with family and medical leave needs. If your business offers paid family or medical leave, you’re entitled to this credit for the 2019 tax year. Your business can deduct about 12.5%of the wages you pay to your employees while they’re on leave. Your credit increases the more you pay your employees but caps off at 25%. Your written paid leave policy must grant full-time workers two weeks of paid vacation each year to qualify for the family and medical leave credit. Part-time employees must be given a prorated amount of paid leave. Your paid leave policy must also pay employees no less than half their average wages. Your paid leave policy must include the above requirements in writing and must have been communicated to your employees before December 31, 2018. Qualified and unqualified employees qualified employees are workers who have been employed for at least one year. However, you can’t claim the 2019 credit for employees who earned more than a certain amount the previous year.
7. Travel expenses: Your small business can deduct travel expenses when those expenses are necessary for business. However, you can’t deduct extravagant expenses. For instance, if you chartered a private jet to fly from Miami to New York for $300,000, that would be extravagant and not an eligible deduction. Deductible travel expenses include Plane, train, or bus tickets fares for a cab or shuttle between the airport and your hotel, to and from your work location, etc. Meals and lodging; laundry and dry cleaning; tips paid to necessary services; anything other necessary costs incurred while doing business are eligible. The IRS says travel expenses for conventions and trade shows within North America are deductible when you can prove your attendance benefits your business.
8. Employee retirement plan contributions: Retirement plans are an employee benefit, but they also benefit your bottom line. Your contributions to employee retirement plans are deductible as a business expense. You might also qualify for a credit of up to $500 for costs incurred in setting up and maintaining employee retirement plans for the first three years. According to Fidelity, simple IRA and SEP IRA retirement plan contributions are deductible business expenses.
9. Education: You can deduct the cost of educational expenses when that education adds value to your business or will increase your expertise. For example, if you’re a tax preparer, these 4 IRS-approved tax prep courses are deductible. Education expenses can include classes, seminars, webinars, workshops, conferences, and books.
10. Legal fees: Any legal fees you incur necessary to run your business are tax-deductible. For example, fees paid to your lawyer, accountant, bookkeeper, and tax preparer are all deductible expenses. Accounting software is also a deductible expense.
11. Moving expenses: The Tax Cuts and Jobs Act eliminated moving expense deductions for non-military individuals. However, businesses can still deduct the cost of moving supplies and equipment to a new location. For example, if you moved your office and hired movers to take all your gear to the new location, you can deduct those expenses.
12. Rent paid for your office: Your rent is a tax-deductible business expense if you're renting an office.
13. Various taxes and licenses: You can deduct certain taxes and licenses related to your business if you qualify. In addition to state taxes and payroll taxes, you might be able to deduct: Excise taxes, Business license fees, Sales tax, Real estate taxes paid on your business property
14. Miscellaneous expenses: Whether you work at home or in an office, you can deduct phone and internet expenses. However, you can’t deduct your landline if it’s your only line. You can deduct a second landline, however. Other miscellaneous deductible expenses include advertising, donations to charity, healthcare, and child and dependent care (using form 1040).
Even when you don’t think they’re deductible, keep track of all expenses. To reduce your taxable business income as much as possible and maximize your refund, keep accurate records of all costs, and save all receipts. Some expenses might unexpectedly fall under a broad category of deductible expenses, and if so, you’ll be glad you kept those records.
Let Taxfyle help.
At the end of the day, taking advantage of tax deductions is an accountant’s specialty. They’re experts in understanding the laws and applying them to your busines so you can save the most when filing your taxes. At Taxfyle, we’ll match you with the right Pro to file your taxes for you. All you need is to hand your Pro everything that may help with your deductions and they’ll take care of the rest. That way you can focus on your business while remaining assured that your taxes are in the right hands.
