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TAX DEDUCTIONS
Failing to take all the small business tax deductions you qualify for is like leaving money on the table. The first step to ensuring you pay only your fair share of taxes is a thorough understanding of common deductions for business expenses. This business expense deductions list will introduce you to potential opportunities to lower your tax liability.
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 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 inventory cost. 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 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 you paid to rent or lease office equipment, furniture, tools, and machinery. Sometimes, you can 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 expenses may also be tax deductible. However, you’ll need to keep detailed records of:
Where the business trip begins (City, State)
Destination (City, State)
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 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 their fees. 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 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 are 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
The 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
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