What’s the secret weapon to lowering your tax bill? Understanding small business tax deductions and tax credits.
Read our list of top 10 tax write-offs for small businesses to see which might apply to your business.
Not all tax breaks for small business apply to every business. But knowing your options can lead to smarter conversations with your tax advisor.
Remember, keep detailed records and all receipts to get an idea of which tax breaks you might qualify for.
Tax Deduction vs. Tax Credit
Tax deductions and tax credits might sound the same, but they’re not. Both can help lower your tax bill or increase your refund. How they work on your tax forms is different.
Tax Deduction
The terms tax deduction and tax write-off are used to refer to business expenses that can help reduce your taxable income. To qualify for a write-off, the IRS says the business expense must be ordinary and necessary to your business.
These tax breaks usually fall into specific reporting categories such as business travel, advertising and marketing, or business meals and entertainment.
Tax Credit
Unlike a tax deduction which reduces your taxable income, a tax credit can lower the amount of tax you owe.
Small Business Tax Deductions
The big question is: What qualifies as a tax write-off for small business?
You won’t be surprised to learn the IRS has answers. IRS Publication 535 offers comprehensive guidance on tax-deductible items for small business.
Here’s our list of the top 10 small business tax write-offs from the IRS Tax Guide for Small Business.
1. Home Office Expenses
You may be able to file a home office deduction if you use work-from-home space regularly and exclusively for your business. If the room doubles as a guest or workout room, it will not qualify as a deductible home office expense.
Once you determine your home office meets these strict guidelines, check the IRS Home Office Deduction page for details about how to write off home office expenses.
2. Advertising and Marketing
Helping your business grow can bring tax benefits. Many costs for promoting your business or finding new customers may be tax deductible. This could include things like designing and printing promotional materials, paid digital and social media campaigns, and website creation and maintenance.
3. Office Supplies
Keeping track of the materials you buy for your business can help reduce your taxable income and maximize your tax return as a small business owner.
From computers and smartphones to pens and sticky notes, deducting office supplies and equipment can help you save money.
When filing your taxes, consider writing off office equipment such as:
- computers
- smartphones
- printers
- tablets
Smaller purchases could also be considered deductible office expenses. Keep track of purchases like:
- printer paper
- pens
- pencils
- stamps
- envelopes
- sticky notes
4. Vehicle Expenses
If you use your car or truck for your business, you might be able to deduct the costs of operating and maintaining it.
The IRS offers two ways to deduct car and truck expenses. You can choose to write off actual expenses or use the standard mileage rate set by the IRS each year.
5. Business Travel
Keep your receipts when you travel for work. Expenses associated with traveling to meet clients, work off-site or attend conferences can be tax write-offs.
According to the IRS Business Travel Expense page, deductible travel expenses can include:
- rental cars
- taxis, rideshare services
- airfare
- accommodations
- non-entertainment-related meals
6. Education and Training
Related to business travel deductions, costs to attend an industry conference or training can also be tax deductible.
7. Insurance Premiums
You can deduct the premiums you pay for certain types of business insurance. The IRS list of deductible insurance premiums includes workers’ compensation, medical insurance and contributions to a state unemployment insurance fund, if they are considered taxes under state law.
8. Legal and Professional Fees
If you hire an accountant, lawyer or other financial professional to advise you on your business, you may be able to deduct their fees on your business taxes.
9. Interest Expense
The IRS generally allows business owners to deduct some or all the interest paid or accrued during the tax year on debts related to the business.
This means you might be able to write off commercial mortgage interest, business loan interest, and car loan interest if the vehicle is for the exclusive use of your business.
10. Rent Expense
In general, small business owners can deduct rent for property they use for their business.
Other Deductible Expenses
According to the IRS, small businesses may also be able to deduct expenses for:
- Donations to business organizations
- Charitable contributions
- Licenses and regulatory fees
- Outplacement services
- Repairs and maintenance for real or tangible personal property
- Utilities
How to Claim Small Business Tax Deductions
How you claim small business tax write-offs will depend on your business structure. According to the IRS a:
- sole proprietorship should use Schedule C (Form 1040 or 1040SR) Profit or Loss From Business
- partnership should include tax deductions on Form 1065, U.S. Return of Partnership Income
- C corporation or S corporation will use Form 1120 U.S. Corporation Income Tax Return
It’s always best to consult a financial professional for advice before filing.
Small Business Tax Deductions FAQs
What is deductible for small business?
To qualify for a small business tax deduction, the IRS says the business expense must be ordinary and necessary to your business.
These tax breaks for small businesses usually fall into specific reporting categories such as business travel, advertising and marketing, or business meals and entertainment.
What is the 20% tax deduction for small businesses?
Some sole proprietorships, partnerships and S corporations may be eligible for a qualified business income (QBI) deduction. This deduction allows eligible small business owners to deduct up to 20% of qualified income.
Do small business owners get tax breaks?
Yes, small business owners may be eligible for various tax breaks, deductions and credits.
What qualifies as a tax write-off?
Business expenses defined by the IRS as ordinary and necessary for conducting business operations can qualify for small business tax write-offs.
How much can a small business write off on taxes?
The amount a small business can write off on taxes depends on several factors, including the type of expenses, tax laws, and eligibility for deductions and credits.
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The foregoing is provided for informational purposes only and is not intended to be tax or legal advice. Consult your licensed attorney, accountant, or other tax professional to discuss your particular facts, circumstances, and how these opportunities might apply to your business.