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Top 19 Small Business Tax Deductions for the Self-Employed

Are you a small business owner missing out on tax deductions you’re entitled to? Many small business owners overpay their taxes because they don’t know what expenses they can deduct. Others miss legitimate deductions because they lose receipts, don’t keep adequate records, or ignore small tax-deductible charges that seem inconsequential.

Don’t let missed tax deductions cause you to overpay the IRS. This list of the top small business tax deductions will help you keep more of your hard-earned profits.

Understanding Tax Deductions

Tax deductions are a crucial aspect of managing your business’s finances. A tax deduction is an expense that can be subtracted from your business’s taxable income, resulting in a lower tax liability. To qualify as a tax deduction, an expense must meet the IRS criteria, which includes being ordinary and necessary for your business. Understanding tax deductions can help you make informed decisions about your business expenses and minimize your tax liability.

Top 19 Tax Deductions You Don’t Want to Miss

While we can’t provide an exhaustive list of tax deductions here, we can cover some of the common ones that often get overlooked. Keep an eye out for these 19 deductions that your small business might be eligible for.

1. Business Use of Your Vehicle

This is a deduction some self-employed lose out on because recording business mileage – especially for short drives – can seem like a hassle. But even short, local business trips can add up to a significant mileage deduction at the end of the year, if you track them.

As a business owner, if you use a car in your business, you can deduct the car expenses on your tax return. If you use the vehicle for both personal and business use, the deduction is based on the percent of business miles driven.

There are two methods for determining the amount of the deduction. One requires keeping detailed records of the actual expenses. Those expenses include costs such as gas and oil purchase, repair costs, insurance, registration fees and lease payments.

The other, simpler option, is to use the standard mileage deduction. Under this option, you multiply your business mileage for the year by the standard mileage rate. For 2024, that rate was 67 cents a mile. The rate jumps to 70 cents a mile for the 2025 tax year.

The sticking point: you have to record the mileage each time you drive for business along with the reason for the trip.  But doing so pays off. Here’s how.

Suppose you have a home business selling products. You drive to the post office 6 days a week to mail out your customers’ orders. The post office is 6 miles roundtrip from your home. That’s 36 miles a week. If you work 50 weeks a year, that adds up to 1,800 miles. For 2024, the current mileage rates of 67 cents per mile, you could get a deduction of up to $1,206. That number would increase in 2025, since the rate jumps to 70 cents per mile in 2025.

Do you do a lot of driving to visit clients or suppliers, or to go to networking meetings? That mileage adds up, too. If you drive an average of 100 miles a week for 50 weeks, and record the mileage, you’d wind up with a mileage deduction of $3,350 for 2024.

In addition, you can deduct the business part of interest on your car loan, state and local personal property tax on the car, parking fees, and tolls. These are all considered deductible business expenses.

2. Travel Expenses

Travel costs are different from the expenses you can deduct for the business use of your car. Travel expense deductions are for costs you incur when you travel away from the general area of your tax home. The travel must be longer than an ordinary workday and long enough that you need sleep or rest. The expenses have to be ordinary and necessary for your business, not lavish or extravagant.

Among the expenses you can deduct are:

  • Travel by airplane, train, bus or car between your home and your business destination 
  • Fares for taxis or other types of transportation costs directly related to business
  • Shipping or baggage costs
  • Lodging and non-entertainment-related meals
  • Dry cleaning and laundry
  • Business calls while on your business trip
  • Tips you pay for services related to any of these expenses

The biggest costs such as plane fares and hotel costs are easy to remember at tax time. But what’s easy to forget or lose are records of cab fares, tips and other incidental expenses. Those can add up, so don’t forget to record them while away. 

Want to sneak in a visit to your brother while you’re on a business trip? Or perhaps a day in the sun, if your business trip takes you to Southern California in the winter? Your personal costs, extra day in the hotel, extra day car rental, and so on are not deductible. But the rest of your business costs, including the plane fare to get to the business destination are probably still deductible. The deciding factor: was the primary motive for the trip business? 

Most business travel within the United States is likely to qualify for the travel expense deduction as long as it is necessary for your business. Rules vary for travel out of the country, so be sure to check with your accountant or other tax professional for details.

3. Business Meals When You’re Not Traveling

Does your business require you to wine and dine clients? Do you have a company barbeque every year to thank your associates for their hard work? Those costs might be deductible. At the time of this writing, you can deduct 50% of the cost if you (the business owner) or an employee was present at the meal.

For a short stretch of time, (2021 and 2022), businesses could deduct 100% of the business meal cost if the meal was at or provided by a restaurant. But that change was only for 2021 and 2022. Currently the deduction rate is just 50%.

4. Interest and Credit Card Processing Fees

Making money has a way of costing money. If you take out a business loan, let business credit card balances run up, or engage in other types of borrowing, you pay interest. And when you accept credit cards either directly or through a third party, you pay a fee. Those fees and interest payments can be substantial. Fortunately, they are tax deductible. Be sure to record them and deduct them.

5. Business Subscriptions

Chances are, subscriptions for cloud-based services are among your regular business expenses. Depending on your business, your subscriptions may include collections of programs (like Microsoft Office 365 or Adobe Cloud) or individual programs necessary for your industry. You might have subscriptions to photo licensing sites, workflow services, SEO tools or video conferencing software. And then, of course, there’s the hosting fee you pay for your website.

All of these, along with any other products or services you subscribe to for use in your business, as well as bank fees such as maintenance fees, transfer fees, and transaction fees, are deductible.

6. Consulting and Professional Fees

The fees your business pays to accountants and attorneys, consultants, and business coaches are all deductible expenses. For example, if you pay for someone to manage your tax return for you, their fee is deductible. If you hire a consultant to help you identify areas to improve with your social media marketing, you can deduct the cost of their coaching when you file your taxes.

7. Educational Costs

Want to learn how to use an accounting program to manage the finances of the business you just started, or understand tax preparation fees and their deductibility as business expenses? How about learning how to use WordPress so you can update your business website, or build a new one? No matter what you want to learn, there’s a good chance you can find a course about the subject.

As a business owner, the cost of taking those courses is tax deductible to you as long as the courses maintain or improve the skills you need for your existing business. (You can’t deduct the cost of training for a new business; this is a small but important distinction).

8. Startup Costs and Organizational Expenses

Did you just start your business? 

Most business tax deductions apply to expenses you incur after your business is up and running.  But chances are you incurred expenses as you were preparing to launch your business. Depending on the amount of those costs, some or all of them may be immediately deductible if they are incurred in the same year you start the business. Here’s how it works. 

The IRS currently allows you to deduct up to $5,000 in qualifying business startup and $5,000 in organizational expenses in the year you start the business if your total startup expenses are $50,000 or less.

If your startup costs exceed that $50,000 mark, then the deduction gets a little more complicated. That $5,000 amount you could have deducted will be decreased by the total amount you went over $50,000. For example, if your startup costs amounted to $54,000, you’d be $4,000 over the threshold, which would mean you’d only be allowed to deduct $1,000 in the first year. The remaining amount would be spread out over your taxes for the next 15 years (called amortization). If those costs exceeded $55,000, you wouldn’t be able to take the deduction at all during your first year.

Startup costs that qualify are those you incur before you open your doors for business. They include money you spend on market research, advertisements for opening the business, consulting and other professional fees, salaries and training costs paid to employees before you open the business, and other expenses related to obtaining suppliers, distributors and customers.

Organizational expenses refer to the money you spend to legally form your corporation, LLC or partnership. These are also deductible.

9. Rent and Utilities for Businesses that Aren’t Homebased

If you rent space for your business, the rental fee is deductible. So, too are the cost of utilities, fees for maintaining common spaces, any fees you pay your attorney to review the lease before signing it, and so on. Renting and operating a business space is a big overhead cost, so be sure to take advantage of these deductions as they apply to you.  

10. Home Office Deduction

If your home is your principal place of business and the space you use qualifies as a home office, you can take a deduction for some expenses related to the business property you use. This deduction is called the home office deductions and it’s separate from other deductions you get for expenses associated with actively running the business.

This is another case where the IRS provides two choices for taking the home office deduction. An easy way and a “regular” way, which is more complex.

The easy way is called the simplified option. To take it, you multiply the square footage of your home office by $5.00. The most you can write off each year using this method is $1,500 (300 square feet). Using this method, you take the deduction directly on Schedule C.

To use the regular way to deduct your home business, you’ll need to keep records of expenses such as mortgage or rent payments, real estate taxes, utilities and casualty losses and allocate the costs based on your percentage of business and personal use. You’ll also need to fill out an additional tax form, form 8829.

11. Internet and Phone Costs

The cost of using the Internet in your business is deductible. If you use your home Internet connection or home phone line for business, your deduction is limited to the percent you use each in business and not for home use. If you have a separate Internet connection for your business or a second phone line just for your business, each is fully deductible.  

The same rule applies to cell phone use for business owners and the self-employed.

12. Business Insurance

Insurance may not be something that’s top of mind when you’re getting ready to do your taxes. But business insurance is a relatively big expense, and it’s tax deductible. Whether you work from home or some other location, be sure you deduct the cost of all the business insurance you’ve purchased during the year. Among the policies you may have are a business owners policy (general liability), product liability, professional liability, commercial vehicle insurance.  Be sure to deduct them all. 

13. Office Furniture

Did you buy a new desk or desk chair for your home office this year? If you have a business outside of your home, did you have to replace or buy new furniture for the reception area, buy sneeze guards to put between workstations or purchase other workplace furniture?

The money you spend on business furniture can be written off whether it’s for a homebased business or a business that’s located outside the home. Business furniture, like equipment, is considered a capital expense rather than a cost of doing business. And there are two options for deducting the cost:

  1. Depending on the total amount of your capital expenses, you can deduct the entire cost of the furniture in one year. This is often referred to as the expense deduction or the Section 179 deduction.
  2. You can choose to amortize the expense (spread it out) over a period of years.

The maximum amount of capital expenses you can deduct in one year is $1,220,000 in equipment for tax year 2024. That goes up to $1,250,000 for the 2025 tax year. 

One limitation to keep in mind: Your expense deduction can’t be more than you net income from the business. If your capital expenses are higher than your net income talk to a tax pro about the best way to handle them.

14. Equipment and Software

Equipment and software you purchase, rather than lease or subscribe to are also considered capital expenses. Like office furniture, they can either be expensed (written off) in one year, or depreciated over time. 

If you run a home business and the equipment is used exclusively for your business, you can deduct or depreciate the full cost. If you use equipment such as a computer, printer, or camera partly for business and partly for personal use, your deduction is limited to the percent of the time you use the item for business. For devices you use for personal and business use, keep a written record of the business use so you can prove the deduction if you’re ever audited.

15. Qualified Business Income Deduction (QBI)

The QBI deduction allows eligible taxpayers to deduct up to 20 percent of their qualified business income (QBI), plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. 

To qualify, the business must be located inside the U.S. and make a profit. The deduction is limited to taxpayers who have a total income (business income plus any other personal income) of no more than $191,150 for single taxpayers or $383,900 for couples filing jointly.  

Additionally, certain types of businesses such as accounting firms, legal firms, consulting and financial services do not qualify for this deduction. The rules are complicated, so this, too, is something to discuss with your tax professional.

16. Self-Employment Tax Deduction

Self-employment tax is an expense. But there’s a flip side. There’s also a self-employment tax deduction for businesses owners who are self-employed or are LLCs operating as sole proprietors. The way it works: you calculate and pay the self-employment tax on your entire income using schedule SE. But then, you get to deduct half of the self-employment tax on your personal tax return (Form 1040, Schedule 1).

17. Employee Expenses

If you have employees, their salaries and the payroll taxes you pay for them are deductible, which can help reduce your overall income tax liabilities. If you’re using a payroll service, their fees are deductible too.

18. Business Loss Deduction

If you are operating as a sole proprietor and your business expenses are more than your income for the year, you can deduct your business losses from other personal income you have, provided the IRS doesn’t consider your business to be a hobby. If you are operating as an S corporation, the amount of losses you can deduct will depend on your basis in the business and how you report your business taxes. Talk to an accounting professional for more information.

19. Other Normal Business Expenses

Other products and services that you buy to use in your business are deductible, too, unlike personal income taxes which are treated as personal expenses and are not deductible as business expenses. The laser toner, printer ink cartridges, paperclips, headphones, and all the expenses you incur are deductible if they are ordinary and necessary. Internet expenses like web hosting fees are also deductible. Keep good records and receipts to deduct them on your returns.

Conclusion

Maximizing your tax deductions is key to keeping more of your hard-earned income as a self-employed business owner. By staying informed about deductible expenses and maintaining thorough records, you can significantly reduce your tax liability while keeping your business financially healthy. Use this guide as a starting point to identify potential savings and consult with a tax professional to help ensure you’re taking full advantage of every deduction available to you.

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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