What Tax Deductions Are Available for Small Businesses

Small business owner talking on the phone with customers in a small shop.

Small business owners generally have the same goal: to make a profit while minimizing expenses. One important area of expense reduction is taxes. Every business owner wants to pay the least amount of tax possible while complying with all tax requirements. With that in mind, there are certain tax deductions that are available to small businesses in order to reduce their tax burden. This article will discuss some of the most common tax deductions available to small business owners as well as how they can take advantage of them.

Section 1 – Business Expenses

Business expenses are an integral part of running a successful business, and the Internal Revenue Service (IRS) allows for the deduction of a variety of ordinary and necessary business expenses. Generally speaking, an ordinary expense is one that is common and accepted within a trade or business and a necessary expense is one that is helpful and appropriate for the business. Examples of common business expenses that are deductible include:

• Employee salaries, wages, and bonuses
• Insurance
• Rent or lease payments
• Legal and accounting fees
• Office supplies
• Maintenance and repairs
• Travel and entertainment expenses
• Advertising and promotion
• Equipment and machinery
• Telecommunications
• Utilities

The IRS has a list of what is considered an ordinary and necessary business expense and business owners should refer to that list when preparing their tax returns.

Section 2 – Business Use of Home Expenses

Many small business owners choose to use part of their home as an office for their business. This can include setting up a dedicated office space or simply using a preexisting room in their home for business purposes. The IRS allows for a deduction for the business use of the home if the taxpayer meets certain requirements.

Some of these requirements include:

• The home must be used as the taxpayer’s principal or regular place of business.
• The home must be used exclusively for business purposes.
• The taxpayer must use the regular method of accounting.

If a taxpayer meets these requirements, he or she can deduct certain expenses related to the business use of the home. These expenses include utilities, repairs, maintenance, and depreciation of the home office space.

Section 3 – Vehicle Expenses

Small business owners often use their vehicles for business purposes. The IRS allows for a deduction for certain expenses related to the business use of vehicles. These expenses include gasoline, oil, repairs, insurance, and depreciation of the vehicle.

In order to take advantage of these deductions, the taxpayer must use the actual expense method or the standard mileage rate. With the actual expense method, the taxpayer may deduct all of the actual costs associated with the business use of the vehicle. The standard mileage rate allows for a deduction of the IRS’s published standard mileage rate.

Section 4 – Marketing and Advertising

Small businesses can also take advantage of deductions for any marketing and advertising expenses they incur. This includes costs associated with digital marketing and advertising, such as website hosting fees and online advertising costs. It also includes any promotional materials they may create, such as brochures and flyers. In addition, these deductions can include the cost of professional services associated with advertising and marketing, such as services rendered by a marketing agency or copywriter.

Section 5 –Employee Expenses

Employee-related expenses are another type of tax deduction that small businesses can take advantage of. This includes anything that is used to compensate or reimburse an employee, such as salaries, bonuses, and commissions. The cost of recruiting staff and any associated relocation expenses are also typically tax deductible.

Additionally, businesses can deduct the cost of health insurance premiums for their employees, as well as other benefits, such as retirement contributions. Business travel expenses can also be deducted, for travel that is directly related to the business.

Section 6 – Insurance Deductions

Another type of deduction available to small businesses is insurance. Business owners can deduct the cost of any insurance premiums they pay for their business. This includes both liability and property insurance, as well as workers’ compensation insurance and any other types of insurance they may have. This deduction can also include the cost of any business interruption insurance that the business may have taken out.

Section 7 – Miscellaneous Deductions

Finally, businesses can take advantage of miscellaneous deductions for a variety of other expenses. This includes the cost of any professional services, such as accounting and legal fees, as well as the cost of any subscriptions or memberships. Additionally, businesses can deduct the cost of any membership fees or training courses.

Final Thought

Tax deductions can be a great way for small businesses to reduce their tax burden and save money. Business owners should make sure that they understand the rules and requirements of the various deductions and consult with their accountant to make sure that they are claiming all of the deductions that they are eligible for. With the right strategy and knowledge, business owners can maximize their deductions and use them to their advantage.