Running a business means every dollar counts, especially at tax time. While deductions can’t eliminate your tax bill, they can significantly reduce it.
Understanding which everyday expenses qualify can help you keep more cash in your business and reinvest in growth. Here are 15 deductions to help your business save this season.
Home office
The IRS allows business owners, including self-employed freelancers and independent contractors, who utilize a home office for their business to deduct certain expenses that go into furnishing and maintaining it.
The amount one can deduct depends on the size of the home office in square footage. For example, if your home office is one-quarter of the total square footage of your home, you can deduct one-quarter of your rent or electricity. This space must be used exclusively for business, even if it's only a section of a room that has another use.
If you are a solopreneur with a home-based business or you work as a freelancer from home, this is the only tax deduction specific to remote work that you can claim. Additionally, as a business owner, you cannot claim the home office deduction on behalf of employees working from home for your company.
[Read more: Essential IRS Tax Forms and Deadlines Every Small Business Owner Should Know]
Rent and phone/internet services
If you don't qualify for the home office deduction, you may qualify for deductions on your rent. If you rent an office (outside of the home) or equipment for your business, those costs can be deducted as a business expense.
Similarly, companies that need telephone and internet services can deduct these costs from their business taxes. If you use your phone and internet for personal and business purposes, you can only deduct a portion based on a percentage of your business-related use.
Startup expenses
If you're in the prelaunch stage or your first year of operation, you can claim up to $5,000 in startup expenses. The costs that are usually considered tax-deductible include:
- Training expenses.
- Travel costs for obtaining employees, suppliers, and customers.
- Market research.
- Advertising expenses.
- Wages for contractors or consultants.
You need to successfully open your business to claim these expenses; you cannot deduct funds spent on a failed business.
Repairs and maintenance
If you have a brick-and-mortar store, you may find that repairs and maintenance are necessary as the building ages. You can deduct repair and maintenance costs that are necessary to keep the building in working order. Examples include painting the building’s exterior or interior and sealing leaks or cracks.
These repairs must be solely to maintain the building rather than improve it. Changes like adding a new room are not typically tax-deductible, though they may fall under capital improvements.
Business insurance
Depending on your state, most businesses are required to carry a few types of business insurance, such as workers' compensation, general liability insurance, and professional liability insurance. These insurance policies are considered necessary for a business's operation and can be deducted from your taxable income. Note that certain insurance types — such as loan protection insurance and corporate-owned life insurance — may not qualify for deductions.
Advertising and marketing
The IRS considers "ordinary and necessary" costs relating to advertising and marketing to be tax-deductible. These costs include billboard promotion, online advertising, and the cost of producing advertising materials such as business cards or logos. Deductible costs can even include money spent on food or entertainment you provide to the public to market or promote your business. Small businesses cannot deduct expenses for advertising at political conventions or in political publications, though.
Legal and professional service fees
Any fees paid to a professional — such as an accountant, lawyer, or consultant — are deductible, so long as they pertain solely to your business. It includes business accounting and tax preparation fees for sole proprietors.
If you use a professional's services to assist in purchasing a depreciable business asset, these service fees cannot be deducted; however, they will be added to the tax cost of the asset.
Employee salaries
All of your employees' wages are fully deductible, including any bonuses and commissions, as long as the payments are deemed ordinary, reasonable, and for services rendered. You can also deduct any paid time off for your employees.
This deduction can also apply to independent contractors; however, the contractors must be classified correctly to avoid penalties. Anyone who qualifies as a partner or proprietor is not covered under this deduction.
Employee health insurance
In general, the cost of providing health coverage to employees is deductible at the state and federal levels. For deducting health coverage reimbursements, your business should have a clearly outlined and documented plan explaining your reimbursement policy.
Since 2010, the Affordable Care Act has offered tax credits to small businesses to mitigate the cost of coverage. The qualification for those tax credits can vary from year to year. You can also file paperwork to allow your employees to pay for their health insurance pretax, which ultimately reduces your payroll taxes as the employer.
[Read more: A Quick Guide to Small Business Employee Health Insurance]
Any fees paid to a professional — such as an accountant, lawyer, or consultant — are deductible, so long as they pertain solely to your business.
Qualified benefits
Beyond health insurance, you can typically deduct several other employee benefits from your business taxes, including the following:
- Retirement plans, both for your employees and for yourself.
- Tuition reimbursement, up to $5,250 per employee per year.
- Continuing education costs, including any associated publications or materials.
- Paid leave for medical or personal reasons, typically between 12.5% and 25% of the leave amount you pay to the employee.
Charitable contributions
If your business donated to a charity, you may be able to claim it on your tax return. The contribution must be a cash donation and benefit a qualified charitable organization, such as a religious organization or a nonprofit founded in the United States. You can deduct up to 25% of a donation to a church, synagogue, or veterans organization, for example.
If the business is a limited liability company, a sole proprietorship, or a partnership, these charitable donations must be claimed on personal income tax forms — personal charitable donations can, in some cases, be 100% deductible.
Bad debt
A bad debt is defined by the IRS as a loss of a debt that occurred through the business or a liability that was closely related to your trade or business. This includes instances where you may have loaned money to an employee, vendor, or customer and did not see a return. Sales to customers on credit can also qualify as business bad debt.
To qualify for the deduction, you must prove that the debt was related to the business and not personal or nonbusiness debt. Nonbusiness bad debt could be personal credit card debt or unpaid loans.
[Read more: Commonly Overlooked Small Business Tax Credits]
Business vehicle
Expenses from the use of a company or business vehicle, such as tolls, maintenance fees, licenses, and insurance, are usually 100% deductible; however, it's vital to keep detailed records of how the business is using the car, including tracking the mileage. Additionally, the costs must be divided based on mileage if you also rely on the vehicle for personal use.
Business entertainment
The events and meals you provide your employees and potential customers or vendors can also be tax-deductible. The amount you can claim depends on when and where you made the purchase.
Meals purchased from restaurants in tax years 2021 and 2022 were considered 100% deductible under the Consolidated Appropriations Act. However, effective tax year 2023, all meal and entertainment purchase deductions reverted to the guidelines in the Tax Cuts and Jobs Act, which state the following:
- Employee office parties are 100% deductible.
- Meals and snacks for employees at the office are 50% deductible.
- A business dinner with a client is 50% deductible.
Travel expenses
Work-related travel, regardless of its frequency, can often be a tax deduction for small businesses. To qualify, the person traveling must do so for longer than a normal day of work and must sleep away from home.
You can also deduct expenses for temporary work assignments of less than one year. If your team must travel to another state to complete a project for two weeks, you can deduct the reasonably related expenses. You can even deduct any travel expenses for conventions or conferences if they benefit the business.
How to track and document deductions properly
Keeping thorough tax records is essential for claiming deductions and staying compliant with the IRS. Document your gross receipts, purchases, expenses, travel, entertainment, gifts, business assets, and employment taxes. Use supporting documents such as invoices, receipts, canceled checks, account statements, deposit records, and Form 1099-MISC to maintain a clear, verifiable paper trail.
Organize records by category
Organizing your business records by category makes tax season more efficient and less stressful. To get started, create folders for income documents (e.g., W-2, 1099), medical expenses, banking information (e.g., mortgage, investments, loans), home and property expenses, and donations.
For new business owners, it’s important to track any startup and organizational costs, your business income, and additional expenses (e.g., supplies, internet, advertising). To ensure all is accounted for, review your records and update files monthly.
Save digital copies of important documents
Physical documents can get misplaced, and even if they’re accounted for, their ink can fade over time. For security, you’ll want to keep a digital backup copy of important documents through scanning, photographing, or downloading them onto your computer.
Receipt scanners can help, or simply using your smartphone to capture your receipts is acceptable. Clearly capture the date, the business name and address, and the total amount. If you receive PDFs of records through email, download and save them in a secure location.
Mark up your receipts
Jotting down key details on your receipts — such as the amount, date, location, attendees, and type of expense — makes tracking business costs more efficient. For example, noting that a meal was a business lunch or a purchase was for office supplies increases accuracy and helps substantiate deductions.
Adding these details immediately prevents lost information, reduces errors, and saves time from having to guess during tax preparation. Making a habit of saving and logging this documentation ensures all your expenses are verified, which can protect your business in the event of an audit.
Common deduction mistakes to avoid
Even small errors can cost your business. Learn how to avoid missing eligible deductions, miscalculating amounts, and claiming deductions you’re not qualified for.
Missing claimable deductions
Many small business owners miss out on claiming valuable deductions simply because they aren’t aware that they qualify. Review all potential deductions, including charitable donations, medical expenses, education costs, mortgage interest, and self-employment expenses. Keeping organized records and consulting IRS guidance or a tax professional can help ensure you claim everything you’re eligible for, maximizing your tax savings and reducing errors.
Calculating deductions incorrectly
Incorrectly calculating your deductions can lead to penalties, interest, or, in some cases, an audit. Double-checking amounts, using reliable tax software with built-in review, and keeping accurate records can help you avoid these errors. If you discover a mistake after filing, promptly file IRS Form 1040-X to correct it.
Claiming deductions you’re not eligible for
If you aren’t organized, it can be easy to accidentally claim deductions your business isn’t eligible for, such as misclassifying personal expenses as business costs. This can lead to fines, interest, or delayed refunds. To avoid these issues, carefully review the criteria for each deduction, such as childcare or premium tax credits. Review all entries before filing, and file Form 1040-X if you discover an error.
How to save on taxes as a small business owner
Although taxes can feel overwhelming as a small business owner, there are a few ways to save yourself time and money. Follow these rules:
- Stay organized. Setting up a separate bank account or credit card for business expenses helps ensure all your information is in one place when tax season rolls around. You may also consider using bookkeeping software and switching to digital versions of receipts.
- Make estimated tax payments on time. If your business qualifies as an S corporation, you'll need to estimate your taxes for the year and pay portions of that estimated total quarterly. As a business owner, you need to do the same for your income tax and self-employment tax. These regular payments and estimations will keep tax season from being a surprise to you and your bank account.
- Max out your retirement plan contributions. Although retirement plan limitations vary, contributing the maximum amount to your retirement plan puts your money in a safe place to grow. It may be tempting to use your income for more immediate things, but be disciplined and only prioritize real emergencies and basic necessities over retirement contributions.
- Consider hiring a certified public accountant (CPA) or an enrolled agent. No online guide or quick tip round-up can give you the kind of specialized advice that a professional can. A CPA will get to know your business and understand how to best file your taxes every year.
For more information on small business taxes, check out our guide for tax season planning.
Rachel Barton and Danielle Fallon-O’Leary contributed to this article.
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