Common Small Business Tax Deductions

Business tax deductions are important to all small businesses. Tax deductions lower a business’s tax bill to the government and allow business owners to keep more of their hard earned money. Small business owners can benefit from common small business tax deductions if they know when to use them correctly. The penalties for misusing tax deductions can be significant and result in more money being paid to the government than otherwise would have been paid. Therefore, it is important to determine whether the most common small business tax deductions apply to your particular business before claiming them on your tax return.
7 Business Deductions to Consider
Small business owners should consider whether any or all of the following deductions apply them:
  • Travel Expenses: hotel and transportation costs are deductible when you travel for business. Meals are partially deductible since the IRS reasons that you would have to eat, whether or not you were traveling whereas you would not have incurred the cost of a hotel room or plane ticket but for your business related travel. Other things such as dry cleaning and tipping may also be deductible while you are away on business.
  • Supplies and Equipment: office supplies, furniture and equipment are generally deductible.
  • Mileage and Auto Expenses: small business owners can deduct car travel expenses in one of two ways. First, business owners can add the mileage and multiply it by the amount per mile that is compensable by the government and then add in tolls and parking. Alternatively, business owners can determine what percentage of the time they use the vehicle for business related purposes, rather than personal purposes, and deduct the corresponding percentage of all auto related expenses such as gas, repairs and insurance. In either case, the business owner should keep meticulous records of when and how the car was used for business related purposes.
  • Home Office: if you have a home office that is solely used as an office for your business then you may be entitled to deduct a portion of your home mortgage, rent, utilities and insurance. The deduction would be equal to the size of your home office in relation to your home. It is important that the home office not be used for any other purpose if you are going to be taking this deduction. 
  • Retirement Contributions: if you are self-employed and contribute to a Keogh Plan or a Simplified Employee Pension Individual Retirement Account (SEP IRA) then you may be able to deduct the amount you contributed in a given year on that year’s tax return.
  • Education, Software and Subscriptions: you can deduct the costs of software and trade subscriptions used for your business. You may also be able to deduct certain educational expenses if the education is either required for the operation of your business or is in furtherance of your current business.
  • Professional Fees: fees that you pay to professionals that you employ for the benefit of your business such as lawyers and accountants are generally deductible.
The deductions described above are not an exhaustive list of all of the possible deductions that small businesses owners may legally be entitled to take. Additional information can be obtained from the Internal Revenue Service (IRS), your accountant or your attorney. Remember, there is no limit on the number of deductions that you may claim on your tax return provided that you genuinely qualify for each small business tax deduction which you are claiming.

The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.

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