We don’t have to convince you that taxes are complicated—especially for small-business owners. You know it. We know it. But not paying attention to your taxes could cost you big-time—especially if you’re not sure which small-business tax deductions you’re eligible for. And Uncle Sam doesn’t exactly give you a road map here.
Here’s what you need to know: The IRS considers anything that’s “ordinary and necessary” to running your business a tax-deductible expense. So, paint brushes for an artist? Yes. Your new hairdo? Not so much. Still not sure? Don’t worry! We’ll help you get a better grasp on what you can write off as a business expense on your tax return.
23 Small-Business Tax Deductions
Certain expenses are specific to the kind of business you run. But we put together a list of common deductible business expenses that most small-business owners can write off:
- Qualified Business Income
- Home Office
- Advertising and Marketing
- Office Supplies and Expenses
- Software Subscriptions
- Office Furniture
- Inventory (Cost of Goods Sold)
- Auto Expenses
- Energy Efficiency Expenses
- Business Meals
- Salaries and Employee Benefits
- Freelance or Contracted Labor
- Employee Gifts
- Legal and Professional Fees
- Bad Business Debts
- Debt Interest
1. Qualified Business Income
The 2018 tax reform law changed how deductions work for most taxpayers—including small-business owners. Under the tax law, most small businesses (sole proprietorships, LLCs, S corporations and partnerships) can deduct 20% of their income on their taxes. Woo-hoo!
Got small business tax questions? RamseyTrusted tax pros are an extension of your business.
Here’s what this means: Say you own a small business and it generates $100,000 in profit. You can deduct $20,000 before ordinary income tax rates are applied.
But be warned: There are a few limits that could prevent you from claiming this deduction. The biggest obstacle is the income limit that applies to some high-income business owners like lawyers, doctors and consultants. Once your income exceeds that limit ($164,900 for single filers or $329,800 for pass-through business owners who file a joint return) this deduction begins to phase out.1
That all sounds pretty complicated, but it’s simpler than it seems. A pass-through entity is just a small business that doesn’t have to pay corporate income taxes. Basically, the business owner pays the taxes at their personal rate. You’ll want to reach out to a tax pro to see if you’re eligible for this pass-through entity deduction.
2. Home Office
Have you turned a spare room in your house or apartment into a home office space? Good news! You’ll probably be able to deduct some expenses if you’re using your home for business. This includes mortgage interest, insurance, utilities, repairs and depreciation. The simplified version of this deduction also allows small-business owners to deduct $5 for every square foot of their home office—up to a max of 300 square feet.2
Remember, the IRS only allows you to claim this deduction if you use your home office exclusively for business purposes on a regular basis. If your office doubles as a guest room for your mom when she’s in town, that’s not going to fly.
With rent always going up, it’s nice to get a break somewhere. The cost of renting a space for your business is fully deductible, whether it’s a downtown storefront for your cupcake shop or an office space in a business complex for your travel agency.
4. Advertising and Marketing
If you’ve been handing out business cards like candy on Halloween, you’re in luck! You can deduct the cost of printing those cards on your tax return. Basically, you can deduct anything you use to promote your business and bring in new customers—including things like social media ads and billboards. So, deduct away!
5. Office Supplies and Expenses
Okay, no matter what kind of business you run, you probably have to stock up on traditional office supplies—whether it’s printer ink, pens or Post-it notes. The good news is, those supplies are fully deductible.
And if you’ve bought a new laptop, smartphone or some other gadget you use for your small business during the year, you can write off the entire cost of those expenses too.
6. Software Subscriptions
Software is a big part of running today’s businesses—even small businesses. If you need tools like a Microsoft Office subscription or point-of-sale software (like Square) to run your business, you can claim them on your taxes.
7. Office Furniture
Creating a comfortable office environment is a great way to keep your team, clients, and customers happy—so, quality office furniture is a must. Luckily, the IRS considers office furniture as office supplies. Which means you can . . . you guessed it—deduct it!
Uncle Sam knows you have to keep the lights on to keep your business going (and vice versa). Everything you spend on utility bills for your business—including electricity, phone, internet, water, heat and sewage—is fully deductible.
Roofs leak, toilets break, and walls need to be repainted from time to time. If you need to repair parts of your business property or perform regular maintenance to keep things running efficiently, you can also write off those costs on your taxes.
10. Inventory (Cost of Goods Sold)
Does your small business make or purchase products for resale? Uncle Sam actually lets you deduct the cost of making or purchasing those products. This includes expenses like raw materials, employee wages and storage.3 But this deduction can get a bit technical, so you’ll want to consult a tax pro.
11. Auto Expenses
A lot of small-business owners use vehicles to get stuff done—whether it’s driving to and from meetings with clients or using a pickup truck to move heavy equipment between work sites. If you can prove you use a vehicle for business purposes, you can deduct those expenses from your income.
Now, there are two ways you can claim this deduction:
1. Use the standard mileage rate.
Add up all the miles you drove for your business and multiply by the IRS’ standard deduction rate to figure out your how much you can take off. As of 2022, the standard mileage rate is 58.5 cents per mile.4 So for example, if you drive 5,000 miles for business purposes in 2022, you’ll be able to deduct $2,925 off your taxes.
2. Add up your actual car-related expenses.
This option will take a little more work. If you keep very detailed records throughout the year, you can add up how much your car depreciated and how much you spent on gas, repairs, tires, tune-ups, car insurance and registration fees. Then that’ll be your deduction instead of the mileage.
Which option you choose basically depends on how economical your car is, how much it costs you to drive it throughout the year, and how well you documented your car-related expenses. Better save those receipts!
12. Energy Efficiency Expenses
Do you own a commercial property or building? If you’ve recently made upgrades to increase energy efficiency—like improvements to heating, cooling and interior lighting—you might qualify for a deduction of up to $1.88 per square foot.5 Not a bad deal. But you have to show you’ve reduced energy usage by 50% to get the full deduction.
Many small-business owners and their employees spend a lot of time in airports and traveling around the country to do business. But all those airline tickets and hotels can get pricey. The good news is, you can deduct most travel expenses for you and your employees—as long as there’s a business purpose behind the trip.6 Just make sure you hang on to all your receipts and keep detailed records from your travels.
14. Business Meals
Wining and dining business clients can get pretty expensive, but at least you’ll be able to split the check with Uncle Sam. You can usually deduct 50% of the costs for business lunches, but entertainment expenses (like sporting events or concerts) don’t count.7
On the bright side, though, the cost to provide meals for your employees at a company picnic or holiday party is fully deductible.
15. Salaries and Employee Benefits
If you have employees, anything you pay them—from salaries and wages to bonuses and commissions—counts as tax-deductible business expenses. You can also deduct contributions to their retirement plans, education assistance and most other employee benefitss.
16. Freelance or Contracted Labor
Freelancers and independent contractors can be an invaluable resource for your business. And—just like yournormal employees—the cost of hiring them is fully deductible too. Nice! Just make sure you issue the right IRS form (1099-NEC or 1099-K, depending on how you pay them) to any freelancer or contracted worker who you pay $600 or more.
17. Employee Gifts
You can also deduct up to $25 per person per year for employee gifts.8 So, if you’re feeling extra generous around the holiday season—or any time of the year—be sure to track and record your gift giving.
You can fully deduct educational costs as long as they add value to your business. So, if you pay for things like classes, workshops or seminars (or even books and subscriptions) that strengthen your business know-how, you can deduct those costs. But remember, any educational costs need to add value to your business. So no, that couples cooking class on date night doesn’t count. Sorry!
Nothing feels better than deducting taxes on your taxes. While you can’t deduct federal income taxes, there are still plenty of other taxes closer to home you’ll be able to write off on your tax return. For example, you can write off up to $10,000 of state and local income taxes, sales taxes, real estate taxes and personal property taxes.9
Here are a few other taxes you can deduct:
- Part of your self-employment taxes
- Franchise taxes
- Excise taxes
- Occupational taxes
No matter what kind of business you’re in, you definitely want to protect it. And the best way to do that is to get the right kinds of insurance in place. The cost for many of the insurance premiums you’ll need for your business—like liability insurance, fire and flood insurance, or theft insurance—are deductible.10 Medical insurance for your employees is also deductible under certain circumstances as well.
21. Legal and Professional Fees
You have the right to an attorney—and the right to deduct any legal and accounting fees charged by attorneys and accountants that are related to your business operations.
22. Bad Business Debts
Okay—we know what you’re thinking: Isn’t all debt bad? Well, yes. But that’s not exactly what we’re talking about here. Bad debt is when you lend money to an employee or vendor and don’t get it back. Credit sales to customers and business loan guarantees are also considered bad debt by the IRS (if previously included in income).11
You can claim bad debt as a tax deduction as long as you can prove it’s a business debt and not personal.
23. Debt Interest
Listen, we believe the best way to run your business is to run it completely debt-free. Debt is not a tool to grow your business—it creates a lot of unnecessary risk. Debt will slowly suck the life out of your business. And if you’re not careful, business debt can lead to years of stress, endless payments and even bankruptcy.
If you’re thinking about taking out a business loan, don’t do it. That’s just dumb!
But if you’ve already taken out a loan for business purposes, whether it’s a mortgage or a line of credit, you can probably deduct the interest you’re paying on the loan from your taxes. Even though it sounds like a sweet deal, it’s hard to come out on top when debt is involved. So, this is one deduction we don’t want you to have.
Now, go pay off that loan as soon as possible, and never borrow another cent again!
How to Claim Small-Business Tax Deductions
You can claim most small-business deductions on Schedule C and Schedule E forms (just be sure you’re filling out the right form for your business type). You can use these forms to add up all your deductions and figure out your taxable income.
Remember, the more deductions you claim, the lower your taxable income. And the lower your taxable income, the less you’ll owe Uncle Sam. Got it? Great!
But look, this stuff gets tricky—especially if you’re a small business with employees. The last thing you want to do is miss out on deductions that could save you hundreds or thousands of dollars on your taxes—or worse, make some mistakes that leave you in hot water with the IRS. You’ll want to talk with a tax pro to make sure you have everything sorted out.
Talk With a Tax Pro
If all this tax stuff makes your head spin and you’d rather spend more of your time focused on your business, we hear you. We can connect you with an experienced, RamseyTrusted tax professional in your area to help you take full advantage of these small-business tax deductions.
Our Endorsed Local Providers (ELPs) take the stress out of tax season by helping you claim all the deductions you qualify for and save time in the process. We can hear you breathing easier already.