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Big List of Business Tax Deductions

Big List of Business Tax Deductions

Every tax season, small business owners across America sit down with their accountants and wrack their brains to try to come up with as many legal business tax deductions as possible. Knowing which business tax deductions you qualify for can help reduce your income tax liability, enhance the efficiency of your business operations and improve your overall financial well being. But many small business tax deductions are misunderstood and underutilized. Some small business owners make the mistake of claiming the wrong deductions or claiming the wrong amounts (and thus make themselves vulnerable to an IRS audit), while other business owners make the opposite mistake of not claiming all of the business tax deductions that they qualify for and deserve to claim.

Don’t let your hard-earned money fall through the cracks! Claiming the right business tax deductions helps you avoid paying extra taxes unnecessarily – and also reduces your risk of tax return errors and tax penalties. Instead, make sure you’re updated on the latest and greatest small business tax deductions that might help improve your tax situation – this year or next.

Here is a big list of small business tax deductions, with a few details about why they’re important and how they might help your business:

 

Home Office Deduction: You can claim a tax deduction for the percentage of your home’s square footage that is exclusively dedicated to your business home office or inventory storage. But make sure you meet the IRS rules for “exclusive business use.” You may also be able to deduct some expenses for repairs and maintenance of your home, as it relates to use for business.

 

Rent: If you rent an office or retail space, that monthly rent is tax deductible. The only exception is if you own any equity in the building where you rent from – or if you expect to receive equity in the building in the future.

 

Employee Pay or Contract Labor: Any money that you pay to your employees, independent contractors or freelancers is immediately deductible as a business expense.

 

Inventory: Money that you spend on inventory for your retail business is a tax-deductible business expense. This is tracked on your tax return as “costs of goods sold.”

 

Employee Benefits: Health insurance premiums, other insurance (group life and disability coverage) and any other fringe benefits that you pay to your employees (tuition assistance, training expenses, etc.) are generally tax deductible as business expenses.

 

Retirement Plans: Whether you’re a solo entrepreneur or a business owner with many employees, any contributions (up to a certain limit each year) to qualified tax-advantaged retirement plans such as SEP IRA, SIMPLE IRA, 401(k) or other retirement accounts, are tax deductible.

 

Business Transportation – Vehicle Mileage or Maintenance: If you use your personal vehicle or a business-owned vehicle for business related travel, you can deduct the value of depreciation on the vehicle’s value by deducting your mileage with the IRS standard mileage rate per mile of business travel, or (if the number is greater) by deducting the total value of gas and maintenance on the vehicle.

 
Moving Expenses: If you’re self-employed and work from home, you can deduct your moving expenses as long as you live at least 50 miles away from your current home. However – there is a “time test” – you must remain employed full-time for at least 78 weeks out of the next 2 years after the move. Deductible moving expenses include: packing and shipping costs (and/or hiring a moving company), up to 30 days of storage, travel costs, including $0.24 per mile for gas, hotel room costs (not meals) and costs of disconnecting utilities and hooking up utilities at the new home.

 
Student Loan Interest: If you’re still paying student loans – for yourself or for your children – make sure to deduct the loan interest. But note: the person who gets to deduct the loan interest is the person who is legally obligated to pay back the loan. So if the loans are under your name, you can take the tax deduction. If the loan is under your adult child’s name, then they will be able to claim the deduction on their tax return.

 
Bad Debts: If a customer owes you money and they are not paying their bills and you cannot collect, you might be able to deduct the uncollectible bad debt from your taxable income.

 

Charitable Contributions: The IRS likes to encourage and reward people who donate and volunteer for charitable causes. Any money you give to a tax-exempt charitable organization can be deducted from your taxable income – and also certain out-of-pocket expenses incurred while volunteering for a charitable organization. You can also get a tax deduction for donating certain property instead of cash – check out the relevant IRS rules.

 

Depreciation: Certain business property that you buy for your business cannot have the entire cost deducted in the same year that you buy it – instead, you need to spread the cost across a few tax years and deduct part of it each year. This IRS page describes more about how to handle Depreciation on your tax return.

 
Education: Have you spent money to attend a trade show, industry seminar, or buy books, CDs or online tutorials related to your business? These tools to help you get smarter at running your business are all tax deductible business expenses.

 
Business Meals and Entertaining Clients: Getting drinks or dinner with a current or prospective client is a valid expense, but it’s only 50 percent deductible.

 

Travel Expenses: Business travel expenses are more than hotels and airfare – think about all the little things you spent money on during your last business trip – in-flight Wi-Fi, cab fares, Uber rides and other costs. Meals purchased during business trips are only 50 percent deductible.

 

Office Equipment and Furniture: Did you buy a new computer, printer, monitor, desk, office chair or other office equipment or furniture last year? If so, you can write it off on your taxes – either as a one-time cost in the tax year when it was purchased, or depreciated over several years. (Your accountant can help you figure out which option is the best deal for you.)

 
Startup Expenses: It’s expensive to get a new business off the ground – and that’s why the IRS lets you deduct up to $5,000 of your startup expenses, including research costs.

 

Software: The software deduction is for more than just the traditional idea of software in a box or in a download – if you use any cloud-based tools such as online accounting software or other online productivity tools, your subscription fees for these software-as-a-service (SaaS) options are deductible as well.

 

Taxes: Certain business taxes paid by your business, such as federal unemployment tax (FUTA) and certain state, local and federal taxes attributable to your business can be deductible business expenses. Check out this IRS page for more details.

 

Licensing and Regulatory Fees: Certain regulatory fees and license fees required to be paid each year to keep your business open and in good standing are tax deductible.

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DISCLAIMER: This article is meant to be informative and help you keep track of your options for business tax deductions, but it does not constitute professional tax advice. Contact your accountant or professional tax adviser with any questions about which business tax deductions are right for you – and be sure to get professional help with filing your business and personal tax returns.

 

What do you think is the most surprising or least-understood business tax deduction? Leave a comment and let us know!

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Kabbage Team

Kabbage is here not only to provide access to the small business funding you need, but to also help you grow your business through free marketing tips, webinars, tools and more. Is there something you'd like us to cover or want to get your small business featured on our blog? Send us a note at content@kabbage.com.