Tax-Deductible Expenses for Small Businesses

Business

Jan 25

Introduction

If you’ve started your own business, you may have underestimated just how many expenses go into it. Fortunately, with tax season coming up, you’ve got an opportunity: now is the perfect time to find out about which business expenses can be written off as tax deductions.

Deductible v. Capital Expenses

First and foremost, what is a tax deduction? It’s an expense that a business can subtract from their total taxable income. Essentially, they allow your business to pay less in taxes. According to the guidelines set by the IRS, businesses can deduct any expense that is deemed “ordinary and necessary”. Business expenses can be divided into two categories: deductible and capital expenses. Capital expenses are considered assets, and include things like startup costs, employee labor, and improvements to your business.

Common Deductibles

Unfortunately, there’s no easy list of deductible versus capital expenses, so let’s look at a few common small business costs that are tax-deductible.

Advertising. Any expense related to creating promotional material or advertisements is usually tax deductible! This includes things like website domain costs or business cards.
Business insurance. Depending on the type, some or all of the cost could be deductible!
Business meals. If you’re providing lunch for your employees at a conference (or just because it’s been a long day!) that’s a deductible expense!
Company car costs. Expenses like gasoline and maintenance can be written off taxes! However, this typically does not apply to the upfront cost of the vehicle itself.
Contract labor. Sometimes, expenses incurred by hiring contractors can be written off taxes.
Credit card convenience fees. Credit card companies often charge a fee for opening a business account, and this expense can be written off.
Educational expenses. Teaching and certification programs, or the cost of certification tests, are tax deductible.
Employee benefits. Not all employee benefits are tax deductible, so make to do your research beforehand.
Legal and professional fees. This can cover anything from hiring a lawyer to a bookkeeper.
Rent. Your office space is a deductible expense!
Travel expenses. Plane tickets and hotel fees can be deducted, as long as they’re necessary to your business.

Many of these are available as write-offs to sole proprietors, partnerships, and limited liability companies. However, this list is not comprehensive, and some of these are only deductible to certain types of businesses or in certain circumstances, so be sure to look into whether you can write them off, yourself!

Conclusion

While starting and maintaining a business is expensive, there are avenues to increase your net profits. So, if you haven’t filed your taxes for your business yet this year, perhaps you should consider hiring a bookkeeper or financier to look over your yearly expenses first– their services just might qualify as another tax write-off!

Sources:

Berry-Johnson, Janet. “17 Big Tax Deductions for Businesses.” Bench, 5 Jan. 2023, https://www.bench.co/blog/tax-tips/small-business-tax-deductions.

“Publication 535 (2022), Business Expenses.” Internal Revenue Service, 13 Feb. 2023, https://www.irs.gov/publications/p535#en_US_2022_publink1000209178.