Small Business Tax Deductions Checklist
you're a small business owner and income tax season approaches it's nice to know that
you can cover all the bases for small business tax deductions.
Our ultimate small business tax deduction checklist is designed to do just that, take
advantage of every tax deduction you can qualify for.
This list of the most common small business tax deductions can
help self employed small
business operations benefit from tax deductions to lower their
taxable income in an equal amount to the percentage of your marginal tax bracket.
Top 25 Small Business Tax Deductions Checklist
With our top 25 small business tax deduction list, you will be sure to enjoy insight
into tax deductions you can qualify for now, and what you should be using for tax
planning to qualify for additional tax deductions in the future.
Common Small Business Tax Deductions You Should Know About!
Top 25 Tax Deductions for Small Businesses
print tax deduction checklist for small businesses
- Advertising. Ordinary advertisement and promotional marketing costs related to your business are fully
tax deductible. The cost of advertising and promotion is 100% deductible,
including things like the cost of printing business cards.
- Sole proprietorships and single-member LLCs can claim this expense on
Form 1040, Schedule C.
- Partnerships and multi-member LLCs can claim this expense on line 20,
- Car and truck expenses. Most small businesses employ a vehicle, such as a car, light
truck or van for transportation and delivery. The cost of operating the vehicle for business is deductible if:
- There are required records to prove business usage, cost (e.g., gasoline, oil changes,
- Or you use the IRS standard mileage rate of 54.5 cents per mile in 2018
instead of deducting your actual outlays.
- Note: You can use the standard mileage rate whether you own or lease the
- Charitable contributions. You can deduct charitable contributions
made to qualified organizations.
- Sole proprietorships, single-member LLCs, partnerships, and S
corporations deduct these costs on their personal tax return
- Corporations deduct them on their corporate tax return.
- Use Schedule A (Form 1040) to claim charitable contributions.
- Contract labor, Commissions Fees. Freelance Labor and independent
contractors can keep your checkout lines moving during the holidays or create
new marketing materials for your shop. These are fully deductible and require you to
issue Form 1099-MISC to any such contractor receiving $600 or more from you
during the tax year. Note: commissions paid buying real estate are not deductible; they are added to the basis of
the property and generally recovered through depreciation.
- Depreciation. The depreciation deduction is an allowance for the cost
of buying real estate property or equipment for your business. Section 179 deduction
is for equipment purchases
up to ($1 million in 2018). Other
limits may also apply. The depreciation category includes another type of write-off in the year costs are paid or
incurred. This is limited to 50% for property acquired and placed in service after
September 27, 2017.
- Education. Educational costs are fully deductible provided they add
value to your business and increase your expertise. Education costs for a new
career, or costs related to education outside the realm of your current business
don’t qualify as business tax deductions. To determine if your class or workshop
qualifies, the IRS looks at whether the expense maintains or improves skills
required in your current business. This may include:
- Books tailored to your industry
- Classes and Seminars to improve skills in your field
- Subscriptions or professional publications related to your trade
- Transportation expenses to and from classes
- Workshops to increase your expertise and skills in your current business
- Employee benefit programs and qualified retirement plans. The cost of
employee benefit programs, such as education assistance and dependent care
assistance, as well as contributions to employees’ qualified retirement plan
accounts, are deductible. For self-employed individuals, contributions to their
own qualified retirement plan accounts are considered personal deductions to be claimed on Form
- Home office. Personal expenses directly related to the percentage of a home
used regularly and exclusively as a principal place of business are deductible.. The deduction includes both direct
costs (painting, cleaning) and indirect costs (rent, mortgage interest and real estate taxes)
for the percentage of
the residence used for business. This may include Form 5695 to claim energy
- Insurance. The insurance costs for your business owner’s policy, real
estate liability, flood insurance, malpractice coverage, cyber liability coverage, and business continuation insurance
are all fully tax deductible. However, there are two rules to note for health
coverage. As a better tax break than a tax deduction,
small businesses may
qualify to claim a tax credits for up to 50% of the premiums paid for employees.
On the other hand, the health insurance cost for self-employed individuals and more-than-2% S
corporation shareholders is deducted on the owner’s personal tax return instead
of as a business deduction.
- Interest on business indebtedness. Interest on business loans are
generally fully deductible as a business expense (e.g., construction business
line of credit interest). However, businesses
with average annual gross receipts in three prior years of more than $25
million have a limited percentage of interest that’s deductible. Also, business
owners interest on loans by to buy their businesses are treated differently.
You must distinguish business interest from an owner’s investment interest or
passive activity interest, which is not a business deduction.
- Legal and professional fees. Legal and accounting fees for the
business are fully tax deductible.
- Meals and entertainment. Starting
in 2018, entertainment costs are no longer deductible. Business meal costs are
50% tax deductible, although there are some meal costs that can be fully deducted.
You must substantiate these expenses (see IRS Publication 463). Meal expenses incurred while traveling on business remain 50% deductible.
To deduct 50% of qualifying food and beverage costs they must be business related, and you need to keep the
following records, (record it on the back of the receipt for convenience, and
use Form 1040, Schedule C to claim business meal expenses)
- The amount of each expense
- The date and place of the meal
- The business relationship of the person you dined with
- The purpose of the meal and what you discussed
- Medical care expenses. As a self-employed individual, if you pay for
your own health insurance you can deduct all of your health, dental, and
long-term care insurance premiums. You can also deduct the cost of premiums that
you pay for your spouse or dependents.
In addition to insurance premiums, you can also deduct medical costs such as
doctor’s fees, the cost of prescription drugs, and inpatient or home care.
However, if you are eligible to participate in your spouse’s employer plan, you can’t deduct a plan that you opt to pay for.
Use Schedule A (Form 1040).
- Mortgage interest. Businesses that own real estate can fully deduct
mortgage interest and there is no cap on the size
of loans on which interest can be claimed.
- Rent on business property. The cost of renting office space, a boutique,
storefront, factory, or other type of facility — is fully deductible.
- Rent on machinery and equipment. Rental fees paid to lease or rent items used in
your business are fully deductible.
- Repairs. The cost of ordinary repairs and maintenance to your
facility are fully deductible,
while costs that add to the property’s value are usually capitalized and
recovered through depreciation. However, there are various safe harbor rules
that allow for an immediate deduction in any event.
- Salaries, wages, benefits. Payments to your work staff employees, including salaries, wages, bonuses, commissions,
and taxable fringe benefits, are deductible business expenses. (For
employee benefit programs, such as retirement plan contributions, see item #7.)
- Social Security Self Employed Tax Deduction. Self-employed taxpayers
are required to pay both the combined employee and employer amount of social
security taxes, but they can deduct half of their Social Security tax on IRS
Form 1040 as a non-itemized deduction taken from gross income.
- Supplies. The cost of office supplies and products used in a business
like cleaning supplies for a cleaning
service, postage, printer paper, staples etc. are fully deductible business
expenses. Also, if you opt to use de minimis safe harbor allowing you to deduct the cost of tangible property
(e.g., vacuum cleaner, tablets, chairs, desks) rather than depreciating them, the
items are treated as non-incidental materials and supplies.
- Taxes — real estate and personal property. You can deduct licenses, regulatory fees and taxes on real estate and
personal property. Your employer taxes, including the employer share of FICA, FUTA, and state
unemployment taxes, which are fully deductible business expenses. But for self-employed
business owners, the deduction for half of your self-employment tax is not a business
deduction; it's treated as an adjustment to gross income on your personal income tax return.
owners of pass-through entities cannot use their state and local income taxes on business
income as a business write-off. These are treated as personal taxes deductible only
on Schedule A of Form 1040 (and from 2018 through 2025, they are subject to a $10,000 cap for all state
and local taxes).
- Telephone and internet expenses. expenses like these that are integral to your business
are tax deductible. However, if you also use your phone and internet connection for personal reasons, you can only deduct the percentage of cost
related to what was generated from business-related activity. Telephone and internet costs
can be claimed as utility expenses on Schedule C
- Travel expenses. If you or staff members travel out of town on business, the cost of
transportation, air fare, luggage and baggage fees, taxi fares, lodging etc. is fully deductible. You must meet
substantiation requirements which are explained in IRS Publication 463 to claim travel
deductions. However, local commuting costs are generally nondeductible.
- Utilities. Electricity, gas, water, sewer etc. for your business facility
are fully deductible. If you claim a home office deduction and have a landline,
the cost of the first landline to your home is not deductible, but a a second
line is a deductible utility cost.
- Petty cash expenses. Petty cash is the small items you pay cash for,
like parking and tolls, or doughnuts for the office meeting. These continual
small expenses can add up to big tax savings. To take advantage of tax
deductions for these small expenditures you need to keep good records of them.
Create a log book and note the time, date, amount, and what you bought in it.
- Business Startup and Organization Costs. You may be eligible to
deduct some of your business startup costs up to $5,000 as well as
organizational costs up to $5,000. If your startup or organizational costs
exceeded $50,000, your deduction may be limited.