Small Business Tax Deductions Checklist

Top 25 Tax Deductions for Small Businesses

click to print tax deduction checklist for small businesses

1. 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, Form 1065.
2. 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, mileage etc.)
   • Or you use the IRS standard mileage rate of 54.5 cents per mile in 2023 instead of deducting your actual outlays.
   • Note: You can use the standard mileage rate whether you own or lease the vehicle.
3. 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.
4. 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.
5. 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 2023). 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.
6. 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
7. 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 1040.
8. 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 efficiency improvements.
9. 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 insurance 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.
10. 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.
11. Legal and professional fees. Legal and accounting fees for the business are fully tax deductible.
12. Meals and entertainment. Starting in 2023, 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
13. 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).
14. 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.
15. Rent on business property. The cost of renting office space, a boutique, storefront, factory, or other type of facility — is fully deductible.
16. Rent on machinery and equipment. Rental fees paid to lease or rent items used in your business are fully deductible.
17. 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.
18. 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.)
19. 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.
20. 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.
21. 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. Plus, 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 2023 through 2025, they are subject to a $10,000 cap for all state and local taxes).
22. 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 (Form 1040).
23. 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.
24. 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.
25. 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.
26. 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.

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