As a small business owner, you’ve been busy all year trying to grow your business and make it more profitable. What you may not have been doing is tracking all of your expenses to ensure you don’t get stuck with a large tax bill at year-end. Tracking down your expenses can be tricky, and it can be difficult to know what is a deductible business expense and what is not.
In order for a business expense to be deductible on your tax return, it must be both ordinary and necessary. An ordinary expense is something that may be common in your industry and one that is incurred in the normal course of business. A necessary expense is one that is helpful and appropriate. In other words, it’s something that may help you generate more revenue, retain customers, etc. At Casey Moss Tax, our experts can help you determine what is deductible and what is not so you can be sure your business is compliant while minimizing your tax obligations.
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Get Our Free Printable Small Business Tax Deduction Worksheet
At Casey Moss Tax, we have a free spreadsheet template that you can use to organize all of your expenses by transaction and even generate a profit and loss statement for year-end tax preparation. Subscribe to our newsletter today and get a free copy of this template. Don’t worry – below we will still provide you a list of common deductible expenses for small businesses that you can use to get organized on your own.
What Can Small Businesses Write Off?
Unfortunately, the IRS does not provide a specific list of allowable deductions for every small business. Depending on your industry, there are many expenses that may be considered ordinary and necessary for you, but may not be for another industry. However, there are certainly plenty of deductions that are common among all industries.
Below are some of the expenses that are available to many business owners. This can be used to help you organize your expenses for the year. However, it’s always best to work with an experienced professional (like us) to get your taxes filed correctly and ensure your compliance with filing requirements.
Advertising and Marketing
These are expenses that are incurred for purposes of promoting your business and driving in more revenue. Common examples include business cards, advertising agencies, and digital marketing expenses.
Vehicle Mileage
Some businesses may choose to deduct business mileage expenses instead of the actual expenses incurred for their vehicle. This is an either/or situation. If you deduct mileage, you need to track your business and personal mileage for the year. The IRS provides a per-mile rate for this deduction.
Vehicle Gas
If you are not taking the mileage deduction, you may be able to deduct the gas expenses for your vehicle for the business portion of the expenses. Be sure to keep your receipts for these expenses.
Vehicle Repairs and Maintenance
These are things such as oil changes, car washes, tire replacements, and other vehicle repairs for your business vehicle. These can only be deducted if you are not taking mileage expenses for this vehicle.
Vehicle Tolls and Parking
If you have a business vehicle, you can generally deduct the tolls and parking fees incurred in the normal course of business. You cannot deduct fines or tickets paid for traffic and parking violations.
Home Office Expenses
If you have an office in your home that is dedicated strictly to business use, you may be able to write off some of the expenses associated with the space. This can include rent, mortgage interest, real estate taxes, utilities, repairs, maintenance, cleaning, internet, and many other expenses. Be sure to measure your home office and only deduct the business percentage of these expenses.
Bank Service Charges
These are maintenance & check fees charged by your bank. They can generally be found on your monthly bank statement, and can be deducted in full if your account is used strictly for business purposes.
Business Licenses
These include industry-specific licenses as well as more general business licenses. For example, if you have to register and renew your business licenses each year with the secretary of state, you can generally deduct these fees.
Business Permits
These are permits necessary to perform your business operations. They are generally paid to cities or counties prior to operating in that area.
Charitable Contributions
Depending on your tax structure, you may be able to deduct charitable contributions. Even if your structure doesn’t allow for these deductions directly on your business tax return, it’s a great idea to track these deductions because you may be able to take them as an itemized deduction on your personal tax return.
Computer Expenses
These include all things related to business computers, such as antivirus software, cables, and other supplies necessary to make the machine work. You can also deduct the cost of the computer, but it may need to be depreciated over a period of time depending on your situation.
Internet Expenses
This is for business internet. If you have internet for your home that is also used for business, you should split the expense between business and personal use.
Education Expenses
Depending on your industry, you may be required to complete continuing education courses each year to maintain your licenses. These are generally deductible expenses if they are necessary to operate in your profession. There are also some optional education expenses that may be deductible if they help further your career in a way that’s directly related to your current operations.
Seminars
If you attend business seminars to help network or generate new ideas, these may be deductible on your tax return. The seminar must add some value to your business operations to be deductible.
Dues and Subscriptions
Dues generally include annual fees paid to things like Chambers of Commerce, professional organizations, and some other organizations. Subscriptions include monthly or annual fees paid for items you use in your business.
Business Insurance
Business insurance includes liability insurance, workers compensation insurance, vehicle insurance, and any other insurance that protects your business. This generally does not include life insurance.
Health Insurance
Depending on how your business is organized and how your plan is structured, you may be able to deduct the health insurance for you and your employees. If you are a sole-proprietor, you may be entitled to the self-employed health insurance deduction. If you’re an S-corporation, you need to add the premiums to your wages to take this deduction (don’t do it yourself – contact an expert).
Interest Expenses
This includes any interest paid on business debt. Business debt is any debt that your company is liable for and that was generated for business purposes. This can include credit card interest, vehicle loan interest, line of credit interest, and even mortgage interest if your business owns property.
Legal and Professional Fees
Legal and professional fees are payments made to lawyers, accountants, consultants, and the like. Payment of these fees may require that your business file a 1099 to the vendor, so be sure to track these carefully and comply with these requirements.
Vehicle Mileage
Some businesses may choose to deduct business mileage expenses instead of the actual expenses incurred for their vehicle. This is an either/or situation. If you deduct mileage, you need to track your business and personal mileage for the year. The IRS provides a per-mile rate for this deduction.
Meals
Meals with employees or clients may be deductible if you can identify a specific business purpose. You may also be required to identify what business matters were discussed during the meal. Recordkeeping is critical for these types of expenses, so be sure to keep your receipts.
Merchant Processing
These are fees paid to the companies that you use to collect credit card payments from your customers.
Office Supplies
There are many items included in this category. This can be used to track any items used in your office or home office specifically for business purposes.
Payroll Taxes
If you pay any wages to employees, you can deduct the FICA and unemployment taxes that are due from the payment of these wages. They are generally paid to the IRS and other state agencies.
Postage and Delivery
These are postage and shipping charges for shipment of business goods, marketing materials, or client information.
Rent Expenses
This is for rent paid to landlords for any business property owned. You should generally have a signed lease to substantiate these expenses.
Equipment Rental
If your business rents equipment instead of buying it, you can generally deduct the fees paid to the rental company.
Repairs
If you repair business equipment, office or business areas, or any other supplies you use, you can deduct the cost of the repairs.
Maintenance
This can include things like cleaning services for your office or other business spaces, pest control, and similar services.
Retirement Plan Fees
These are fees paid to the companies that administer your business retirement plan. It’s important to track these separately, as they may be eligible for a tax credit instead of a deduction.
Salaries and Wages
If you are registered for payroll and regularly pay wages to W-2 employees, you can deduct the gross wages paid to each employee.
Software Expenses
If your business uses any software specifically for business purposes, you can deduct any monthly fees or initial costs of the software. In some cases, software expenses may need to be capitalized.
Subcontractor Expenses
If you contract any work to non-employees, you can deduct the payments to these individuals. However, be sure to comply with all 1099 filing requirements if you are using subcontractors.
Telephone Expenses
These are expenses for your business phone and fax lines. If you use a cell phone partially for business and partially for personal use, you should split the expenses and only deduct the business portion.
Travel
If you are traveling to different customer locations or to other areas for business events, you can deduct the cost of hotels, rental cars, and other travel related expenses incurred.
Utilities
These include gas, electric, water, and garbage expenses for any business facilities you have.
Does Your Small Business Need Tax Help?
Casey Moss Tax is here to help! We work with many small businesses all over the US and can help you reduce your tax bill this year. Book your free consultation today to talk through your situation and fully understand the value we can provide.
