Small business tax deductions help businesses to lower their taxable earnings and save money during tax season. Deductions can be a simple way to save money, but making the most of them involves keeping careful track of your business accounting throughout the year.
Below you'll find a table containing the top ten small business tax deductions, plus frequently asked questions about small business tax write-offs. Need help? Check out our guide to small business tax software.
Top 10 Small Business Tax Deductions:
If your business spends money on advertising and promotion, make sure you keep track of these expenses. The IRS allows you to deduct almost all advertising expenses.
2. Business Insurance.
Most businesses have some kind of liability insurance, and some even require specialized insurance based on the industry that they are in. These insurance costs are essentially a mandatory cost of doing business, so you are able to deduct them from your taxes.
Whether you use your own personal car or your business owns a fleet of vehicles, these costs are tax deductible. Deductions include repairs and fuel costs, but only a portion of these costs are eligible if the vehicle is also kept for personal use.
4. Capital Expenses.
Capital expenses are incurred when your business purchases new equipment or assets. There are limits to the amount that you can write off as a capital expense each year. For example, if your business purchases a new property, you may be able to write off the cost of the purchase over the course of several years, but you cannot deduct the full value all at once because your business will not get the full use out of the property in that year alone.
5. Cost of Goods Sold.
To offset money that you earned from the sale of goods, you can deduct the initial amount that it cost you to acquire those goods. This will demonstrate the difference between your gross profit and your net profit, lowering your taxable income.
6. Employee Wages.
If you have employees, you can deduct the wage or salary that you pay to each one of them. However, if you hire contractors or freelancers, you cannot deduct these costs because they are not truly employees of your business.
7. Health Insurance Premiums.
Do your business provide a group health insurance plan to its employees? In some circumstances, the contributions that your business makes are deductible. To qualify for this small business deduction, you must have 25 employees or less.
8. Home Office Costs.
Working from home is common for self-employed people. Besides a short commute to work, a further benefit of working from home is that you can write off a portion of your home office expenses. If you can demonstrate that your home is your primary place of business, you can deduct things like your electricity and your mortgage payment (in part) from your earnings.
Many businesses rent office space or warehouse facilities and pay a monthly fee for their occupancy. This is another cost of doing business that can be deducted at tax time.
To keep your business going, you need basic things like running water, electricity, heat, internet, etc. Your utility costs are deductible so long as these costs are being used for the operation of the business.
Small Business Tax Deduction FAQs:
How do I know which of my home office costs qualify as small business tax write-offs?
If you are filing your own taxes, double check with the IRS to make sure you are following the right guidelines for your home office deductions. If not, a qualified tax professional will know how to maximize your self-employed deductions.
Is health insurance tax deductible for small businesses?
Yes, in some cases you can deduct the contributions that your business makes towards a group health insurance plan for your employees. According to the IRS, if your small business has fewer than 25 full-time employees making an average of $53,000 per year or less, then you may be able to take advantage of the small business health care tax credit.
Do unused business tax write-offs carry over to the next year?
With the exception of capital costs, most unused tax deductions do not carry over to the next year if you neglect to claim them in the year which they were accrued. Capital costs can be spread over several years.
Small Business Tax Write-Offs:
- Business Insurance.
- Capital Expenses.
- Cost of goods sold.
- Employee wages.
- Health insurance premiums.
- Home office costs.