10 U.S. small business tax deductions all entrepreneurs should know about

small business tax deductions

Tax deductions are a big concern for business owners because they impact their profit margins, growth, overall income, and more. Large organizations have to pay thousands of dollars in taxes and don’t find it challenging because of their higher profits.

However, even the most minor tax deductions can be a significant advantage for small businesses. In these situations, small business owners should know the tax deductions and expenses they can save on. There are over 31.7 million small businesses in the U.S.; if you have one or plan to do so, this article is for you.

We will discuss the various tax deductions and costs you can claim as a small business and drastically save costs for business operations.

If you are interested in starting your business or have already started a small venture, you can claim for various tax deductions and expenses.

Knowing the suitable options can simplify your business approach and help you maintain the right approach. Here are the main business tax deductions that you should keep in mind.

1. Rent and Utilities

Do you have a place on lease for running your business? Or do you have a co-working space, a single table, or an entire commercial building for your business?

Regardless of your business operation site type, business owners and freelancers can claim a tax deduction on them. The same rule applies to essential utilities you use for your business. These include:

  •       Water bills
  •       Telephone bills
  •       Gas
  •       Electricity

These costs can make up to 30% of the total costs of the business and can help you stay afloat in times of financial crisis. We recommend consulting with professionals for the exact tax deductions you can claim from the rent and utilities.

2. Home Office

Most small business owners pay taxes on their homes and office space. However, some freelancers may work from home, which technically makes their homes their place of business. There’s a particular amount you can qualify for in a home office deduction.

You can get deductions for the home office, but that doesn’t include the basic business costs or your rent and utilities. These are different utilities and costs, and the business owners should handle them accordingly.

Some of the most common costs claimed in business-use-of-home deductions include:

  •       Utilities (water, internet, power, heat)
  •       Property taxes
  •       Mortgage interest
  •       Maintenance
  •       Home insurance, etc.

However, the businesses have to meet criteria set by IRS, which include:

  •       Regular and exclusive use
  •       Principal place of your business

A home office can be the best option for small business owners wishing for long-term business stability and cutting down on operating costs along the way.

3. Advertising Expenses

Any advertising cost you spend as a small business, including business cards, billboards, or other advertising means, can be claimed in tax deductions. Additionally, small business owners also get claims on:

  •       Website costs include hosting, updates, and others.
  •       Pens, key chains, tote bags, and other business merchandise.
  •       Online advertising through social media and other paid adverts.

The advertising costs often go unnoticed for small businesses because they don’t spend millions of dollars on their campaigns, unlike Coca-Cola, Unilever, and many others.

However, even these tiny amounts can be a lot for small business operators. With the advertising expense tax deduction, you can significantly reduce the operation costs of your business and market it better for more sales and business, leading to better growth.

4. Insurance

Insurance policies are a must for small businesses to protect themselves, their equipment, and their business. It’s because there’s a chance these small businesses may land in a lawsuit because of a known or unknown offense. They can also face repairing issues or loss of equipment crucial for their business, requiring instant solutions. With the insurance policies on their backs, the business operators can quickly sort out these expenses and keep their businesses afloat.

These insurance policies can also be claimed in tax deductions, depending on the kind of policies you have. Here are the various options one can choose from:

  •       Liability insurance premiums
  •       Insurance on any equipment (other than vehicles) is deducted as part of vehicle expenses).
  •       Commercial property insurance costs
  •       Business interruption insurance

With coverage and tax deductions on many different policies and expenses, safeguarding your business becomes more accessible and efficient.

5. Legal and Professional Fees

Setting up a small business requires consulting with lawyers and other professionals, hence paying them for services. You can claim these costs in court, such as the year-end filing.

The legal costs can rise to thousands of dollars if the small businesses have to repeatedly connect with the professionals.

You can also get deductions on the consult costs for pros like accountants and lawyers or even costs you pay for business books and memberships. Online subscriptions, industry purchases, etc., all fall under this category.

If you want more details on these expenses, you can always check the details at the official IRS website and check your options.

More: Pay Less to the IRS: How to Reduce Your Small Business Taxes with Jayden Doye

6. Retirement Plans

A retirement plan for a small business owner or a freelancer is also pretty beneficial, and the payments can be deducted easily. However, not all the accounts are available for tax deductions. However, you can deduct the contributions for various plans, such as:

  •       SIMPLE IRAs
  •       SEP IRAs
  •       401(k)s

With retirement plan deductions, you can better plan your future and save a significant amount on expenses simultaneously.

Retirement plan deductions can also help you segment your plans better and adjust your spending accordingly.

7. Health Insurance Premiums

 Being a self-employed individual, you have to care for your health because you are your most significant support. Therefore, health insurance plans are a must.

While these insurance policies amount to a lot of money on average, you can get deductions on the costs, like several other expenses for a small business. It’s a more convenient and effective way to make health insurance care effective.

If you have a business of your own or have ownership in another company ranging up to 2% of the corporation, you can also pick various options.

It is possible to get a deduction on the health insurance premium payments for one’s self, your partner, dependents, and all the off-springs under the age of 27.

8. Bad Debts

As a small business owner, you will face “bad debts at some point in your life. There’s a chance that you might face such situations each year. To understand, you should know these bad debts are simple liabilities that a business cannot recover.

It can be a loan, a due payment, or any other monetary amount you must recover. As a freelancer or a worker in the industry, you will encounter situations where the people involved will not pay back no matter what you do.

You can collect various bad debts over time, depending on the nature of your work. Following are some of the most common types of bad debts you should prepare your small business for:

  •       Unpaid services offered by a business as a professional
  •       Funds shared with businesses, vendors, and suppliers
  •       Any cost of unpaid sales if you have a product-based small business.

9. Office Supplies and Tools

For an office or a small business to function correctly, you will need a variety of necessities. As a business owner, you have to stay ahead of everyone else, stay sharp, and be ready to work in case there’s a need for any supplies or tools— it can be litany, notebooks, pens, stationary, and other essential items usually found in business spaces.

You may be wondering these stationary items aren’t expensive enough to be considered for a tax deduction. However, these stationary items can amount to a significant cost at the end of the year. Therefore, business owners should add it to their year-end filing.

Although we have shared several stationery items and office staples, here are some others you should remember:

  •       Stationary
  •       Staplers and paper clips
  •       Stamps
  •       Pens and pencils
  •       Day-to-day shipping for products
  •       Courier expenses
  •       Cleaning supplies

10. Salaries and Wages

As the business grows, you will have to increase the number of employees you hire. These employees will bring in more business. You can hire contractors and professionals depending on their skills and their experience. However, there are gross salaries and wages that you should also consider.

You can get the following business tax deductions if you are running a business alongside employees with experience and skills.

  •       Employer contributions for social security and Medicare (FICA)
  •       Employer contributions for federal (FUTA) and state (SUTA) unemployment taxes

Salaries and wages like:

o   Per diems and allowances

o   Employee benefits

o   Contract wages for workers paid more than six hundred annually

o   Bonuses and commissions are provided.

Bottom Line

Tax deductions are a great way for small business owners to cut down on their business operations and make the venture affordable.

We recommend outlining all the expenses and tax deductions you can reduce before you get your subsequent tax filing.

The year is about to end, and it’s the perfect time to make a move. If you need more insight, a tax expert can help you do it efficiently.


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