Tax season can be a stressful time for many small business owners. When every dollar matters, you want to make sure you’re getting your return 100% correct, but you also don’t want to be leaving any money on the table. This is where tax deductions can make a big difference—and having a small business tax deductions checklist can help ensure you’re not missing out on opportunities that could be financially beneficial to your business.
Tax deductions help businesses offset the numerous costs associated with running a business by allowing them to deduct those expenses from their taxable income. No small business owner wants to lose money, and by taking advantage of any deductions you’re eligible for, you can keep more of what you make in your business’s accounts.
Below you’ll find a checklist of small business tax deductions. This list is just the tip of the iceberg—the IRS lists hundreds of possible small business tax deductions—but it will help give you a sense of where you can start looking for opportunities this tax season.
Why are small business tax deductions important?
Starting and running a small business costs a lot of money, but it would be a big mistake to assume that there’s no way to alleviate some of that burden. Failing to take advantage of small business tax deductions could result in missing out on thousands of dollars that are rightfully yours, just because you didn’t know you could claim certain expenses.
The good news is that no matter what kind of business you run, some of your operational expenses can be deducted from your taxes. Read on to see which ones apply to you and learn how you can save money on your 2023 taxes.
10 common small business tax deductions
The number of potential expenses associated with operating a business is enormous, and a lot of them are not likely to apply to most situations. Working with a trusted accountant or financial advisor is in your best interest because it removes the burden of identifying all possible deductions from your shoulders and hands it off to someone who knows and keeps up with changes to tax law.
That said, there are some more common small business tax deductions you’ll want to be aware of because they could very well apply to your business. Here are 10 of the most essential tax deductions for small business owners to get you started.
1. Start-up expenses
If you started your business this year, then you may be eligible to claim a deduction for start-up expenses. Entrepreneurs are eligible to deduct up to $5,000 in expenses incurred before their business was started. This could include market analysis or product research costs, designing and printing marketing materials, and any education or training needed to start the business.
If you incurred more than $5,000 in business expenses before starting your business, don’t worry—you can gradually write these costs off over the course of your first 15 years in business. Just be sure you’re only counting relevant expenses from before your business was established.
2. Business travel and meals
Many entrepreneurs don’t realize that meals and travel related to business can be tax deductible. But when you consider that this includes flights, hotels, parking tickets, rental cars and taxis, meals purchased while on a business trip, meals with clients, and meals at company retreats or events, it’s easy to see how those costs might add up—and why being able to deduct those expenses is so helpful.
To claim these expenses, the travel must be considered ordinary and necessary—in other words, they can’t be extravagant, they can’t be for personal purposes, and they need to be directly related to your work—and you’ll need to document the cost, date, and location of the expenses.
3. Qualified business income
Also referred to as QBI, qualified business income allows entrepreneurs to take an extra 20% deduction based on their net income for the year, as well as 20% of qualified real estate investment trust (REIT) dividends and income from some publicly traded partnerships (PTP). This deduction is available to individuals who own sole proprietorships, partnerships, or S corporations, and may also be available for those involved in trusts or estates.
To learn more about the stipulations and details of this deduction, visit the IRS page for qualified business income deduction.
4. Freelance and independent contractor deductions
Expenses associated with working with freelancers and independent contractors are also tax deductible.For any independent contractor you pay more than $600 during the tax year, you’ll file a 1099-NEC form. You’ll also need to be sure these individuals are not employed by you and that the services they provided were only for your business.
In most cases, small business owners are eligible to deduct the cost of their medical insurance premiums, as well as any contributions they make toward paying for their employees’ coverage. You’re also able to deduct any business insurance that covers commercial property, professional income, liabilities, and damage to business property related to disasters like fire and flooding.
6. Home office
Another important space to consider for tax deductions is your office. If you converted space in your home to create a home office, you’re eligible to deduct $5 for every square foot (up to 300 square feet) used for the purpose of your small business. Offices that serve a dual purpose, like a guest room, bedroom, or dining room, are not eligible to receive this deduction.
7. Office supplies
You should also consider office supplies for a tax deduction. If you purchased a computer, paid a website hosting fee, needed a subscription to a resource or service, or bought supplies like paper, pens, or printers to complete administrative tasks, you can deduct those costs as long as you can provide records and receipts.
Utilities that are necessary for the operation of your business can be deducted from your taxes as well. This could include your water, landline or cellphone, internet, power, and heating bills. In the case of home offices, you’re only able to write off the cost of what was truly needed to run your business—not what was used personally for you or your family in the home.
As a business owner, you may want to enroll in a certification training course, take a class to expand your skills, or send an employee to seek out additional education through webinars, workshops, or subscriptions to professional publications. Any costs incurred through your own or an employee’s relevant professional development can be tax deductible.
By investing money into an IRS-approved retirement plan, like a Solo 401(k), Keogh plan, Roth IRA, or Simple IRA, you reduce your annual taxable income. Contributions made to these accounts are limited, but they’re also 100% tax deductible.
Get ready to file your taxes in 2023
As a small business owner, making sure you’re advocating for yourself and taking full advantage of the different opportunities to save money when doing your taxes is imperative. Knowing exactly what your expenses are, where your business structure allows for a tax deduction, and how to optimize your annual write-offs are great ways to maximize your income and ensure funds are available when your business needs them most.
Each business is eligible for different deductions based on its particular structure, function, and operations. Remember to carefully consider the unique features of your business to identify deductions you’re able to claim, but that may not be included in this list. Ensure you’re carefully reflecting on the aspects of your business that may not be represented in this list, and contact a tax expert for additional support if needed. For more information about small business tax deductions, read our full guide on the subject.