Did you know that in 2022, over nine million Americans qualified for tax benefits but didn’t claim them by filing a 2021 federal income tax return? Unfortunately, this is a common occurrence, which means that you might be paying the government more than you should.
Small business owners may think they know everything about tax write-offs, but in reality, there are lots they’re missing, and you shouldn’t let the government keep your cash. However, with a little research and ingenuity, you can maximize profits and minimize business expenses.
Keep reading for several creative tax deductions for a small business to use.
9 Small Business Tax Deductions
1. Start-Up Costs
If you’ve just started your company, then act fast. You can deduct up to $5,000 in start-up costs, and $5,000 in organizational costs as well.
However, this is only possible within the first year of business. For the next 15 years, the remaining costs can be amortized.
If you haven’t even started your company yet, then consider our business registration service. We serve all 50 states and our base package starts at $37, which is super affordable.
2. Home Office Deduction
Do you operate your business from home? Then you might be able to deduct a portion of your home expenses.
The home office deduction says that you must regularly and exclusively use a part of your home for conducting business. In addition, it has to be the main place you carry out work. This means that even if you go elsewhere to do business, you can still use the home office deduction, as long as you still work mainly in your house.
Wondering what tax deductions you can get here? They include:
- Part of your rent or mortgage interest
- Property taxes and homeowner’s insurance
- Utilities and internet
- Maintenance and repairs
3. Vehicle Expenses
94.5% of Americans older than 16 drive at least occasionally, so it’s very likely that you do too. The good news is that you can deduct expenses regarding both your vehicle’s mileage and standard expenses.
However, do note that it matters whether you use your car purely for business or if you use it for personal errands too. If it’s the latter, then you can only deduct the costs resulting from business use. Either way, you’d deduct them on Schedule C (Form 1040).
Below are the two deductions in more detail.
Standard Mileage
The government allows you to deduct a certain amount per mile driven for business. For 2023, the self-employed and businesses can deduct 65.5 cents per mile.
To be eligible, you have to own or lease your vehicle. There are some other requirements, which are listed in IRS Topic no. 510.
Actual Expenses
Here, you’d deduct the actual costs of operating your car. This includes gas, maintenance, insurance, registration fees, depreciation, etc.
Regarding depreciation, you’d use the Modified Accelerated Cost Recovery System (MACRS).
4. Office Supplies and Equipment
It might seem like a small thing, but you can actually deduct the cost of office supplies. So save those receipts when you go to Office Depot and stock up on pens, paper, printer paper, etc.
But think bigger. Many entrepreneurs may be surprised, but small business tax deductions can include larger ticket items, such as computers, software, and furniture.
The plus side of this deduction is you can deduct 100% of your costs. However, the IRS’s rules are that you don’t take inventory, nor do you keep a record of when they’re used. On the flip side, these supplies and materials must be used in the year they were bought in.
5. Travel Expenses
Those who have to travel for business will rejoice knowing that they can deduct their travel expenses. Naturally, this includes things like airfare, car rentals, and taxis. But additionally, you can deduct lodging, meals, and tips or fees related to travel.
IRS Topic no. 511 specifies that you can only deduct travel expenses if you must be away from your tax home for longer than a day, and you need to stay overnight.
6. Meals and Entertainment
This is a very creative tax deduction idea since you wouldn’t think meals and entertainment would be deductible. But they are indeed!
The IRS allows you to deduct 100% of the meal and entertainment costs that are directly related to your business if they’re for a company party. The same goes if you’re providing free food and drinks to the public.
Otherwise, you can deduct 50% off most other types of meals, including meal meetings with clients or food your employees eat while traveling. As for entertainment, as of 2018, you’re no longer able to deduct anything for entertaining clients, sadly.
7. Education and Training
Want to be “paid” to further your knowledge and improve your business? This is possible, as the IRS has a business deduction for work-related education.
This means that you can take courses, attend workshops, and get certifications to add to your skills with less financial pressure.
8. Bad Debts
Unfortunately, you may run into nightmare clients who take forever to pay you. In the worst-case scenario, they may not pay you at all, period.
It can be devastating doing work for free, but you can lessen the blow by writing these amounts off. The owed money is considered bad debt, and it’s tax-deductible if you’ve reported it as income beforehand.
9. Subscriptions and Memberships
Have you joined professional organizations? Then you can actually deduct the cost of these memberships on your tax returns.
Plus, you can write off subscriptions to business-related magazines and services. For example, you can put down your website hosting fees or business phone plan.
Use These Creative Tax Deductions for a Small Business
Creative tax deductions for a small business can really add up. It may take extra work to do, but it’ll be worth it when you see the chunk of change you’ll save.
Of course, you can make it easier on yourself by hiring an accountant. This is an added expense, but you won’t have to do this work yourself. Also, with their expertise, your accountant will be able to find other creative deductions to save you even more.
Sign up with Business Anywhere to get your company started if you don’t already have one. We can set up both LLCs and corporations for you.
