20 small business tax deductions you can’t miss

Published

Oct 21, 2024

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Getting a small business up and running can come with a lot of excitement, late nights—and business expenses. From desk calendars to desktop computers to, well, desks, to employee benefits and workers’ compensation insurance, the costs associated with even the smallest small businesses can start to feel overwhelming. Fortunately, the IRS—and many other global tax authorities—allow new businesses and small businesses below a certain headcount to deduct some of their essential purchases and expenses from their gross income.

Whether you’re a seasoned entrepreneur or brand new to preparing and filing your corporate tax returns—which can look very different from the personal income tax forms you’re used to filing every April—we’re here to demystify small business tax deductions and help your business save money.

What is a tax deduction?

Small business tax deductions are expenses an organization can subtract from its gross income to reduce its taxable income.

Example: Widgets.io, a SaaS startup, earned a gross income of $500,000 last quarter. It also spent $150,000 on salaries and $75,000 on marketing and advertising, both of which are tax deductible. When Widgets.io files its corporate tax return, it will report taxable income of $275,000 for the quarter.

However, not all business expenses qualify as tax write-offs. In the US, the Internal Revenue Service (IRS) publishes a list of credits and deductions available to companies. In other countries, consult with the federal, state, or local tax authorities to understand your business’ tax regime.

Small business tax deductions checklist

Claiming the right combination of deductions can make a big difference when it comes to your business’ tax liability—and your bottom line. And more expenses than you think may qualify as tax write-offs on your federal tax return.

Looking beyond typical expense report line items like meals and travel can reveal some important purchases your business can use to lower its tax bill.

1. Start-up expenses

Because new companies don’t qualify for standard business tax deductions during their first year of operation, they qualify for special startup costs tax treatment. You’re allowed to deduct $5,000 of the money spent to get the business up and running from their overall taxable income and recover additional, nondeductible costs up to $50,000 over a 180-month period. Recoverable costs need to meet certain IRS criteria to qualify; deductible interest, taxes, or research and experimental costs aren’t recoverable.

2. Office supplies

Office supplies like printer paper, ballpoint pens, and office chairs may seem like small expenses—but they can definitely add up over time. It’s important to keep good records of these types of purchases in case of an audit, but as long as you stay on top of your expense reporting and log your receipts, you can deduct these purchases from your business income.

3. Home office deduction

If you run a small business out of your home, you may be able to write off some of the expenses relating to maintaining a dedicated workspace using the home office tax deduction.

To qualify, you’ll need to demonstrate that you use your home office regularly and exclusively to conduct business. If your desk doubles as a craft table or shares space with a pullout couch for guests, it may not qualify. You’ll also need proof that you conduct business primarily from your home office—not from multiple locations.

4. Business meals

Planning a networking event or a company party? You can usually write off a portion of the cost on your tax return. The rules around when and how much your business can deduct depend on when - and why - you’re holding the event.

Food and beverages for a company picnic to show appreciation for your employees? Those costs are 100% tax deductible. Likewise, if your business hosts an event for the general public and offers refreshments, you can write off the catering costs 100% as an advertising expense.

Businesses can deduct 50% of the cost of meals with a clear business objective. If you pick up the bill for a client after a business lunch, for example, you can deduct half of the total bill. Under IRS rules, deductible meals cannot be “lavish or extravagant.”

Example: Widgets.io throws an annual holiday party for employees and their spouses. Last year, the company spent $5,000 on food and drinks and $1,000 for a live band. The company can deduct the $5,000 spent on catering.

Example: The CTO of Widgets.io treats a major client to dinner, during which they discuss a potential acquisition. The company can deduct $250 of the $500 bill.

Entertainment costs, like the fee to rent a party venue, are usually entirely non-deductible.

Example: Widgets.io invites a potential integration partner to a baseball game as part of a goodwill campaign. The company reserves a private suite at a rate of $8,000, which includes catering as a separate line item for $2,000. Widgets.io can write off 50% of the catering costs—$1,000–but not the $6,000 for the suite rental.

5. Business insurance

You can usually deduct the costs if you need to purchase insurance related to your business activity, such as liability insurance or commercial auto insurance. Self-employed people can also deduct the cost of health insurance for themselves and their families.

6. Internet expenses and utilities

Whether you’re a brick-and-mortar business or a team of fully remote workers, your organization needs electricity, an internet connection, and a working restroom to stay up and running. As part of your ‘ordinary and necessary business expenditures,’ these are deductible expenses from your business’ income. If you work from home, however, you’ll need to calculate the percentage of your household bill that applies to your business activity and deduct only that amount.

7. Software subscriptions

Small business owners often rely on specialized software to simplify important finance, human resources, or compliance processes. The costs of these essential tools, along with subscription fees for any apps or SaaS products your business needs to function, are fully tax-deductible.

8. Advertising and marketing

Almost all businesses rely on advertising and marketing to generate demand and source new customers. Whether you perform these activities in-house or work with an agency or consultant, the costs related to digital and print ads, billboards, content campaigns, and other efforts to raise the profile of your business are tax deductible.

9. Employee salaries

Arguably the most essential of any business’ costs, compensation paid to employees and contractors is tax deductible. To claim this write-off, you’ll need to ensure that you maintain accurate payroll records. That includes correctly completed W-2 forms for your full- or part-time employees and 1099 forms for any independent contractors with whom you do more than $600 of business.

10. Employee benefits

Technically classified as “fringe benefits,” many payroll tax deductions like employee health insurance and retirement plans qualify as deductible business expenses. If you offer employees educational assistance, gym memberships, or even cash gifts of up to $25, you can deduct those, too.

11. Business vehicle

Expenses related to a car, truck, or other vehicle that you use for business can qualify as tax-deductible, including insurance, repairs, and even fuel. Whether you’re entitled to write them off entirely, however, depends on how you use that vehicle. You can deduct all of the associated costs for a car that you drive only for business. If, on the other hand, this vehicle doubles as your personal mode of transportation, you’ll need to calculate the percentage of expenses related exclusively to your business and deduct only those amounts.

12. Professional services

Sometimes, what your business really needs is an outside expert to provide guidance and direction. If you hire an attorney, accountant, consultant, or other professional to help tackle a business challenge, you can write off those expenses on your corporate tax return.

13. Business interest and bank fees

Like personal bank accounts, professional bank accounts come with administrative costs, including processing and transaction fees. You can claim these as tax deductions, along with interest paid on business loans or a business credit card.

14. Web hosting for online businesses

While brick-and-mortar businesses can deduct rent, mortgage payments, and other property-related costs, online businesses can claim web hosting and domain registration expenses. Depending on the nature of your business, these may qualify as advertising and marketing costs or “ordinary and necessary” expenses. An e-commerce company, for example, needs to pay for hosting and registration in the same way that a physical boutique leases commercial space.

15. Repairs and maintenance

If your business owns or rents an office or commercial space and pays for repairs, you can deduct those costs. Note that this applies to small projects and routine maintenance with invoices totaling less than $2,500 (or $5,000, if you have an adjusted financial statement). You still have the option to write off bigger projects, but you’ll need to depreciate them over time rather than in a single tax year.

16. Bad debts

Sometimes, transactions don’t go as planned. If you extend credit to a customer in the form of money, goods, or services and can’t collect, you have the option to claim that debt as a deduction.

17. Moving expenses

Businesses can claim the expenses associated with moving from one location to another on a corporate tax return. Because the IRS no longer allows non-military individuals to deduct these costs from personal income, sole proprietors should take care to ensure that they properly attribute the claim when filing a Schedule C to their personal returns.

18. Education

Growing your business can sometimes require you to incur costs associated with additional education, training, or development—costs that you can deduct from your business’s gross income. This deduction extends to trade publication subscriptions, fees to attend networking events, and tuition for certificate programs, but must relate to an educational opportunity that will further your business.

19. Depreciation on equipment and machinery

Over time, certain types of equipment and machinery purchased for your business can begin to lose value due to wear and tear. To offset the depreciation against the value of the asset, you can file a Form 4562 to claim up to $1.16 million in annual deductions for losses associated with business property.

20. Charitable donations

When your business donates money or property to qualifying organizations, such as foundations, trusts, or civic organizations, you have the option to deduct the value of your donation from the business’ gross income. In the case of property, such as land or a car, you’ll deduct the fair market value of the property at the time of the donation.

How to claim small business tax deductions

How your organization claims its tax deductions depends on its particular legal entity: A limited liability corporation won’t use the same form as a corporation, for example. A tax professional can provide definitive guidance, but the below list includes the forms most commonly submitted by small businesses with expenses to write off:

Form 1120. Corporations use this form to report income or losses and claim credits or deductions.
Form 1065. Multi-member LLCs, also known as partnerships, use this form to provide the IRS with information about income and claim deductions.
Schedule C. Sole proprietor LLCs don’t need to complete a separate business tax return. Instead, business owners attach this form to their Form 1040, personal tax return, to report business expenses and self-employment tax deductions.

Automate small business payroll and tax deductions with Rippling

Looking for a payroll management solution that can simplify tax deductions and compliance? You’re looking for Rippling.

Rippling automatically calculates employee deductions automatically, so you never need to manually enter withholding amounts. It’s intuitive, easy to use, and has a 100% error-free guarantee on every pay run. It also offers 500+ integrations, automatic and accurate tax registration and filing, and a dedicated mobile app where your employees can view their W-2s and paystubs, submit expenses directly, and more.

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FAQs on small business tax deductions

Are business expenses 100% tax deductible?

No, not all business expenses are 100% tax deductible. While you can write off 100% of some essential purchases, like office supplies or insurance, other expenses have limits to how much you can deduct under IRS rules. Deductions related to a business vehicle, for example, are capped by actual use or mileage rates.

Can you write off taxes from previous years?

Yes, businesses can carry tax deductions and losses from previous years forward or backward to offset either future or past income. This accounting practice, known as a “carry forward,” “carryback,” or “net operating loss,” helps businesses strategically reduce their tax liability by applying past losses to current or future profits and vice versa.

What is the Section 179 deduction, and how does it benefit my business?

The Section 179 deduction allows a business to deduct the entire cost of equipment and software purchases from its gross income during the year of purchase instead of depreciating it over several years. The idea is to help businesses maintain a healthy cash flow in years when they make major purchases of machinery, technology, or vehicles necessary for growth by significantly reducing their overall taxable income.

Can you deduct start-up costs with no income?

Yes, you can deduct a certain amount of the costs of starting a new business from its first corporate tax return, even if the business earned no income in the previous year. Provided your expenses are less than $50,000, you can deduct $5,000 from your first return, with the remainder amortized over the next 15 years.

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