Did you know that small businesses in the U.S. have access to a bunch of tax deductions that can really lower their taxes? Here is a thing: The IRS allows you – under certain conditions- to deduct some of your important expenses, from everyday costs to strategic marketing investments. This guide will delve into various tax-saving opportunities and help you save money!

Small Business Tax Deduction Cheat Sheet

Every penny counts when you’re running a small business. Let’s start with everyday operational expenses

1. Office supplies

Did you know that common office supplies like paper, pens, and software subscriptions are tax-deductible? Also, postage and shipping costs are fully deductible if your business sends mail, packages, or documents. This includes expenses for stamps, envelopes, courier services, and shipping materials, as long as they are used for business purposes.

Tip: Keep all your receipts because it’s your proof to claiming these deductions!

2. Home Office Deduction

If you use part of your home exclusively for business, you can deduct a portion of your rent, mortgage, utilities, and maintenance costs. To qualify, you simply need to prove that these expenses are directly related to your business activities.

Example: If your home office takes up 10% of your home’s space, you can deduct 10% of your rent/mortgage and utilities.

3. Business meals

If you’re planning a company party or a business dinner with your big-shot clients, you don’t have to worry about the bill because Business-related meals are 50% or 100% tax deductible. We’ve dedicated an article about business meal deductions so you can understand exactly how to take advantage of these opportunities.

4. Business insurance 

Protecting your business is non-negotiable. Fortunately, business insurance premiums are tax-deductible. (This includes policies for general liability, property damage, and workers’ compensation.)

Example: A small IT company pays $2,000 annually for general liability insurance—this expense is fully deductible. A freelance consultant pays $1,200 for professional liability insurance—this is also deductible.

Is life insurance tax deductible for self employed? In general, life insurance premiums are not deductible for self-employed individuals. However, if the policy is part of an employee benefits program, where the business is the policyholder and the beneficiary, the premiums can be deductible as a business expense.

Example: A self-employed consultant cannot deduct their personal life insurance premiums. However, if they provide life insurance coverage to employees as a business benefit, they can deduct those premiums as a business expense.

5. Advertising and marketing 

Here’s where you can really get creative and save. All your advertising and promotional expenses are 100% deductible. Whether it’s digital ads, billboards, or sponsoring an event, every dollar spent helps reduce your taxable income while boosting your business’s visibility.

6. Employee salaries

Employee wages (excluding payments to yourself as a sole proprietor) are fully deductible. To report these wages and related taxes, businesses must file Form W-2 (to report employee wages and tax withholdings), Form 941 (for payroll taxes like Social Security, Medicare, and federal income tax withholding), and Form 940 (for federal unemployment tax, FUTA).

7. Business interest and bank fees

Every service fee, ATM charge, or wire transfer fee related to your business banking is deductible. Additionally, the interest on business loans or credit cards counts too. By claiming these expenses, you significantly reduce your tax liability.

8. Vehicle Expenses

If you use your car for business purposes, you can deduct mileage (using the standard IRS mileage rate) or actual expenses like gas, repairs, and insurance. Keep detailed records of business-related trips. You can always hire a professional accountant to handle this for you.

9. Professional Services

Your business could benefit from the expertise of a professional to provide guidance. Whether you hire an accountant, a consultant, or a lawyer, the fees you pay for their services can be deducted as business expenses on your corporate tax return. So you hit two birds with one rock.

10. Retirement Plan Contributions

Contributions to retirement plans like SEP-IRA, SIMPLE IRA, or 401(k) for yourself and your employees are deductible.

How to Claim Small Business Tax Deductions

The process for claiming tax deductions varies depending on your business’s legal structure. For instance, a limited liability company (LLC) will use a different form than a corporation. While consulting a tax professional is the best way to ensure accuracy, here’s a breakdown of the most common forms small businesses use to report income and claim deductions:

• Form 1120: Corporations file this form to report income, losses, credits, and deductions.

• Form 1065: Partnerships and multi-member LLCs use this form to disclose income information and claim eligible deductions.

• Schedule C: Sole proprietors and single-member LLCs don’t file a separate business tax return. Instead, they attach Schedule C to their personal tax return (Form 1040) to report business income, expenses, and self-employment tax deductions.
  

Wrapping It Up

Tax deductions are not just about reducing what you owe; they’re about strategic planning to reinvest in your business. While these tips can get you started, consulting with tax professionals can ensure you’re making the most of your deductions.

Remember, every deduction you claim is more money back in your business to drive growth, innovation, and success. So, keep those receipts and start planning now—your business’s future will thank you! Get the ball rolling and snag a free consultation