Business Deductions

Business Deductions will allow you to lower your taxable income amount. For example, if you owed $100,000 in taxes and were able to write off $50,000 worth of qualifying deductions, you’d now only be taxed off of the $50,000.

Most of the write offs are everyday expenses you’re already paying but now can write off.

 

Things like:

Any equipment or software that could aid you in your business. (Laptop, laptop charger, computer mouse, ipad, speakers, office deck, office chair, camera, etc.)

Any subscriptions that could aid you in your business. (Tradingview, stock sites, etc.)

Business Meals (As long as you talk about business at some point, It’s considered a business meal. Even if you’re out on a date!)

Advertising (Logos, graphics, ads, etc)

Start Up Expenses

Business Losses

Any courses/ education you’ve paid for

Bank Fees

Gas mileage

Home office Rent

Electric Bill

Internet Service Bill

Vacations/trips (Even personal or family vacations! Just make sure you talk business at some point)

Tax filing fees

Almost anything can be written off under business expenses, I advise you to speak with a CPA to come up with a revised plan for your personal taxes.

 

Business meals

Business meals for employees and clients can be considered tax-deductible. Qualifiable purchases depend on the purpose of the meal and who benefits from it.

  • Percentage deductible:
    • Entertaining clients – 0% deductible
    • Business meals with clients – 50% deductible
    • Office snacks and meals – 50% deductible
    • Company-wide party – 100% deductible
    • Meals and entertainment expenses – 100% deductible
  • Eligibility:
    • The expense must be reasonable and not extravagant or excessive.
    • The taxpayer or an employee must be present.
    • The meals must be served to a current or potential business customer, consultant, client, or similar business contact.
    • If the meal is provided at an entertainment activity, it must be purchased separately from the activity itself.
  • Example deductions:
    • Meal expenses while traveling on business
    • Reasonable food and beverage spent on social company activities, including holiday parties and happy hours
  • Special considerations: In order to be eligible, meal costs must be considered reasonable. Exorbitant prices for extravagant meals likely won’t qualify as a deductible business expense.

Advertising and marketing

In the eyes of the federal government, small business advertising and marketing efforts qualify as fully tax-deductible. As long as the actual expenses are considered ordinary, reasonable, and necessary, business owners can count on this deduction to lower their liability.

  • Percentage deductible: 100%
  • Eligibility: Any marketing or advertising expenses spent on campaigns to generate or retain customers can be deemed eligible.
  • Example deductions:
    • Costs of producing advertising materials such as business cards, flyers, etc.
    • TV and newspaper advertising costs
    • Influencer marketing
  • Special considerations: Costs that are considered primarily personal are exempt from deduction, even if they have some promotional value.

Business use of car

Costs associated with operating a business vehicle are tax-deductible under certain qualifying circumstances.

  • Percentage deductible: 100%
  • Eligibility: Business vehicles are cars, SUVs, and pickup trucks that are used for business activities. Taxpayers looking to write off business use of car expenses will need meticulously kept records to provide to the IRS.
  • Example deductions:
    • Registration fees and taxes
    • Gas and oil costs
    • Maintenance and repairs
    • Licenses
    • Vehicle insurance
    • Rental or lease payments
    • Tolls and parking fees
  • Special considerations: If the taxpayer uses the car for both business and personal purposes, they must split the costs based on actual mileage. Vehicles used as equipment, such as dump trucks, and vehicles used for hire, such as taxi cabs and airport shuttle vans, do not qualify.

Beginning on January 1, 2020, the optional standard mileage rate used to deduct the costs of operating a business vehicle changed to 57.5 cents per mile.

Education

Small businesses that provide their workforce with educational benefits may be able to fully deduct the associated costs of offering this perk. Tax-deductible education expenses include everything from continuing education to courses intended to provide workers with advanced professional licenses.

  • Percentage deductible: 100%
  • Eligibility: Deductible education costs must add value to the business and increase the workforce’s expertise and skills.
  • Example deductions:
    • Classes and workshops intended to improve skills in the business’s field
    • Subscriptions to professional publications
    • Industry relevant seminars and webinars
  • Special considerations: Educational expenses that qualify employees for a different trade are exempt. Courses necessary to meet the minimum education requirement are also exempt from tax deduction.

Depreciation

Depreciation is a method where the cost of fixed and tangible assets are allocated over time. Depreciation effectively measures how much an asset’s value has been exhausted within a given time.

This tax write-off allows small business owners to assess the value of an asset over time while factoring in its age, wear, and decay.

  • Percentage deductible: 100%
  • Eligibility:
    • The taxpayer must own the asset.
    • The asset must be used for income-generating operations.
    • The asset must have an estimated useful life expectancy.
    • The asset’s determinable lifespan must exceed one year.
  • Example deductions:
    • Computers
    • Equipment
    • Machinery
    • Office furniture
    • Business vehicles
  • Special considerations: Bonus depreciation allows taxpayers to claim a larger portion of depreciation on assets purchased within the tax year. With bonus depreciation, up to 100% of an asset’s cost can be deducted as long as the asset is business qualified.

Salaries and benefits

Small business owners with employees can write off their workers’ salaries, benefits, and vacation pay on their business tax returns. This also includes regular wages, commission, and bonuses.

  • Percentage deductible: 100%
  • Eligibility:
    • The employee(s) must not be the sole proprietor, a partner, or an LLC member.
    • The salaries and benefits must be considered reasonable, ordinary, and necessary.
    • The salaries and benefits must have been paid in the year in which the taxpayer claims the deduction.
  • Example deductions:
    • Employee salaries
    • Employee paid time off
    • Employee commission and bonuses
  • Special considerations: Generally speaking, the IRS does not challenge itemized salary and benefits deductions. There are, however, some cases where the IRS will deem a deduction unreasonable if the employee has any degree of leverage over the employer. This includes investors and people of personal acquaintance.

Phone and internet expenses

Expenses paid to power the business with internet and phone service can be written off to lower small business owners’ tax liability.

  • Percentage deductible: 100%
  • Eligibility: If phone and internet usage is essential to the business’ operations the incurred costs can be fully deducted.
  • Example deductions:
    • Internet service subscriptions
    • Cell-phone service subscriptions
    • In-flight internet purchases
  • Special considerations: If you use the phone and internet for a mix of work and personal reasons, you can only write off the percentage of the cost that goes toward your business use.

Travel expenses

  • Percentage deductible: 100%
  • Eligibility: For a trip to qualify as business travel, it must be considered ordinary, necessary, and to a destination away from the taxpayers resident state.
  • Example deductions:
    • Airplane, train, or bus ticket costs
    • Parking and toll fees
    • Taxis and other modes of transportation
    • Meals and lodging
  • Special considerations: Vacation expenses are exempt from tax deduction. In the eyes of the IRS, a “vacation” is:
    • A trip where the majority of days away are not spent doing business.
    • A business trip that can’t be verified through correct documentation.

Home office

Self-employed workers, contractors, freelancers, and telecommuters require a home office to conduct business duties. Business owners who use a home office for business may be able to deduct expenses tied to creation and maintenance of the workspace.

  • Percentage deductible: Home Office deductions are assessed based on what percentage of the home is used for business. To find this number, one must measure the square footage of the office space and find what percentage it is of the total area of the home.
  • Eligibility: To qualify for the home-office deduction, the taxpayer must utilize part of the home “regularly and exclusively” for business. The office does not need to be in a separate room, but it must be in a space solely designated to work and business operations.
  • Example deductions:
    • Direct expenses, including: designated phone lines, paint jobs, and long-distance call costs
    • Indirect expenses, including: utility bills, general repairs, and homeowners insurance
  • Special considerations: There are two primary options business filers can opt for when taking the home office deduction: simplified and standard. The simplified option is easier, but could potentially result in a smaller final tax break. The standard option requires a bit more mathematics and precise recordkeeping, but could yield a larger deduction.

Office supplies and expenses

Office supplies that are essential to running and maintaining a functional office are considered fully tax-deductible.

  • Percentage deductible: 100%
  • Eligibility: There are three key rules that determine whether or not an office supply qualifies as tax-deductible:
    • The taxpayer must not keep a record of when the supplies are used.
    • The taxpayer must not take inventory of the supplies.
    • Deducting these items must not skew the business’s final income.
  • Example deductions:
    • Printers and ink cartridges
    • Janitorial and cleaning supplies
    • Work-related computer software
    • Disposable kitchenware
    • Pens and paper
  • Special considerations: Business filers are only allowed to deduct the costs of office supplies used in the current tax year.

Startup expenses

Small business owners who have launched a new business in the latest tax year can write off up to $5,000 in startup expenses. Startup expenses include any costs incurred to create the business or buy the business.

  • Amount deductible: Up to $5,000
  • Eligibility: The IRS classifies business startup expenses as capital expenses because they are used for an extended period of time, not just within one year.
  • Example deductions:
    • Marketing costs
    • Travel costs
    • Training costs