 As a small business bookeeper, the question I probably get more than any other is, “Can I deduct this?” And it makes sense—small business owners work hard for their money, and want to save every penny they can from getting taxed.
The good news is, a lot of the expenses that go into building and growing your business are tax deductible. The bad news is, with so many deductible expenses, it’s hard to keep track, and can be easy to forget an expense that you should be writing off. I’m here to help, with a complete guide to small business tax deductions. We’ll talk through the most applicable expense categories in Schedule C (for sole-proprietors) and Form 1120 (for corporations), some typical small-biz costs that are umbrella-ed under them, as well as any pro tips for taking advantage of these write-offs. Deductions we’ll walk through include: As far as tracking all of this, I strongly recommend having separate business banking and credit card accounts so you can easily look down the list and make sure you’ve deducting everything, and also using expense tracking software to keep snapshots of receipts in case you get audited (nobody has time to deal the clutter of paper receipts, but bank statements are not enough so you’ll definitely want a record of the receipts). Many of the popular accounting softwares— like Quickbooks—have integrated expense tracking with apps so you can easily keep track of things on the go. Advertising The money you put into getting your business out there can be deducted in full—after all, how could your business be expected to succeed without a little promotion. These expenses can add up fast, so make sure you’re accounting for everything. Common expenses in this category for small business owners include:
If you have a space in your home that’s dedicated to specifically to your work—like a room that serves as an office or even a desk in the corner of your bedroom—you can deduct a portion of your home costs as part of your business expenses. There are two ways to calculate this. The more complex way is to figure out the percentage of your home that is used for business and then calculate your home costs—like rent or mortgage, utilities, insurance, and repairs—by that percentage. Or you could go the easy route and use the simplified deduction, multiplying the square feet of your home used for business by $5 to get your deduction amount. Car and Truck Expenses If you use your car at all for business expenses, make sure you’re deducting a percentage of those costs from your taxes, either by keeping track of the individual expenses incurred (like gas, maintenance, and even depreciation), or using the IRS’ standard mileage deduction — 58 cents per mile in 2019, 54.5 cents in 2018. Either way, you’ll need to keep track of your miles (if you’re writing off the individual expenses, you’ll need your business mileage and total mileage of the year to figure out what percentage of costs can be written off for business). Anytime you drive somewhere for your business—be it a business trip, a delivery, a meeting with a client or investor—make sure you’re tracking the miles and keeping a log somewhere. The biggest exception to what counts as business mileage is driving back and forth to your office or place of business—that’s considered commuting and can’t be written off anywhere. Whichever method of writing off you’re using, make sure you’re also tracking tolls and parking fees, which can be included whether you’re using the mileage deduction or individual expenses. If you purchase a vehicle solely for business use (like a delivery truck or van), you can depreciate the cost of that purchase over its expected lifespan—that would go under the depreciation section below. Charitable ContributionsIf you’re a sole proprietor, LLC acting as a sole proprietor, or S-corp, unfortunately, this deduction doesn’t apply to you (though you can still write these off in your personal taxes if you choose to do itemized deductions). However, if you’re a C-corp and donate money, supplies, or property to a recognized charity, you can deduct it from your expenses. There are just a few things to note: donations of time aren’t included, you can’t deduct more than 10% of your income for this expense, and the charity must qualify for the deduction with the IRS. Commissions and FeesAnything you pay someone else to help sell your product or service can be written off. Common expenses in this category for small business owners include:
Common expenses in this category for small business owners include:
Cost of Goods SoldAny expenses that went into creating and delivering the products or services you sold this year can be written off. This includes direct costs (like raw materials, merchandise for resale, and packaging) and indirect costs (like the labor required to create the product and costs to store the products). Learn more here on exactly what’s included in cost of goods sold (COGS). Depreciation and AmortizationLarge equipment or assets you purchase for your business can be written off over the course of their expected lifetime through the processes of depreciation (for physical assets) or amortization (intangible assets). I dig deep into this in my guides to depreciation and amortization, but the gist is this: Any equipment or asset purchases that will be useful to your business over the course of many years can be deducted in even installments over the course of their expected lifetime (and anything costing over $2,500 must be depreciated). You can also use the section 179 expense deduction to expense the full cost of qualified business property that was purchased during the year, so long as you also started using it this year. Common expensive purchases like computers and furniture count under this, so it’s worth paying attention to for maximum write-offs. Common expenses in this category for small business owners include:
Insurance (Other Than Health)If you purchase business liability insurance or event insurance, you can write the cost of the premiums off here. If the business owns vehicles that are 100% used for business purposes, you can also write the cost of the car insurance off here. If you’re self-employed and are looking to write off your health insurance, you’ll handle this on the personal part of your tax return. InterestAny interest you pay on credit cards, loans, or other lines of credit can be deducted here. Note that this applies only to accounts that are strictly for businesses purposes—if you use a credit card for a mix of business and personal, the write off doesn’t apply. Legal and Professional ServicesIf you don’t have in-house legal or bookkeeping and instead pay an attorney, accountant, bookkeeper, or tax professional to help with your business, you can write off the expense here! Note that if you pay an accountant to do both your personal and business taxes, you can only write off the expense related to your business taxes—see if the Schedule C is a separate line item on your invoice, or just ask your accountant what the cost for the business filing portion was. Office ExpensesAnything you purchase to make your workspace a more productive place to be can be written off in this section. Common expenses in this category for small business owners include:
For travel expenses, you must be on the trip primarily for business purposes. Then, you can write off pretty much every cost of the trip, including:
Meal costs that can be written off include:
UtilitiesUtilities you pay for running your business can be deducted here, including:
Other ExpensesOther expenses include anything that doesn’t quite fit in the categories above, but that is still ordinary and necessary for your business to function. Some common extra expenses I always make sure my small business clients include are:
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