The IRS gets a bad rap, but they do give us a lot of opportunities to save money on our taxes—they just make us work for them. Although identifying small business tax deductions can be mind-boggling for entrepreneurs who do it themselves, it’s definitely not impossible.
If you’re an inDinero client, we’ll take care of it for you—we love helping people claim every deduction available to them!
Regardless of whether you file your annual tax returns yourself or hire a professional, here are eight great tax deductions that are definitely worth investigating. And remember to consult a tax expert!
Tax Deductions for Small Businesses
1. Home office deduction
This is the biggy. I’ve written about the details of this valuable deduction before. If you have an area of your home that is used regularly and exclusively for business—and you don’t have a dedicated office elsewhere—you must claim this tax deduction. It means saving money on your mortgage interest or rent, as well as most utilities.
2. Startup cost deduction
It may seem like costs that you incur before setting up your business wouldn’t count as business tax deductions. Surprise! You can deduct up to $5,000 in costs related to starting up in your first year of business. This includes things like exploring business opportunities, market research, or creating a prototype. (Costs above $5,000 are capitalized and deducted over 15 years.) The IRS explains this small business tax deduction in depth here.
3. Travel expense deduction
This is another small business tax deduction that our clients ask us about all the time. Fortunately, my colleague Ryan has explained the details of travel expenses it in this handy article. Save your receipts! And be reasonable—the expenses need to be relevant to conducting your business.
4. Office supplies & furniture deductions
Even if you don't qualify for the home office deduction (if you have an office at work, for example), you can still deduct the business supplies you buy. If you own a business, you will almost certainly have many of these expenses, which can substantially lower your taxable income.
Pens and external monitors are pretty straightforward, but there are a couple of options for deducting office furniture—talk to a tax expert about which one will benefit your business most. As always, make sure to save your receipts!
5. Retirement contributions & Social Security deduction
Bad news: If you are self-employed or a partner in an LLC, you need to make all of your own retirement contributions. Good news: You can deduct your contribution on your personal (not business) income tax return. Bad news: You have to pay double the Social Security contributions you would as an employee—that’s 15.3% of your net profits. Yikes. Good news: You can deduct half of the contribution on your 1040.
6. Health insurance premiums deduction
If you are self-employed, you can deduct health insurance premiums for yourself, your spouse, your dependents and any child 27 or younger as a personal (not business) expense on your 1040.
And remember to set up a health savings account—it’s tax deductible money in the bank and available to everyone, regardless of employment status.
7. Fees and payments deduction
When it comes to tax deductions, it really is best to sweat the small stuff. It’s easy to overlook these little expenses, but they add up quickly.
- Bank fees
Charges for checking accounts, ATM withdrawals, and other bank services related to your business are fully deductible.
- Interest payments
If you used your credit card to buy stuff for your business, you can deduct the interest as a business expense.
- Accounting fees
If you paid someone to prepare your business tax returns this year, you can deduct that expense next year.
8. Bad debt deduction
Chances are, if you’ve ever owned any kind of business you’ve experienced not getting paid by a client or customer. Ugh. It can leave a bad taste in your mouth, but it may not be a complete loss. According to the IRS, you may be able to claim a small business tax deduction on bad debt if you have previously included the amount in your gross income.
Other types of bad debts include loans to suppliers, employees, or distributors, as well as the debts a partner who runs out of money. They only count as “bad debts” after you’ve taken “reasonable steps” over a “reasonable period of time.”
Download our guide to the R&D Tax Credit to dig even deeper into tax savings.