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15 Deductible Expenses for Small Businesses

Any small business owner will tell you that running a company involves absorbing a seemingly endless litany of costs. Fortunately, the tax code outlines a long list of deductible expenses for small businesses — meaning tax season is your chance to recoup some of those costs.

We know, we know: The IRS is hardly viewed as an ally of the small business owner. But many of the nation’s tax laws are designed to give companies a break. For instance, we’ve written extensively about Section 179, which allows companies to write off purchases of all sorts of qualifying equipment, from machinery to cars to enterprise software.

Today, we’re going to talk about another way to lighten the load come tax time: deductible business expenses.

The IRS’s Publication 535 is a tome that explores the rules for deducting business expenses, and explaining what is (and what isn’t) deductible. It’s worth digging in if you need the details, but at nearly 70,000 words … it’s not exactly a quick read.

The following are some of the most important and frequently used deductible expenses that small businesses can put to use.

Deductible Expenses for Small Businesses

1. Business Insurance 

Companies typically can “deduct the ordinary and necessary cost of insurance as a business expense” as long as the policy is for your business, profession, or trade. The IRS does note, however, that some insurance costs might need to be capitalized under uniform capitalization rules.

Also worth noting: If you rent, and use part of your home to operate your business, you can also deduct a portion of your renter’s insurance.

2. Business Loan Interest

Loans aren’t exactly free. If you secure small business financing from a bank, you’ll have to pay interest. However, you can deduct that interest come tax time. (For that matter, if you have a business credit card, you can deduct any interest paid on that, too.) Same goes for any fees charged on business financing products and cards.

3. Business Meals

Companies enjoy a 50% deduction of any meal costs related to their business.

4. Car Use

Depending on how you use your car, you can deduct some or all costs related to operating and maintaining it. For mixed-use driving, only costs related to business usage can be deducted. However, if the vehicle is only used for business, you can deduct all related costs. There are actually two ways to claim “mileage” for a car: deducting the actual costs (fees, insurance, gas, etc.), or the standard mileage deduction, which was 65.5 cents/mile for the second half of 2023 and is 67 cents/mile for the first half of 2024.

5. Education

If you want to improve yourself or help your employees gain more knowledge and skills, chances are you can write that off. Seminars, webinars, classes, even books and subscriptions to publications related to your industry — they’re all among qualifying deductible expenses.

6. Employee Entertainment

If you hold an entertainment event for your employees, those costs are fully deductible provided that the event is held primarily for employees who aren’t highly compensated.

The IRS guidelines for a highly compensated employee is one who owned 5% or more interest in the company during the year or the prior year, or who earned more than $130,000 in the prior year. Per the latter, the IRS also says “you can choose to include only employees who were also in the top 20% of employees when ranked by pay for the preceding year.”)

7. Investments

Similar to bank loans, If you borrow money in order to make investments, you can write off any interest paid. But there are limitations. For one, you can’t deduct more in investment interest than you made in investment income. Also, investments that produce nontaxable income don’t apply.

8. Medical Expenses

If you’re self-employed, your business makes a profit, and you’re unable to receive health insurance via a spouse or employer, you can deduct your health, dental and long-term care insurance premiums.

9. Mortgage Interest

Another way people with home offices can claw back some money at tax time is mortgage interest. For instance, if you take out a mortgage to buy, build or upgrade your home, you can deduct interest payments on that mortgage. Same goes with the interest on home equity loans.

10. Office Supplies

Just about anything that makes an office hum is deductible. This ranges from physical goods such as pens and paper, to digital goods such as enterprise software, to work-related postage and shipping.

11. Phone and Internet Expenses

Along the same lines, certain services that make your office operate normally are deductible. Phone and internet are completely deductible if they’re used only for business, and partially deductible if you use them for personal and work purposes.

12. Promotional Expenses

Marketing, advertising and other promotional expenses are fully deductible. This covers everything from business cards to billboards to internet ads, and much more.

13. Salaries and Benefits

Small businesses can generally deduct salaries, benefits, bonuses, commissions and other compensation of their employees. The IRS says the pay must be “reasonable” and be for “services performed” — you can’t pay someone for doing nothing then write it off. The employee also must not be a sole proprietor, partner or LLC member in the company.

14. Startup Expenses

Startup expenses within a tax year are deductible, but with certain restrictions. You can deduct up to $5,000 of your startup costs if you spent less than $50,000 in total. However, if you spent more than that, it reduces your deduction on a dollar-for-dollar basis. So, if you incurred $52,500 in start-up costs, you’d only be allowed to deduct $2,500. However, you can amortize the remaining costs in subsequent years.

15. Travel Expenses

This is one of the best-known deductible expenses for small businesses. As long as your trip is necessary to your business, taken away your business’s “tax home,” is longer than a normal workday (usually eight hours) and requires sleep or rest, you can deduct virtually any kind of travel expense. That includes expenses such as hotels, airfare and meals.

How Many Tax Breaks Do You Qualify For?

Want to build a plan around investing in your company in a tax-friendly way? Looking for other small business tax breaks you can use to your advantage?

We’re here to help.

McManamon & Co. offers expert tax services to small and midsized businesses, from basic filings to payroll taxes to compliance services and more. And one way we can put your company in the driver’s seat is by building a tax strategy that you can follow year-round to maximize your savings.

Call McManamon at 440.892.8900 or contact us online today to see what we can do for you.

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