Small Business Tax Deductions in 2024

Are you trying to find the best way to use tax deductions?

Governments can offer a cornucopia of various small business boosts through taxes and credits. Some of the tax deductions help small businesses across the board while others target certain sectors determined to be in need of more help.

With the wide range of potential benefits, naturally many get confused about which may apply to their specific circumstances. The list below only covers those most often used. For a full accounting of all potential breaks, small business owners should contact their accountants.

Also, remember that  tax laws and regulations remain in constant flux. What holds true for 2024 may change for 2025.

8 Tax Deductions for Small Businesses

Many small business owners remain unfortunately unaware of the tax benefits that can add to their advantage. A large number of these small business tax deductions cover 100 percent of the cost of certain goods or services purchased in a year’s time.

1. Personal Expense Deductions

These deductions are specifically for business owners’ personal expenses incurred as part of supporting work and company efforts.

1. Self-employed individuals can deduct health care premiums unless their spouse has access to an employer-offered insurance plan.
2. Retirement contributions, under certain conditions, are subject to full deductions
3. Under certain conditions, those who pay for child care while they work may be eligible for deductions of these expenses. 
4. While businesses cannot deduct charitable contributions from their tax obligations, business owners can do so from their personal taxes.

2. Business Expense Deductions

A broad spectrum of business expenses remain fully or partially deductible. Some small business tax deductions support company efforts in fulfilling vital functions. Others target specific business expenses that many companies rarely, if ever, will be able to use.

All small business owners should remain familiar with allowable expenses so they can maintain proper paperwork to support deductions throughout the year.

1. The cost of advertising and promotion of the business can, under certain conditions, be subject to a full deduction. Covered activities include, but are not limited to paying for certain graphic design services, business cards, launching a website, commencing a social media campaign, and more.
2. Although adjusted down by TCJA, some business food and beverage costs remain under the category of deductible expenses. In most cases, 50 percent will serve as the limit. When a business provides meals for work-related activities, the limit remains at 50 percent. Food provided for celebrations, however, can be fully deducted.
3. When education costs enhance skills and capabilities to support the business, a company may be able to deduct. Some programs acceptable to the IRS include seminars and webinars, skills education, subscriptions to trade publications, field-related books, and transportation expenses.
4. Under some restrictions, businesses can deduct interest. The federal government allows this if:
   1) The business is legally liable for the debt.
   2) All parties agree to repayment of the debt.
   3) The debt is a professionally established debt between parties in a “true” debtor/creditor relationship.
5. Legal and professional fees, such as those paid to accountants, lawyers, or even consultants and technical services, are subject to deduction. Work done for personal reasons faces many more restrictions under federal tax laws.

1. While TCJA eliminated the moving expenses deduction for individuals, it left in place potential deductions for businesses moving operations from one facility to another.
2. Rent paid for a structure used solely for business purposes remains subject to deduction. This, however, does not include rent paid on a home that includes home offices. The IRS has a special deduction under another category for this.
3. Small businesses can claim salaries, benefits, and bonuses against their taxes as well. Restrictions on this deduction include LLC members. Also, the salary must be reasonable and for actual work performed.
4. Federal tax law allows businesses to deduct from their taxes the cost of a wide range of taxes and other fees related to business. These can include, depending on circumstances, state income tax, payroll taxes, property taxes, excise tax, fuel tax, and business license fees.
5. Businesses can deduct telephone and internet service, but records must make clear a boundary of separation between personal and business use. For example, the cost of one landline in a home-based business cannot be deducted. If a second line is added and only used for business purposes, a company owner can deduct the cost.

This list of available business deductions, while it seems extensive, does not include every possible benefit. For a full list of various and sundry deductions, talk with your accountant.

3. Self-Employment Tax Deductions

Self-employed individuals who work out of their own homes have access to a range of potential deductions that can offset the cost of doing business.

According to the IRS, self-employed individuals work as sole proprietors and independent contractors, serve as a partner in a business agreement, or in some fashion work on their own. Often, self-employed individuals have to pay higher rates for Social Security and Medicare taxes, but also enjoy a number of deduction opportunities that others lack.

For self-employed invoicing, utilize our convenient invoice template.

4. Home Office and Work Space Deductions

Those who use part of their home for business purposes can deduct the estimated or adjusted cost of the space dedicated solely for work. Costs allowed for deduction include those paid for:

1. Mortgage or rent
2. Property taxes
3. Maintenance and repairs
4. Other appropriate expenses related to work in the home or on personal property

The IRS allows for two methods of calculating the home workspace deduction. First, one can estimate the percentage that the home workspace takes from the entire house. The more popular and convenient method allows owners to claim $5 per square foot up to 300 square feet. This equates to a 17×17 space.

5. Personal and Family Health Insurance

As stated before, if the family or individual has no other employer-provided option and also pays for their own health insurance, the premium payments may be covered. The tax payer in most cases will need to categorize it as an income adjustment, rather than a traditional deduction.

If the business owner’s spouse has access to a plan, however, this action is not allowed, even if the spouse’s plan is more expensive.

6. Skills Development and Education

In the same fashion as a business owner can recoup educational expenses for staff through deductions, a self-employed individual can as well. The IRS refers to “qualifying work-related education” expenses, which include tuition, books, lab materials, and other necessary items.

This deduction only applies to the skills development needed for the current business. Taxpayers cannot deduct educational expenses for programs that will help them to transition into another form of employment or field of endeavor.

7. Business Related Vehicle Expenses

The IRS offers two ways in which business owners can deduct for company travel using one’s own vehicle.

An easy way to deduct travel expenses is by applying the IRS standard federal mileage rate. This is calculated yearly to reflect the cost per mile of gasoline, wear and tear, insurance, and other auto expenses. The business can only deduct in this fashion if it uses fewer than five vehicles.

The federal government and others use this as a tax-free reimbursement rate for workers using their own car for travel as well.

The other option lies in deducting each actual expense individually, gasoline, tolls, registration and inspection fees, tires, and all other expenses. This involves more detailed record-keeping and is mandatory when the business uses five or more cars.

Those looking to use this deduction should keep detailed and meticulous paper or digital records related to business travel.

8. Startup Costs Deduction

The Internal Revenue Service typically requires the gradual deduction of significant expenses over time, treating them as capital expenses.

However, during the first year of active trade or business, you can deduct up to $6,000 in startup costs, encompassing market research, travel expenses related to business initiation, advertising, legal, and accounting fees. This deduction is subject to reduction if your total startup costs exceed $60,000.

Additionally, organizational costs like state filing fees and legal fees for incorporating or establishing an LLC qualify for an additional $6,000 deduction.

Moreover, professional fees paid to consultants, attorneys, and accountants remain deductible irrespective of their categorization as startup costs. It’s noteworthy that while expenses such as equipment or vehicle purchases aren’t classified as startup costs, they can still be depreciated or amortized as capital expenditures.

8 steps How business Tax Deductions work

Navigating business tax deductions requires careful planning and understanding of eligible expenses. Here’s a step-by-step guide to help you maximize savings and ensure compliance with tax laws.

1. Identify Eligible Expenses: Determine which expenses incurred during the operation of your business are eligible for tax deduction. These may include business-related purchases, travel expenses, office supplies, utilities, and more.
2. Keep Detailed Records: Maintain thorough documentation of all business expenses, including receipts, invoices, and records of payments made. Accurate record-keeping is essential for claiming deductions and providing evidence in case of an audit.
3. Understand Deductible Expenses: Familiarize yourself with the types of expenses that qualify for tax deduction. Common deductible expenses include office rent, employee salaries, advertising costs, professional fees, and business insurance premiums.
4. Separate Business and Personal Expenses: Ensure clear segregation between business and personal expenses to avoid complications during tax filing. Use separate bank accounts and credit cards for business transactions to streamline the process.
5. Calculate Deductions: Total the eligible business expenses for the tax year and calculate the corresponding deductions. Depending on your business structure and the nature of expenses, deductions may be calculated differently.
6. Claim Deductions on Tax Return: Report the total deductible expenses on your business tax return using the appropriate forms or schedules. Ensure accurate reporting to avoid penalties or scrutiny from tax authorities.
7. Consult Tax Professionals: Seek guidance from tax professionals or accountants to maximize deductions and ensure compliance with tax laws. They can provide valuable insights into available deductions and help optimize your tax strategy.
8. Stay Informed: Keep abreast of changes in tax laws and regulations that may affect business deductions. Regularly review IRS guidelines and seek updates from reliable sources to adapt your tax strategy accordingly.