21 Small-Business Tax Deductions You Need to Know

Virtual cards and digital payment solutions streamline the payment process for business expenses. Accurate expense tracking provides critical data for budgeting and forecasting purposes. By analyzing historical expense patterns, businesses can develop realistic budgets, make informed financial projections, and set achievable goals. Any penalties or fines imposed by regulatory authorities or courts due to non-compliance or legal violations are not tax deductible. This includes penalties for late payment of taxes, non-compliance with regulations, or fines imposed for breaches of contractual obligations. It’s important to note that specific rules and limitations apply to each type of expense, and documentation and record-keeping are crucial to substantiate the deductions.

How Do I Pay Income Tax?

In most cases, the 50% limit applies to the cost of meals, beverages and entertainment when you travel. For more information, see Meals and entertainment (allowable part only). The expenses for utilities that are related to business use of workspace in your home have to be claimed as business-use-of-home expenses.

What are Business Expense Categories?

Contributions toward retirement plans like 401(k) plans How to Invoice as a Freelancer or other funds should be recorded. As a business owner, you might have self-employed insurance costs, too. However, this deduction does not apply to sole proprietors, partners and LLC members, because these individuals are not considered employees. Any utilities that you use for your business are fully deductible. This includes things like water, electricity, trash and telephone bills.

• If it’s obvious you spent money to make money, you usually get credit for it in the end.
• Sally Lauckner is an editor on NerdWallet’s small-business team.
• Foreign earnings from self-employment can’t be reduced by your foreign earned income exclusion when computing self-employment tax.
• You cannot deduct on Schedule C the interest you paid on personal loans.
• This credit applies to the qualified expenses you paid for employee childcare and qualified expenses you paid for childcare resource and referral services.
• A reliable and accessible website is crucial for marketing, sales, and customer engagement.

What is the $5,000 tax credit for small businesses?

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• You can deduct the cost of items the business used indirectly to provide goods or services (for example, drugs and medication used in a veterinary operation, or cleaning supplies used by a plumber).
• Also known as a tax write-off, the tax law defines a tax deduction as “any ordinary and necessary expense” incurred to carry on any trade or business.
• Note that you may be entitled to a credit or refund for federal excise tax you paid on fuels used, for example, in a farming operation where your vehicles are used off-road.
• Little or no difference between these two percentages shows that your gross profit figure is accurate.
• Yet, 90% of business owners overpay their taxes because they fail to write-off expenses they already pay for.

You can check the status of your refund if it has been at least 24 hours (4 weeks if you mailed a paper return) from the date you filed your return. Be sure to have a copy of your tax return available because you will need to know the filing status, the first SSN shown on the return, and the exact whole-dollar types of expenses in accounting amount of the refund. You will be notified if the refund you claimed has been offset against your debts.

• If you ever need to hire a legal or accounting professional for your business, you can deduct 100% of their fees.
• If you don’t currently have a retirement plan for yourself or your employees, now is a good time to start one.
• Expenses for printing and reproducing documents, marketing materials, and other business needs fall into this category.
• It can be configured to validate expense submissions against policy rules, such as spending limits or required approvals.
• OCR technology extracts key details like vendor name, amount, and date, eliminating manual data entry.

Interest and Dividend Income

Properly categorizing expenses helps small businesses track where their money is going, enabling better budgeting and financial planning. This clarity is crucial for managing cash flow and ensuring the business remains solvent. If you’re part of a trade association or local chamber of commerce, use this category to monitor and write off your dues. Include fees for your domain name, web hosting, maintenance, and more. Don’t forget to capture your software as a service (SaaS) spending. Website builders like Squarespace and accounting software like QuickBooks are a couple of examples.

• Office furniture is also considered a type of office supplies, and can, therefore, be deducted just as you would deduct printer paper or cleaning products.
• In a manufacturing business, labor costs properly allocable to the cost of goods sold include both the direct and indirect labor used in fabricating the raw material into a finished, saleable product.
• You can check out chapters seven and eight of IRS Publication 535, which covers business expenses for more information.
• Furthermore, if your employees need to travel for business, whether it’s commuting or out-of-town travel, those expenses are typically deductible too.
• If you guarantee a debt that subsequently becomes worthless, the debt can qualify as a business bad debt if all of the following requirements are met.
• Amortization is the method for deducting the capitalized cost of certain intangible assets over a set period, usually straight-line.

Generally, resident aliens must pay SE tax under the same rules that apply to U.S. citizens. Virgin Islands, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa are subject to SE tax, as they online bookkeeping are considered U.S. residents for SE tax purposes. The IRS provides a simplified method to determine your expenses for business use of your home. The simplified method is an alternative to calculating and substantiating actual expenses. In most cases, you will figure your deduction by multiplying $5 by the area of your home used for a qualified business use.