When you own a small business, tax deductions can lighten your tax burden and save you money. They make the cost of doing business more affordable. The more you understand deductions, the more you use them to lower your total tax liability. In other words, you keep more of your earned money and send the IRS less.
Not every expense is deductible. You must understand the difference. We’ve compiled a list of deductions to consider for your small business.
Advertising and promotion
The cost to promote your small business is deductible. These expenses include:
- Marketing: Ad placements in digital and print publications, newspaper ads, billboards, signage, Facebook Ads, Google Adwords, and email marketing software.
- Promotional materials: Flyers, business cards, calendars, leaflets, newsletters, posters, and swag with your logo on it, such as pens or stickers.
- Website: Domain names, hosting, subscription website services, themes, plugins, stock photos, and other things you buy for your website.
Owning a small business can keep you running one errand after another. The good news is most of what you spend on business travel is deductible. Examples include:
- Errands to the office supply store, post office, grocery store, and suppliers
- Travel to business meetings with partners, employees, suppliers, vendors, and consultants
- Scouting trips for new suppliers, vendors, and merchandise
You can keep track of your total driven miles and deduct the standard cost per mile as determined by the IRS, or save your receipts and itemize the actual expenses. Your record keeping can also determine which option we elect when calculating your tax deductions.
Word the wise – commuting to and from your office or job site doesn’t count! Don’t confuse commuting with necessary business travel.
Fees associated with your business bank accounts and loans are deductible.
- Bank fees: You can deduct monthly service fees, ATM fees, overdraft fees, deposit fees, wire transfer fees
- Credit card fees: These include annual fees, late payment fees, and interest.
- Loan and leasing fees: This includes things like set-up costs for loans and leasing fees for equipment
Licenses and permits
Keeping your business licenses and permits updated costs money, and those expenses are deductible. Here’s what that can involve:
- Licenses: Business licenses, alcohol resale licenses, and professional licenses required to perform your services or sell products are included.
- Permits: Resale permits and permits required by government agencies can be deducted.
Whether it is cash or in-kind donations, what you give to charity is deductible as long as the organization you give it to is a 501(c)(3) non-profit. Ask for copies of your donation receipt since you must include them with your tax deduction filing.
Cost of goods sold
Cost of Goods Sold (COGS) is a special expense that pertains to the cost incurred to make or sell an item. You may also see this written as Cost of Sales. These COGS can include inventory, labor and supplies. We can help you determine which category each cost falls within.
Decorating your place of business is essential to the customer experience, and the IRS agrees. Therefore, decor is tax deductable and includes items such as:
- Curtains, rugs, and throw pillows
- Art and wall hangings
- Plants, pots, hangers, and planter stands
- Candles, lamps, and small lighting elements
- Small decorative items
Dues and subscriptions
Professional organizations you’re a member of, like your local chamber of commerce or neighborhood merchant’s association, most likely charge fees. If it’s related to your shop, it’s likely to be covered.
Owning a business requires knowledge. Whether it is the education to run a business, learn software or a specific trade, educational costs for you or your employees are deductible. These deductions include:
- Books and reference materials: Printed books, ebooks, magazine subscriptions, newspaper subscriptions, and audiobooks.
- Workshops and training: In-person workshops, online courses, conferences, and lecture series.
Equipment you purchase for your shop can be written off. Depending on the cost of the equipment, it will either be taken as an expense and written off in one tax year or as an asset and depreciated over several years. If you make large equipment purchases for your shop, we can help you determine the best way to deduct the expense as there are guidelines and exceptions to consider.
You can deduct any equipment you rent to perform your services or sell your products. For instance, renting a special display for a weekend tradeshow qualifies. Just save your receipts and we’ll help you determine how to deduct those expenses. F
Expenses related to events that you host, both for the general public and for your employees, can be written off, including:
- Food, drinks, and catering fees (100% deductible for public events and employee events)
- Paper goods, flatware, linens, table and chair rentals
- Entertainment costs like a DJ, band, emcee, ambient performers, and speakers
- Staffing fees like an event planner and coordinator, parking attendants, cleaners, and setup/breakdown staff
- Venue rental
Furniture and fixtures
Like equipment purchases, furniture and fixtures can be classified as a one-year expense or depreciated over time. These types of items include:
- Furniture like tables, chairs, stools, desks, sofas, and benches
- Display cases and shelving
- Window displays
There is nothing like a gift to thank customers, vendors, employees and associates for all they’ve done to help you succeed. These gifts can be deducted up to $25 per person.
There are liabilities to owning a business. Whether you operate a brick-and-mortar business or provide specific skills or services, having insurance covers you in the case of an accident or mistake. Luckily, all of your insurance is deductible such as:
- General liability coverage
- Property and building insurance
- Theft insurance
- Loss-of-income insurance
Finance charges got you down? Hey, at least they’re deductible. You can write off both credit card interest and business loan interest.
Work is sometimes required when leasing a property for your business. You may have to modify the space to accommodate your merchandise, customers or employees. Either way, these improvements are deductible. Like expense equipment, you can choose to take the deduction in one year or depreciate them over several years. We can help you determine the best method for deducting lease improvements, such as:
- Built-in shelving and cabinets
- Electrical work
- Plumbing work
- Carpeting and flooring
- Permits needed for work
- Architecture and design fees
Meals are deductible to some extent but don’t confuse meals and entertainment. When you travel for business or need to feed employees through the long lunch hour, portions of these expenses are deductible. Sadly, taking business vendors, suppliers and customers out to dinner is not. Here is how they go:
- Meals while traveling (as an owner or for an employee): 50% deductible
- Meals with employees for meetings: 50% deductible
- Meals for employees during work shifts for the convenience of the employer: 50% deductible (think doughnuts, bagels, granola bars, water, tea, and coffee)
Merchant processing fees
Chances are you accept credit cards in your shop. Many fees associated with processing credit cards are deductible, including fees from Square, Clover, ShopKeep, and many other payment gateways and processors.
It costs money to run employee payroll, and those costs are deductible. They include:
- Local, state, and federal payroll taxes such as Medicare and Social Security
- Payroll service fees
- Workers’ comp insurance
Legal and professional consultations for your business are deductible, including:
- Legal fees for an attorney or online legal service.
- Accountants and bookkeepers – YES, that includes hiring Tax Time CPAs to do your annual taxes, too!
You can write off general office expenses for your business such as computers, tablets, printers, and copiers, software subscriptions and cloud storage, POS systems, scheduling software, accounting software, music subscription services, and apps, consumable goods, or products that get used up, like office supplies.
It costs money to operate a business, so keep your reciepts and we’ll help you itemize the deductions accordingly.
The rent you pay for your shop, storage space, and booth fees are all deductible. Think twice before considering deducting your home office, too. We can walk you through the dos and don’ts of that specificity.
Repairs and maintenance
This includes ongoing repairs and general maintenance for your shop:
- Cleaning and janitorial services
- Small repairs (note: anything major is a leasehold improvement)
Salaries and benefits
Wages and benefits given to employees are deductible, including:
- Wages, salaries, and employee commissions
- Employee benefits like contributions (depending on the amount) toward health insurance premiums, 401(k) retirement plans, HSAs and flexible spending accounts, life insurance, and disability insurance
Shipping and packaging
Depending on what you sell, shipping costs can add up! When you head over to USPS, FedEx or UPS, remember these deductions:
- Postage and subscription postage services.
- Delivery charges.
- Packaging materials like boxes, envelopes, packing peanuts, bubble wrap, packing tape, and labels.
Independent contractors can fill in the gaps when employees are not otherwise available, skilled or qualified. If you pay an independent contractor more than $600 in a tax year, you must file a 1099 return. These independent contractors include, but are not limited to:
- Graphic or web designer
- Photographer or videographer
- Offers some kind of specialty service
General supplies needed to maintain your shop and sell your goods and merchandise falls into this arena. Depending on the type of shop you own and your industry, these expenses will vary and include smallwares under $500 such as:
- linens, order pads, kitchen towels and rags, paper goods, hand soap, and cleaning supplies.
- bags, tissue paper, ribbon, register tape, pricing, and stickers.
- towels, brushes, combs, products used for styling, and blow dryers.
This list is long, but you get the idea. Ultimately, what you need to run your shop is likely a deductible cost. We can help you determine how much.
Telephone and communications
This is the cost of your business-use landline, cell phone or VoIP service is deductible.
Going to a trade show or conference? To meet potential vendors? A sales event? You can write off the costs as long as your trip has a business purpose and you’re away from the area where you typically work overnight. Specifically, you can write off:
- Airfare: The cost of your plane ride.
- Ground transportation: Like Lyft, Uber, taxis, public transportation, and rental cars.
- Lodging: This is the cost of a hotel, Airbnb, VRBO, or other short-term rentals.
- Local transportation: Not leaving town? You can still write off the cost of traveling within your local area for business purposes. Just like ground transportation, you can write off taxis, public transportation, Lyfts, and Ubers.
Deduct any utility bills you get for your shop, including:
- Heat and electric
- Water and garbage
- Security systems
Claiming tax deductions
When you understand the possible tax deductions, you can really offset your business expenses. For owners and self-employed professionals, these deductions can make a significant impact to your total tax liability. Give us a call at Tax Time CPAs. We specialize in helping small business owners, such as yourself, with their entity structure, tax filing, financial accounting, etc.
Focus on your business. We will focus on the IRS.