What can i write off for my small business

Key takeaways

• Your business expenses may be tax deductible if they’re “ordinary and necessary” for your line of work
• Many common expenses like internet bills, marketing costs, and employee salaries can qualify for a tax write-off
• To maximize deductions while avoiding IRS penalties, consult with an accountant before filing your tax return

As a small business owner and taxpayer, you don’t want to miss out on opportunities to save money. Understanding small business tax deductions can keep more cash in your pocket while still covering what you owe the IRS.

Tax deductions are business-related expenses that you can subtract from your taxable income. For instance, if you made $100,000 in business income but had $10,000 worth of qualifying expenses in the same tax year, only $90,000 of your income would be taxed. Big savings are possible when you know what costs you can write off—and you could qualify for a number of deductions just by operating as you normally do.

Discover 11 common types of deductible business expenses and learn some key tips for writing them off.

When you buy something for business purposes, there’s a chance it’s tax-deductible. For an expense to qualify for a write-off, the IRS mainly requires it to be “ordinary and necessary” for your specific trade or business. For example, an auto repair business may deduct car parts and engine oil while a cleaning company will likely deduct the cost of disinfectants, mops, and travel.

This list provides 11 categories of expenses that small business owners across many industries can write off. But before you submit your tax return, make sure you talk to a tax professional—such as a certified public accountant (CPA) or an enrolled agent (EA)—to confirm that each expense truly can be considered ordinary and necessary for your unique business situation. A professional can also clarify the guidelines for each type of deduction and help you find more qualifying expenses beyond this list.

1. Internet and phone

Most businesses today need internet and phone services to operate. Writing off these bills is an easy way for almost any company to reduce its tax bill.

However, not every small business owner can deduct these costs in full. If you own a home-based business, you can only deduct a phone service if you get a second one that’s solely for business use. If you use your internet or phone service for work-related purposes only part of the time, you can only deduct that portion of your bill for the tax benefit. For example, if it breaks down to 60% for business and 40% for personal use, only 60% of your bill is tax deductible. 

2. Marketing and advertising

Need another reason to promote your business? The money you invest in marketing and advertising can be deducted from your taxable income. In addition to the cost of the actual promotion—for example, your budget for Yelp Ads—you may be able to deduct the cost of your marketing tools, like Hootsuite or Semrush. You may also deduct the cost of outsourcing to copywriters, designers, and other pros who help with your marketing and promotions.

3. Office space

Renting an office or having a coworking space membership is usually a small business tax deduction. While home-based business owners can’t write off rent, you can still take the dedicated home office deduction to get big savings during tax season.

The home office deduction allows you to deduct $5 per square footage of your home that you use for business (up to 300 square feet). If you use a larger space, you could get more deductions by completing Form 8829 and citing every individual expense, like utilities and real estate taxes.

4. Professional services

The costs of outsourcing to independent contractors, freelancers, agencies, and other professionals can be deductible if it’s necessary for your business. This can include fees from lawyers, public relations agencies, business advisers, and more. It can even include the cost of hiring an accountant, so getting help with your taxes really can pay off.

5. Employee wages, salaries, and benefits

If you have employees, you likely have a significant number of deductible expenses. The wages and salaries you pay—as well as retirement plan contributions and the cost of taxable fringe benefits like bonuses and vacation expenses—are generally deductible.

If you own an S corporation or C corporation, you can even deduct your own salary. Unlike limited liability companies (LLC), sole proprietorships, and partnerships, being incorporated means you’re legally classified as an employee of your own business. Small business owners can usually deduct health insurance premiums for themselves and their immediate family as well.

6. Business travel

The cost of traveling for work can add up over time, even if you’re just driving around locally. You can’t claim deductions for gas expenses or for driving to and from your primary workplace, but you can get a mileage-based deduction for other business travel. 

For example, if you start a landscaping business, you could deduct the distance of driving to client homes based on the current standard mileage rate. Other local travel costs that you may be able to write off include work-related parking fees, tolls, and more.

When you or your employees are going on long business trips, you can also deduct airfare, lodging, and taxi rides (including tips). But don’t get tempted to write off your business travel expenses just because you checked your email a few times on vacation. You should have proof (saved in your records) that the main purpose behind your traveling was for business, such as attending a conference or meeting with clients.

7. Business meals

You can deduct 50% of meal costs when it’s necessary for you to do business. For instance, you may need to cover employee meals if they’re working overtime through dinner or purchase a drink when meeting a client at a coffee shop. These meals usually shouldn’t be extravagant. Writing off a high-end steakhouse meal may trigger an IRS audit—though it may still be considered reasonable if you only work with luxury clients where these types of meetings are the norm.

Generally, you can only deduct the entire cost of a meal if it’s purchased for an office party or similar event. Note that any business meals purchased from a restaurant in the 2021 or 2022 tax year can be 100% deductible due to relief packages passed in response to the coronavirus pandemic.

8. Business licensing

One small business tax deduction that’s particularly helpful if you’re in your first year of business is for business licensing costs. If you pay any fees to obtain required business licenses, you can likely deduct them. Other startup costs like business registration fees may also qualify. This tax deduction can also include fees for renewing business licenses as needed.

9. Business taxes

While the federal income taxes you pay aren’t deductible, many other types of business taxes are. Some common expenses you can deduct include state income taxes, sales taxes, payroll taxes, and business real estate taxes.

10. Office supplies

Office supplies are eligible for small business tax deductions as long as they are “ordinary and necessary” for business purposes. These might include electronics like laptops and printers, furniture like ergonomic chairs, and smaller essentials like pens, phone chargers, and notebooks. You can even write off inventory costs and shipping expenses.

Just as you would for internet and phone services, only deduct the portion of office supplies that are being used for your business.

11. Business loan interest

If you take on any traditional business loans, business mortgage loans, business credit card debt, and similar debt, you can deduct the interest you pay. You must be legally liable for the debt, so if it’s someone else’s name on the contract, you likely won’t be able to claim the expense.

Small business tax deduction dos and don’ts

Before you officially write off any expenses, it’s crucial to keep your records organized and double-check that your company is eligible for specific small business tax deductions. Keep these dos and don’ts in mind as you sort out what you can deduct:

Do

• Consult with a tax professional before claiming deductions to ensure you adhere to current tax laws.
• Ask a tax professional what tax forms you need to complete. Schedule C is commonly used by sole proprietors and limited liability companies to claim small business tax deductions, but you may need to complete additional or alternative forms based on what you’re writing off and your type of business structure (LLC, S corporation, etc.).
• Keep receipts and other relevant records for at least three years in case of an IRS audit.

Don’t

• Write off expenses that aren’t clearly business-related.
• Estimate your business expenses. Everything you write off should be verifiable and equal to your actual expenses.
• Procrastinate on taxes. Penalties for late filing can cost hundreds of dollars—sometimes more, depending on how much you owe.

Reduce your tax liability

When you’re self-employed, any tax cuts you can get are great news for you and your business. You can greatly reduce the amount you owe during the tax season just by understanding the small business tax deductions you can take. Many purchases you’re already making on a day-to-day basis may be eligible for a write-off, so make sure you consistently track your business expenses.

Once you’re confident with your ability to save on taxes—with the help of a tax professional—learn how you can reinvest your money wisely and grow your small business.

The information above is provided for educational and informational purposes only. It is not intended to be a substitute for professional advice and may not be suitable for your circumstances. Unless stated otherwise, references to third-party links, services, or products do not constitute endorsement by Yelp.

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