Did you know that the average small business overpays $11,638 in taxes each year? As a tax consultant for over 15 years, I've seen countless entrepreneurs leave money on the table simply because they didn't know what they could deduct. It's not just about the obvious expenses - there's a whole world of lesser-known tax write-offs that could be saving you thousands.
Today, I'm sharing my insider knowledge on the 20 most commonly missed tax deductions for small businesses. Whether you're a seasoned business owner or just starting out, I guarantee you'll discover at least one deduction you haven't been taking advantage of. And, as with everything, check with your CPA (you have a CPA, right? Right??) before leveraging these. Some are great, and some are technically available but simply not worth the trouble. Your CPA will guide you here.
So, with that, let's start putting more money back in your pocket this tax season.
What is a Tax Deduction for Small Business, or “Write – Off”
A deduction is a tax-saving tool that helps reduce the amount of income a business is taxed on. Essentially, it's an expense that a business owner can subtract from their total income, lowering their taxable income and, in turn, their tax bill.
The name of the game in business is to make as much ‘top-line’ revenue as possible and as little ‘net income’ as possible. Why? Because you’re taxed on Net Income (after deductions business income).
For example, if your small business earns $100,000 in a year in gross sales, and you have $20,000 in deductible expenses (like rent, utilities, or office supplies), you only have to pay taxes on $80,000 instead of the full $100,000.
Deductions are important for small business owners because they help keep more money in the business. By deducting eligible business expenses, you can lower your tax liability, freeing up cash for reinvestment, growth, or just managing day-to-day operations more comfortably.
Home Office and Workspace Deductions
Your home office might be worth more than you think. While many business owners know about the basic home office deduction, they often miss out on related expenses. First, ensure you meet the IRS requirements - your home office must be used regularly and exclusively for business. But here's where it gets interesting: you can deduct a portion of your home insurance, utilities, and even depreciation.
One often-overlooked aspect is home maintenance. Did you repair your roof last year? If your home office takes up 10% of your home's square footage, you can deduct 10% of that repair cost. The same goes for painting, carpet cleaning, or any other home improvements that benefit your office space. And don't forget about your home security system - if it protects your home office, a portion of it is deductible too.
Vehicle and Transportation Write-Offs
Let's drive into some serious savings. Most business owners know about mileage deductions, but there's so much more to vehicle-related write-offs. First, you have two options:
the standard mileage rate (65.5 cents per mile in 2024) or
actual expenses.
But here's a pro tip: even if you choose the standard mileage rate, you can still deduct parking fees and tolls separately.
Oh, and did you take out a loan to buy your business vehicle? The interest is deductible. And if you use your personal vehicle for business, don't forget about depreciation. Even car washes can be deductible if they're specifically for business purposes - like cleaning your car before meeting clients. Remember, thorough documentation is key. I recommend using a mileage tracking app to make your life easier and your deductions audit-proof. Quickbooks Online, in the mobile app, offers an ability to automatically track your mileage in the background (I make heavy use of this myself). Trust me, total game changer.
Digital and Technology Expenses
In today's digital world, your online presence is pretty important - and potentially deductible. Beyond the obvious software subscriptions, there are numerous tech-related expenses businesses often overlook. Your domain name registration, web hosting, and even stock photos purchased for your website are all tax-deductible.
But wait, there's more. The costs of digital marketing tools, social media management platforms, and even your business's mobile app development can be written off.
Here's one that surprises many of my clients: if you've invested in cybersecurity measures to protect your business data, those expenses are deductible too. This includes VPN services, antivirus software, and even cybersecurity training for your employees. And don't forget about your home internet - if you work from home, you can deduct a portion of your internet bill based on your business use percentage.
All these potential deductions (expenses to your business) can get pretty daunting. This is why it is super important to pay them all from a single bank account and let QuickBooks Online to keep them organized. I’ve tried detangling the books of a client who used multiple bank accounts to pay for any number of expenses (personal and business) throughout the year and it was a mess. Do your bookkeeper a favor and make his job as easy as possible: One bank account for the business!
Professional Development and Education Costs
Investing in yourself is investing in your business - and the IRS agrees. Professional development expenses are often underutilized deductions. Conferences, workshops, online courses, and certifications related to your business are all tax-deductible. But let me share a lesser-known fact: the costs associated with attending these events, like travel, accommodations, and meals, are also deductible (and have their own categories in your chart of accounts).
Subscribe to industry publications or journals? Those subscriptions are write-offs too. Even the books you purchase to enhance your business knowledge are deductible. One often-missed deduction is the cost of joining professional organizations or trade associations. Not only do these memberships provide valuable networking opportunities, but they also give you a tax break. Remember, the key is that these expenses must be relevant to your business - your underwater basket weaving class probably won't qualify.
Unexpected but Legitimate Deductions
Now, let's explore some of the most surprising deductions that business owners often miss. Did you know that bank fees, credit card processing charges, and even ATM fees for your business accounts are all tax-deductible? It's true. And here's a big one: if you pay for business insurance premiums - liability insurance, professional malpractice insurance, or even cyber insurance - these are all legitimate write-offs.
Here's one that often raises eyebrows: advertising and promotion costs. Yes, the obvious ones like online ads are deductible, but so are the costs of providing free samples, hosting customer appreciation events, or even sending holiday cards to clients. And if you've had to hire a tax professional or accountant, those fees are deductible too. Even the cost of tax preparation software for your business can be written off.
Conclusion:
There you have it - 20 tax deductions that could be saving your business thousands of dollars. And, don’t forget, just because these are theoretically deductible, you still have to classify that expense correctly to capture that deduction. This is done by the bookkeeper as they are going through your business’s transactions.
Remember, tax laws change frequently, so it's essential to stay informed or work with a qualified tax professional.
Start implementing these deductions now, and you'll be amazed at the difference they can make to your bottom line. Ready to stop overpaying on taxes? Make this the year you take advantage of every deduction available to your business. Have questions? Don't hesitate to reach out to a tax professional - their fee is deductible, after all.
Sincerely,
R. Altomare
Founder, BreathEasy Business Coaching and Consulting
The Shameless Plug
If you'd like to learn more about this and other key topics that help you manage your business efficiently and successfully, may I recommend The Tradesman's MBA? It covers all the topics you need to operate your small business effectively and efficiently. Planning, Strategy, Finance, Accounting, Inventory Management, Marketing and Project Management are all covered to help you avoid costly mistakes.
And, if you'd like to learn how BreathEasy Business Coaching and Consulting can help you lower your costs and keep more money in your pocket, please fill out the contact form on the homepage and I'll reach out within 2 business days to discuss your particular challenges.
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