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Tax Deductions

The Deductions Small Business Owners Should Know

Whether you're an established business owner or just in the beginning stages of running your business, saving every penny matters. Tax season is synonymous with owing money. However, if you're a business owner, one of the perks is that you have a lot of tax deductions at your fingertips that will help you save.

Below, we list and explain important tax deductions you should keep in mind.

Small Business Deductions

The following tax deductions are for established small business owners

Professional Service Deductions

When you're running a business, you rely on a lot of professional services outside the office. Well guess what? Those services are tax deductible!

Contractor and freelancer fees can be deducted as a business expense. In addition, professional fees for accountants, consultants, and lawyers are all deductible – just as long as you follow a few guidelines:

Schmoozing Client Deductions

Believe it or not, you can deduct expenses for client entertainment – as long as it passes the directly-related test. The rules for this test are as follows:

  1. Entertainment took place in a business setting
  2. Purpose of the entertainment was in fact business, and business was discussed

When it comes to employer or client gifts, you’re only allowed to deduct $25 for a gift you gave to each person during your tax year. For example, if you bought a $100 gift for two clients ($200 total), you would only be able to deduct $50.

Employee Deductions

Employee benefits such as health plans and life insurance are tax deductible. In addition, any contributions you make to employees' profit-sharing and pension plans are tax deductible as well.

Car and Truck Expenses

Whether you're using your car or a company truck, you can deduct the cost of operating the vehicle, as long as you have the records to prove the vehicle was used for business. There’s also a tax deduction for auto maintenance, parking, and tolls.

Other Small Business Deductions

The following deductions can be tax deductible for the entire cost in the year of the purchase or depreciated over several years.

Startup Deductions

Startup expenses can be deducted once the business starts. Just remember, a startup expense only counts if it's an expense made during the development and planning phase of your business. Once your business doors are open and business transactions are happening, all expenses would be considered traditional operating expenses.

You can choose to deduct up to $5,000 for the first year and the rest amortized over 15 years. The most important thing to note is that there must be sufficient records and receipts.

A startup cost is amortizable if it meets the following terms:

The startup costs include amounts paid for the following:

Home Office Deductions

Professionals who work from home are eligible for numerous tax deductions. If your home office is your regular place of business, you could be eligible to deduct the following home-related expenses:

In addition, if you use your personal vehicle for business travel or pay for meals and hotel accommodations out of your own pocket, these expenses might quality for a tax deduction – only if your employer isn't reimbursing you.

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