The BIG List of Tax Deductions for Small Businesses
These are the questions I get asked most often as a tax professional:
“What are some deductions that people miss?”
“What deductions can I take for my business?”
“Can I take all my mileage since I travel for business?”
And it’s understandable. The federal tax code is long – tens of thousands of pages long! Tax law can be overwhelming.
It’s no wonder people don’t feel confident in what they can and cannot do.
This list will serve as a helpful reference for some of the most common small business tax deductions.
Tax law is full of all sorts of exceptions (can we say loopholes), which is one of the reasons why it’s hard to decipher the rules. However, chances are if you’re buying something specifically for your business, it’s deductible.
Keep a close eye on some of the exceptions. If you had to part ways with your hard-earned money to buy something for the business, the odds are that it’s a write-off (aka deductible expense on your taxes).
I don’t advise going crazy and buying things just because. There should be a true need for the item. Also, if you don’t know your business finances and cash flow, how do you know you can afford the item? I’m here to tell you don’t buy something simply for the tax write-off!!
All of the following expenses will be 100% deductible unless noted otherwise.
Tax deductions for small businesses
- Advertising
- Bad debts
- Bank charges
- Business meals
- Computer expenses
- Contract labor
- Credit and merchant fees
- Dues and subscriptions
- Employee benefit programs
- Equipment & depreciation
- Home office deduction
- Insurance
- Interest
- Inventory and Cost of Goods Sold
- Legal and professional expenses
- Office supplies
- Postage and delivery
- Printing
- Research & Development (R&D)
- Rent
- Repairs and maintenance
- Retirement plan contributions
- Salaries and wages
- Security
- Start-up and Organizational Costs
- Taxes and licenses
- Telephone and utilities
- Tools
- Training and continuing education
- Travel
- Uniforms and laundry
- Vehicle expenses
Advertising
Marketing and advertising are some of the most important tools for growing and sustaining growth for a small business. Most advertising expenses are 100% deductible. Some examples include:
Website design and hosting
SEO (Search Engine Optimization) and PPC (pay-per-click) advertising
Social media marketing such as Facebook or Google ads
Sales funnels including email marketing programs like Convertkit, ActiveCampagin, etc.
Business cards, brochures, and any print brochures
Event sponsorships (a great way to give to charity by making it a deductible business expense)
In general, expenses incurred to generate new business will be deductible. But there are two significant exceptions:
Gifts. Business gifts are only deductible up to $25. This may seem like an unreasonably small amount – and it is. This limit was instituted back in 1962 and has not been adjusted. Adjusted for inflation, that $25 back in 1962 would be worth over $200 today.
Entertainment. Client entertainment is NOT deductible. Keep an eye on this one. Who knows if it will change in the future?!?
Bad Debts
If a client does not pay you, you do not have to pay tax on that bad debt if you use accrual accounting. My guess is most of you have cash-based accounting.
If your business is on a cash basis, income is not recognized until received, and expenses are not shown until paid. Therefore, payment from a customer will only show up as revenue once received. Because of this, you cannot put a separate expense for the nonpayment.
This is an area of confusion for cash-based small businesses. The revenue is lost, and it intuitively feels like it should be able to be deducted. Unfortunately, the IRS would consider this double-dipping. From their perspective, your write-off was never revenue.
However, if your business is on an accrual basis, you count income when it is earned, and expenses are recognized when they are incurred. So, the income will show up on the books for many businesses as soon as they generate an invoice.
If a client does not pay, that income needs to be written off. This will often be done by writing off the invoice and showing a bad debt expense on your Profit & Loss Statement for the amount not received.
Bank Charges
You always want to have separate bank accounts and credit cards for your business.
Comingling business and personal expenses will complicate your books, is one of the easiest ways to miss expenses, and may increase your liability from a legal perspective. It’s a big no-no and I always stress the importance of separate finances.
If your business accounts have any fees associated with them, such as monthly service fees, annual dues, wire fees, or overdraft fees, those expenses are deductible.
Business Meals
Historically, meals have only been 50% deductible. Certain employee meals (such as at a company picnic or celebration) are 100% deductible. But meals such as taking a client out to lunch are limited to the 50% limitation.
This includes travel meals. They are 50% deductible but you can record the full amount in your bookkeeping software and the adjustment will be made on your tax return.
Computer Expenses
Most businesses are increasingly technology-driven, and the expenses associated with that are deductible. These include:
Software subscriptions (SaaS) – ie. Adobe, Quickbooks, etc.
Computer supplies
Computer and computer-related equipment purchases
Software purchases – one-time cost
Keep in mind that, like other large equipment purchases, the purchase of an expensive computer or a server would be depreciated over time rather an expensed all at once – generally over five years. And certain software licenses that are a one-time purchase (not SaaS) are usually depreciated over three years. For more information on this and ways to still expense the full amount in the year of purchase, reference the Equipment Purchases and Depreciation section.
Contract Labor
Before a business can afford to hire actual employees, they’ll usually start by using freelancers or other contractors. The amount you pay to these independent contractors is fully tax-deductible.
If the contractor is paid over $600 for the year (and is not taxed as a corporation), you will be required to issue them a 1099-NEC form and file a copy with the IRS. These are due by January 31st of the following year.
The best practice is always to get the contractor to fill out a W-9 before you pay them anything or they start any work. It should be part of your onboarding process. This will save you a lot of time and energy trying to track them down in January. More often than not they will ignore this request and you’ll struggle to uphold the business owner’s duty to provide a 1099.
Credit and Merchant Fees
Costs associated with accepting payment from customers are deductible. This includes credit card processing fees, fees your bank charges you to initiate ACH drafts, and other expenses charged by third-party payment processors. Even charges for invoicing services are deductible. Think of costs like Stripe, PayPal, Square, Venmo for business, etc.
Make sure to record the full amount of revenue and the cost of the credit card processing fee as an expense. For example, record $100 as income or revenue and $2.99 as merchant fees. This way you recognize your full income and the complete cost of expenses.
Dues and Subscriptions
This category is NOT for software subscriptions as I see that mistake often. It is for professional memberships and organizations and they are 100% deductible. Dues to civic organizations such as the Rotary Club are also fully deductible. Under new tax laws, country clubs or dues for organizations that are recreational or entertainment are not deductible.
Employee Benefit Programs
Health, dental, and vision insurance paid for employees are fully deductible.
There are also some additional perks for structuring employee compensation this way.
While wages paid to an employee are subject to payroll tax (and are fully taxable to the employee), many employee benefit programs are not.
In addition, health insurance premiums paid may qualify for tax credits if you are a smaller employer, although this varies based on the circumstances of the business.
Many small businesses that don’t have employees don’t use this category and that’s ok.
Equipment and Depreciation
Expensive equipment (over $2500 for one item) purchased for the business will generally be able to be expensed over time.
The reason is that for tax purposes buying equipment is not an expense.
Rather, it is the purchase of an asset, and assets are depreciated (expensed) over time – the useful life as dictated by the IRS. Computers are depreciated over five years, office furniture over seven years, etc.
By default, assets are slowly written off on your tax return over their useful life. This is relevant to note because your cash flow will not match the tax deduction you receive. You may spend $10,000 on equipment at the end of the year, but your tax return is only going to show a fraction of that.
In some cases, letting the asset depreciate naturally is the best approach. But in others, it can be painful. Thankfully, there are other options available if needed. Bonus Depreciation and Section 179 depreciation will allow you to expense an increased portion or the entirety of a new asset in the year purchased. This will enable you to treat it much more like regular expenses. The rules around these two options change often so keep that in mind and do research if you plan to use these options.
Home Office Deduction
The home office deduction is one of the most frequently asked questions we get asked by our clients. And it’s understandable because you’re getting a write-off for money you’re already spending. You get to write off a percentage of your rent (or depreciate a portion of your house), utilities, insurance, repairs, maintenance, and real estate taxes. That sounds like a win all around.
The issue becomes that there are many caveats and limitations to the home office deduction. You cannot benefit from it if your business is already at a loss, it needs to be your primary place of business, the use of the space has to be regular and exclusive, and it can increase your risk of audit (yes, it raises a red flag). Plus, if you own your house, it can generate taxable income when you sell.
While we’re not against the home office deduction, it’s not quite the free lunch that it sounds like and should be discussed in-depth with your tax pro. Keep in mind as a traveler who chooses this lifestyle, your home (think RV if you live full-time in an RV) is not a tax deduction. Maybe 5 feet of it could be considered a home office but even then, I’d argue it’s hard to have space set aside exclusively for business use in such a tiny space. A more comprehensive guide to some of these caveats can be found in this article.
Insurance
Most insurance premiums you pay for your business are deductible. These might include:
General liability coverage
Professional liability insurance such as E&O (errors and commissions) insurance or malpractice insurance
Workers compensation insurance
Property and casualty insurance
Health, vision, and dental insurance are not part of this category. They are either an employee benefit or qualify for the self-employed health insurance deduction. It is important to track health insurance costs though so don’t forget that as a separate category.
Life insurance premiums may or may not be deductible depending on the beneficiary and the type of policy. Term life insurance policies for paid employees will generally be deductible if the business is not a beneficiary on the policy.
Whole life and universal life policies along with term life policies where the business is a direct or indirect beneficiary generally will not be deductible. The good news is that proceeds from life insurance are typically not taxable income.
The precise details of your business and the insurance policy you purchase matter greatly. You should consult closely with your insurance agent and tax pro to understand the tax consequences of the policies you are purchasing.
Interest
Interest paid on business purchases will generally be deductible. This includes interest paid on:
Business lines of credit (LOC)
Auto loans for vehicles owned 100% by the business
Business credit cards
Equipment loans
Mortgages in the business’s name
One thing to know is that only the interest is deductible. The principal portion of loan payments is not an expense for tax purposes; it is the reduction of a liability.
This can confuse people and get them into trouble if they are not aware of it. As an example, let’s say a business owner has a rough couple of years when they are first starting the business and has to take out a $50,000 line of credit. A few years later, the business is doing well, and they choose to pay off the entire balance.
That is a $50,000 cash outflow and $50,000 the business owner no longer has available to them. But it is NOT an expense and is not tax-deductible.
This is not to say that managing your debt is not important and not to say that in certain instances, paying down debt is crucial to the business. However, the lack of deductibility is something business owners need to be aware of when they are paying off debt.
Inventory / Cost of Goods Sold (COGS)
If you are a retailer, manufacturer, or otherwise have any sort of inventory you purchase or produce, the costs associated with creating or acquiring that inventory are tax-deductible. But much like equipment purchases, it’s not always the same year they are purchased or produced.
Inventory is considered an asset, not an expense. It is not until the inventory is sold that it is a deductible expense. It is “Cost of Goods SOLD” after all. While the inventory is sitting on the shelves, it is an asset that helps generate more revenue (at least for accounting purposes). Many small business owners know that inventory acts more like a liability until it is sold – especially if it sits for any amount of time.
This can cause significant problems if business owners are not aware of it. A retailer may purchase $100,000 worth of inventory at the end of the year but only sell $20,000. That remaining $80,000 is still included in their taxable income for the year. And will stay that way until the inventory is sold or written off.
Fluctuations in inventory from the beginning to the end of the year can also cause similar problems. Given this, it is very important for any business with inventory to closely track these figures and be aware of the tax ramifications.
Legal and Professional Expenses
Expenses paid to your attorneys, CPAs, and other professionals related to the business are tax-deductible. If these expenses are associated with the start-up of a new business, there may be limitations. Reference the Start-up and Organizational Costs section for more information.
Office Supplies
Supplies used to keep your office running like paper, pens, ink, tape, staplers, scissors – those many tiny miscellaneous expenses are deductible. These are also items that can be easy to forget about. If you pay cash (which we don’t recommend) or are out buying groceries at Wal-Mart and pick up a pack of pens while you’re there, it’s easy to forget about those expenses.
Alone, these missed expenses add up to very little, but in total, they can be substantial, which is again one of the reasons we always recommend using a business debit or credit card. If you are making business and personal purchases on the same trip, separate them into two separate transactions.
Once again, personal and business expenses and finances should be separate with no comingling.
Postage and Delivery
Postage and delivery fees associated with running your business are deductible. For most businesses, this is an expense for postage. However, if you run an e-commerce business or another business where you are shipping products to customers, it can be a good idea to include that as part of your COGS so that you are more appropriately tracking your profit margins.
Printing
Printing costs will typically be deductible. This would include printing for more external use such as brochures, pamphlets, etc, and possibly printing for internal use such as company manuals if you have employees. I honestly don’t see this expense too often with the world being as digital as it is.
Research & Development (R&D)
Research and Development costs are deductions (reductions in your taxable income), but in some cases, they may even qualify for tax credits (dollar-for-dollar against your tax bill). This can be massive for businesses in certain industries.
However, one note of caution is that some companies will aggressively push R&D credits without fully understanding the requirements to qualify for them. Running A-B testing on Facebook ads does not qualify here. While you may be, “researching” what approach works best, it doesn’t count in the eyes of tax laws.
When the IRS says research, they mean actual research. It needs to be based on hard science, it needs to be activities and research that are done outside of the normal operation of the business, and there also needs to be a risk to the business owner that the research will not pan out.
Many businesses do qualify for these credits, and when they do, they should absolutely be explored. Be wary of “too good to be true” claims by companies and claims that do not seem to make sense to you. Use a trusted tax professional to help you claim any of these credits so you don’t get into trouble.
Rent
The rent paid for your office is tax-deductible. Most of you won’t have this if you’re a nomad without an office rental. However, you’re also able to deduct amounts paid on equipment rentals.
I also see people utilize co-working spaces and those can be considered rent.
Rent paid for a campground or RV park does NOT count. It is a personal lifestyle expense.
Repairs and Maintenance
Repairs you have to your office space and equipment you own are deductible. This may be especially relevant if you have expensive equipment to maintain. No, your RV doesn’t count here if you’re living in it full-time. However, the cost of professionally cleaning a camera lens would count here.
Repairs to your home may be deductible, but this would fall under the home office deduction. Again, I rarely see a full-time traveler able to claim a home office deduction.
Retirement Plan Contributions
The costs of creating and administering a retirement plan such as a SEP, SIMPLE, or 401k for you or your employees are tax-deductible. Any employer contributions you make on their behalf will also be deductible to you and can be a nice incentive for employee morale and retention.
One area of note that should be discussed with your financial advisor and retirement plan administrator is the matching requirements as an employer. This is constantly changing so be prepared.
The compliance requirements vary quite a bit based on the type of plan you have, but especially any plan that allows you to contribute the most aggressively towards your own retirement will have strict requirements for employee participation and employer matches or even unmatched contributions. They aren’t going to allow a situation such as a company with 50 employees, but the CEO (making $200k) is the only one participating in the retirement plan, and the company is also doing an employer match of $50k into his retirement plan. This would not be even remotely close to compliant.
Employer matches are not inherently bad things and it might benefit you choose to provide for your employees regardless. But when these costs are mandated (and may affect how much you put into your retirement), you need to be aware of them.
As a sole proprietor, retirement contributions might not be part of your Schedule C. But they are deductible on your 1040 and shouldn’t be forgotten.
Salaries and Wages
Wages and bonuses paid to your employees – including PTO – are deductible. This includes W-2 wages (wages run through payroll and subject to payroll tax) paid to the business owner but does not include owner draws/shareholder distributions. Shareholder distributions (where you cut yourself a check or transfer money to your personal bank account) are considered taking equity out of your company and are not business expenses.
Of course, the deductibility of these wages is assuming that those wages were reasonable and necessary for the business and that services were performed.
Sometimes clients will want to hire their children, which is allowed and can be a viable strategy under the right circumstances. I’ve also had instances where all three criteria above have failed. One in particular always sticks in my mind when the business owner hires their seven-year-old as a “model” for the company website and pays them $12,000.
The photoshoot would take about an hour. A pretty nice payday for a kid who has no modeling experience, and has probably not modeled since. Situations like that are, of course, completely unreasonable, and the IRS will not tolerate them.
One small item of note: on your tax return, you will need to put gross wages (before deductions) along with employer-paid payroll taxes. This can be a bit of a pain for some taxpayers since the amounts are drafted from the bank as net wages (after all of the deductions are taken out), and the tax payments are lumped together (including employee-side payroll taxes and withholding). If possible, you want to list these items in your books as they’ll appear on your tax return. If that’s not feasible, you’ll need to get a “payroll summary” report to provide to your tax pro come tax time.
Security
Cameras, smart locks, and other physical security measures you put in place to protect your place of business are tax-deductible – as are subscriptions that may be associated with them. In addition, the cost of cybersecurity is also likely deductible.
Start-up and Organizational Costs
The IRS allows you to deduct up to $5,000 in business start-up costs and $5,000 in organization costs. It is worth noting that this is only if your start-up or organizational costs do not exceed $50,000. If they exceed $50,000, this $5,000 begins to be reduced, and the remaining will need to be amortized over time.
Taxes and Licenses
Many of the taxes you’ll pay are tax-deductible:
- Business licenses and annual LLC/corporation fees – including the initial fees to set up your LLC, S-Corp, or C-Corp
- The employer portion of payroll taxes
- Real estate taxes on business property
- Personal property taxes on business property
- Sales, excise, and use taxes
Individual income taxes you pay are NOT tax-deductible, even if paid from the company account. Those income taxes are personal expenses for the business owner and are not business expenses.
Especially as your earnings increase, it is very important to make sure this is classified properly. If you have your personal income taxes (either the prior year’s balance due or the quarterly estimates you are paying throughout the year) shown as an expense on your Profit & Loss, that is going to greatly distort what you think your tax liability is going to be and you’re going to get a nasty surprise come April 15th.
Ideally, those payments should be made from your personal account rather than the business account. If they are made from the business account, ensure that they are classified as shareholder distributions or draws so that they do not skew your P&L.
Telephone and Utilities
A business telephone along with the utilities at your office (if you have a physical office separate from home) are tax-deductible. If you live in an RV, you most likely don’t have utility costs.
Many business owners do not realize that they can also expense the business percentage of their cell phone and home internet bill. I know you have internet and phone costs so don’t forget about them.
Other home utilities would generally only be able to be taken as part of the home office deduction. Reference the Home Office Deduction for more information.
Tools
Small tools you purchase for the business are fully deductible. Often times you can lump this into office supplies if you’d like. These are anything under $2500 for one item and can include a camera, drone, computer, etc.
For larger tools, these would need to be depreciated over time like other assets. See the Equipment and Depreciation section for more information.
Training and Continuing Education
Training or continuing education that allows you to continue performing your current profession is deductible. Other types of training can be more difficult to determine. Training that is preparing you for a new career generally will not be deductible, although it may qualify as an education expense. In some cases, the line between a current and a new profession is very clear. If you’re a plumber and are going to school to become an artist, that’s a very obvious distinction.
Additional training in your existing field that may be expanding your expertise can be more difficult to determine. These issues should be discussed with your tax pro based on the particulars of your situation. Professional development or conference expenses related to your business count as an expense.
Travel Expenses
Travel expenses are often legitimate and deductible, although some business owners abuse them. The IRS states that “travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. You can’t deduct expenses that are lavish or extravagant or that are for personal purposes.
You’re traveling away from home if your duties require you to be away from the general area of your tax home for a period substantially longer than an ordinary day’s work, and you need to get sleep or rest to meet the demands of your work while away.”
When you are a nomad or live in your RV, this usually involves leaving the RV behind and sleeping in a hotel, short-term rental, or similar.
Sometimes a person’s definitions of “necessary” and “business purpose” can be a bit stretched. That’s not to say legitimate travel expenses should not be taken, only that the primary purpose of the travel should be for business and that the expenses are reasonable.
You may have a client in Jamaica, but the IRS is unlikely to believe that you flew over there and hung out on the beach for three weeks because you needed to have a one-hour meeting with them.
The IRS makes allowance for trips that are mixed between personal and business. Let’s say the primary purpose of a trip was to meet with a client. Maybe you went to their office to work with them in person for two weeks, and you decide to stay a third week to relax and vacation. The good news…you can deduct the entirety of the travel expenses (including airfare both ways) to get there. Regardless of how long you stayed, those costs would be the same. You can also deduct the meals, lodging, taxis, parking, etc., costs for the two weeks you worked. The costs of the remaining week where you were relaxing on the beach are not a business expense and cannot be deducted. Still not a bad deal if you ask me.
Uniforms and Laundry
The cost of uniforms and as well as the laundry services for those uniforms will generally be deductible. The key here, however, is what qualifies as a uniform.
For most of us, the idea of a uniform would be clothes that are necessary for work. A lawyer could reasonably say that his suit qualifies as a “uniform.”
Unfortunately, that does not fit the parameters set by the IRS. To qualify as a work clothing:
- Your job must require that clothing
- The clothing cannot be suitable for everyday wear or use at another time in your life like a wedding or funeral
Scrubs worn by medical staff or clothes with company logos on them are not suitable for everyday wear. Even though many jobs require a particular type or even color of clothing such as dress wear or a red shirt with black pants, since they can be worn in other settings, they are not deductible.
Vehicle Expenses
There are generally two options when it comes to vehicle expenses:
- Taking the standard mileage rate. In 2024 the standard mileage rate is 67 cents per mile driven for business.
- Deducting actual expenses. This would be all of the costs associated with operating the vehicle. Gas, repairs, maintenance, insurance, taxes, and registration fees, and depreciating the purchase price of the vehicle itself. If the vehicle is used 100% for business, 100% of these costs can be deducted. If used for personal and business, you can only deduct these costs multiplied by the percentage of business use.
Which approach is best for you will largely depend on your situation. If you drive 100,000 miles a year on an F150 that you bought for $15,000, then the mileage is the clear winner. If you have an $80,000 dually F-350 that gets 7 miles to the gallon and you’re only driving 5,000 miles a year – it’s going to take a long time to break even if you go with mileage.
One crucial thing to note here: if you ever want to take mileage on a vehicle, you are required to take it in the first year.
Why?
Because depreciation expense is built into the standard mileage rate, and if this restriction did not exist, people would buy a truck, use Section 179 depreciation to expense the entire purchase price in the first year, and then go back to mileage. Effectively, they would be double-counting that expense since the mileage rate accounts for depreciation.
If you take mileage in the first year, you can toggle back and forth between mileage and actual expenses in the subsequent years, depending on which one is better.
There’s no right or wrong answer, and like many of these other decisions, it is something you should discuss with your tax pro. There are times when taking actual expenses makes sense. But the loss of the ability to take the standard mileage rate for the entire time you own the vehicle is not inconsequential.
Bottom Line
These are easily the most common expenses entrepreneurs can deduct from their business revenue. We hope this guide has been helpful and encourage you to bookmark it as a reference.
But as you can see from a number of these items, these deductions can vary greatly based on your situation. This is a great starting point, but we encourage you to regularly consult with your tax pro to make sure you aren’t missing any opportunities. A good tax pro and tax strategist can save you more money than any other advisor, and a bad one can cost you more money than you’d like to admit.
*Any accounting, business, or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.
About Me
Hi, I’m Heather Ryan, a tax professional who specializes in making finances stress-free for nomadic entrepreneurs and small business owners. I’m an Enrolled Agent (EA) with the IRS and a Certified Tax Coach, with years of experience helping adventurous business owners like you stay compliant, save money, and most importantly, breathe easy during tax season.
Since 2016, I’ve been running my own business from the road while traveling in an RV and around the world with my husband. I understand the unique challenges of a nomadic lifestyle firsthand, from dropped internet connections to navigating rules from state to state and even international tax treaties.
My mission is to help you succeed—one smart, informed tax decision at a time. You’ve got an incredible business to run. I’ll handle the numbers so you can keep pursuing your passion on the open road.
To learn more about my services, click here!
