25 Small Business Tax Deduction You Should Know in 2022 (2023)

11 Min. Read

June 9, 2022

25 Small Business Tax Deduction You Should Know in 2022 (1)

The top 25 tax deductions for a small business in the 2021 - 2022 tax year detailed in the guide below can help business owners lower their income tax bills by claiming all the deductions relevant to their work. These top tax write-offs will help speed up the income tax filing process and reduce the amount you owe to the government in taxes.

Here’s everything you need to know about maximizing tax deductions for your small business:

Top 25 Tax Deductions for Small Business

How Do Business Tax Deductions Work?

What Can Be Written off as Business Expenses?

What Is a 100 Percent Tax Deduction?

What Is a 1099?

Can You Write off Previous Years’ Taxes?

Top 25 Tax Deductions for Small Business

Small businesses can write off a number of expenses as tax deductions to help lower the amount they owe on their income tax. The top small business tax deductions include:

(Video) 15 Biggest Tax Write Offs for Small Businesses! [Best Tax Deductions 2022]

1. Business Meals

As a small business, you can deduct 50 percent of food and drink purchases that qualify. To qualify, the meal needs to be related to your business and you need to keep the following documentation related to the meal:

  • Date and location of the meal
  • Business relationship of the person or people you dined with
  • The total cost of the meal

The easiest way to track business meal expenses is to keep your receipt and jot down notes on the back about the details of the meal.

2. Work-Related Travel Expenses

All expenses related to business travel can be written off at tax time, including airfare, hotels, rental car expenses, tips, dry cleaning, meals and more. You can reference the IRS website for a full list of deductible business travel expenses. To qualify as work-related travel, your trip must meet the following conditions:

  • The trip must be necessary to your business.
  • The trip must take you away from your tax home, i.e. the city or area in which your company conducts its business.
  • You must be travelling away from your tax home for longer than a normal work day and it must require you to sleep or rest on route.

3. Work-Related Car Use

If you use your car strictly for work-related purposes, you can write off all costs associated with operating and maintaining it. If your car use is mixed between business and personal reasons, you can only deduct costs that are related to the business usage of the vehicle. You can claim the mileage you use for business driving, either by deducting the actual miles traveled for business, or by using the standard mileage deduction of $0.56 per mile driven.

4. Business Insurance

You can deduct the cost of your business insurance on your tax return. If you have a home office, or use a portion of your home to run your business, you can deduct your renter’s insurance costs as part of your home office write-offs.

5. Home Office Expenses

Under new simplified IRS guidelines for home office expenses, home-based small businesses and freelancers can deduct five dollars per square foot of your home that’s used for business purposes, up to a maximum of 300 square feet. To qualify as a tax deduction, your work area has to be used exclusively for business (i.e. you can’t write off the square footage of your dining room if you do your work at the table during the day) and you need to use the home office regularly as your principal place for conducting business.

6. Office Supplies

You can write off office supplies including printers, paper, pens, computers and work-related software, as long as you use them for business purposes within the year in which they were purchased. You can also deduct work-related postage and shipping costs. Be sure to file all receipts for office supply purchases, for documentation.

7. Phone and Internet Expenses

If using the phone and internet is vital to running your business, you can deduct these expenses. If, however, you use the phone and internet for a mix of work and personal reasons, you can only write off the percentage of their cost that goes toward your business use. For example, if roughly half of your internet usage is business related, you can write off 50% of your internet expenses for the year.

8. Business Interest and Bank Fees

If you borrow money to fund your business activities, the bank will charge you interest on the loan. Come tax season, you can deduct the interest charged both on business loans and business credit cards. You can also write off any fees and additional charges on your business bank account and credit card, such as monthly service fees and any annual credit card fees.

9. Depreciation

When you deduct depreciation, you’re writing off the cost of a big-ticket item like a car or machinery over the useful lifetime of that item, rather than deducting it all in one go for a single tax year. Businesses usually deduct depreciation for long-term business investments that are more costly, so they’re reimbursed for the expense over the entire useful lifetime of the item. Here’s how to calculate depreciation:

Depreciation = Total cost of the asset / Useful lifetime of the asset

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10. Professional Service Fees

Any professional service fees that are necessary to the functioning of your business, such as legal, accounting and bookkeeping services, are deductible for tax purposes. If you use accounting or bookkeeping software for your business, that would also qualify as a tax deduction. If you are having trouble determining whether a particular professional service expense is for work or personal use, these guidelines for legal and professional fees from the IRS can help you judge the nature of the expense.

11. Salaries and Benefits

If you’re a small business owner with employees, you can write off their salaries, benefits and even vacation pay on your tax returns. There are a few requirements for writing off salary and benefit expenses:

  • The employee is not a sole proprietor, partner or LLC member in the business
  • The salary is reasonable and necessary
  • The services delegated to the employee were provided

12. Charitable Contributions

You can deduct charitable donations that you make to qualifying organizations. If your business is set up as a sole proprietorship, LLC or partnership, you can claim these expenses on your personal tax forms. If your company is a corporation, you claim charitable donations on your corporate tax return.

13. Education

Any educational expenses you incur to bring value to your business are fully deductible for tax purposes. The requirements for education-related expenses are that the course or workshop must improve your skills or help maintain your professional expertise. Educational expenses that qualify for deductions include:

  • Courses and classes related to your field of work
  • Seminars and webinars
  • Trade publication subscriptions
  • Books related to your industry

14. Child and Dependent Care

Costs you incur for caring for children or adult dependents is tax deductible. If your own children are twelve years old or younger, you can write off costs associated with their care. Adult dependents also qualify for deductions, including spouses and some other related adults who are unable to care for themselves because of physical or mental disability.

15. Energy Efficiency Expenses

Upgrades that you make to your home to ensure it’s more energy efficient can qualify for tax credits. You can claim 30 percent of the cost of alternative energy equipment for your home, including solar panels, solar water heaters and wind turbines. The IRS site offers further details on the home energy tax credits.

16. Investments

If you borrow money in order to make investments, you can write off the interest paid on the loan. You can deduct the interest up to the point that it matches what you earned in investment income.

17. Foreign-Earned Income Exclusion

American citizens with businesses based abroad can, under certain circumstances, leave the foreign income they’ve earned off their tax return. To qualify for the exclusion, your tax home must be based abroad. This article can help you better understand the requirements for foreign-earned income exclusion.

18. Medical Expenses

You can claim both insurance premiums and medical care expenses, including doctor’s fees, prescription drugs and home care. If you’re self-employed and pay for your own health insurance then you can deduct your health and dental care insurance premiums.

19. Real Estate Taxes

Real estate taxes paid at the state and local levels can be deducted on your income taxes. Property taxes are included in these deductions and you can claim up to a total of $10,000.

20. Mortgage Interest

You can deduct interest payments made toward mortgage loans to buy, construct or improve your home if you use your home for business purposes. If you take out loans against your home equity, you can also deduct the interest on those loans.

(Video) 10 End of Year Tax Tips to Help Your Small Business

21. Moving Expenses

If you move and the main reason for doing so is work related, you might be able to fully deduct the costs associated with the move. To qualify, your move has to pass the distance test. To pass the distance test your new job location has to be at least 50 miles farther from your former home than your old job location was from your previous home.

22. Retirement Contributions

If you contribute to an Individual Retirement Account, doing so helps reduce your taxable income for the year. Your total IRA contributions can’t exceed the total income you earned that year or it can’t exceed the annual maximum contribution, whichever one is less.

23. Advertising and Promotion

You can fully deduct expenses related to promoting your business, including digital and print advertising, website design and maintenance and the cost of printing business cards.

24. Client and Employee Entertainment

If you take business clients out, you can deduct the expense as long as you discuss business during the meeting and the entertainment takes place in a business setting for business purposes. You can deduct 50 percent of the cost of these entertainment expenses. You can also deduct as much as 100 percent of the cost of social events held for your employees.

25. Startup Expenses

If you launched a new business venture in the latest tax year, you can deduct as much as $5,000 in startup expenses you incurred in the lead up to your business launch. That can include costs associated with marketing your new business, travel and training costs.

How Do Business Tax Deductions Work?

Business tax deductions work by lowering your taxable income, thereby lowering the amount of tax you owe to the government as part of your tax return. To find out how to claim the most deductions possible, it’s a good idea to consult a professional, like a CPA. It’s the job of an accountant to know what tax deductions are available and how they can apply to your small business.

What Can Be Written off as Business Expenses?

Small businesses, freelancers and entrepreneurs can write off a range of business expenses when filing their income tax, including:

  • Car expenses and mileage
  • Office expenses, including rent, utilities, etc.
  • Office supplies, including computers, software, etc.
  • Health insurance premiums
  • Business phone bills
  • Continuing education courses
  • Parking for business-related trips
  • Business-related travel expenses, including flights, rental cars, hotels, etc.
  • Postage

What Is a 100 Percent Tax Deduction?

A 100 percent tax deduction is a business expense of which you can claim 100 percent on your income taxes. For small businesses, some of the expenses that are 100 percent deductible include the following:

  • Furniture purchased entirely for office use is 100 percent deductible in the year of purchase.
  • Office equipment, such as computers, printers and scanners are 100 percent deductible.
  • Business travel and its associated costs, like car rentals, hotels, etc. is 100 percent deductible.
  • Gifts to clients and employees are 100 percent deductible, up to $25 per person per year.
  • If you’re self-employed and pay your own health premiums, you can deduct those at 100 percent.
  • Your annual business phone bills are 100% deductible.

What Is a 1099?

A 1099 is an IRS tax form that’s used to report any income earned through sources other than employment, so independent contractors, freelancers and self-employed workers use the 1099 form. You can find out more about the 1099 tax form on the IRS site.

Can You Write off Previous Years’ Taxes?

As a small business, you may be able to write off the state and local taxes in the year you paid them, even if the taxes are from a previous year. However, you can’t deduct any federal taxes that you paid for a prior year.

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FAQs

What deductions can I claim for 2022? ›

DEDUCTIONS You may be able to claim
  • Clothing, laundry and dry-cleaning expenses.
  • Gifts and donations.
  • Home office expenses.
  • Interest, dividend and other investment income deductions.
  • Self-education expenses.
  • Tools, equipment and other equipment.
  • Vehicle and travel expenses – including travel between work and home.
28 Jul 2022

What deductions can I claim without receipts? ›

Common Items You Can Claim without a Receipt
  • Maintenance.
  • Loan interest.
  • Registration.
  • Insurance.
  • Fuel.
6 Dec 2021

What is the maximum deduction for small business? ›

Under the tax law, most small businesses (sole proprietorships, LLCs, S corporations and partnerships) can deduct 20% of their income on their taxes. Woo-hoo! Got small business tax questions?

What can I claim without receipts 2022? ›

In order to be eligible for a tax deduction, you are required to present documented documentation if the total amount of your claimed expenses is more than $300. On the other hand, if the entire amount of your claimed expenses is less than $300, you are exempt from the requirement to present receipts.

What is the most deductions I can claim? ›

Per the IRS, you can generally deduct up to 60% of your adjusted gross income. (How it works.) In general, you can deduct qualified, unreimbursed medical expenses that are more than 7.5% of your adjusted gross income for the tax year. (How it works.)

Can you write off groceries as a business expense? ›

Unfortunately, self-employed people generally can't write off their groceries. For an expense to be tax-deductible, it must serve a legitimate business purpose. It's unlikely that groceries relate to your business unless you're a food vendor of some kind. That said, business meals can be deductible.

What qualifies as a business meal expense? ›

This includes the enhanced business meal deduction. For 2021 and 2022 only, businesses can generally deduct the full cost of business-related food and beverages purchased from a restaurant. Otherwise, the limit is usually 50% of the cost of the meal.

Can I write off my car payment? ›

If you financed a personal vehicle

If you bought this vehicle using a car loan, you won't be able to write off your car payment. However, you can write off a portion of your car loan interest. That's right — your loan interest counts as a car-related business expense, just like gas and car repairs.

Which expenses Cannot be deducted? ›

Anything to do with personal activities or personal spending is a non-deductible expense. As are any political contributions, commuting costs and any gifts over $25. It might seem like an expense is business-related, but sometimes they're not.

What items are not deductible? ›

1- Typically non-deductible expenses:
  • Penalties & Fines.
  • Political Contributions.
  • Burial, funeral, and cemetery expenses.
  • Legal fees and expenses.
  • Clothes.
15 May 2020

How do I write off gas expenses? ›

You can calculate your driving deduction by adding up your actual expenses or by multiplying the miles you drive by the IRS's standard mileage rate. The per-mile rate for the first half of 2022 is 58.5 cents per mile and for the second half of 2022 it's 62.5 cents per mile.

How do I qualify for small business deduction? ›

In order to qualify for the small business deduction (“SBD”) a corporation must be a Canadian-controlled private corporation (“CCPC”) earning active business income. In addition, associated corporations must share the SBD.

What is a tax right off for small businesses? ›

If a company generates $10,000 in income and deducts the $1,000 cost of a business insurance policy, their net taxable income will become $9,000. The cost of the business insurance would be a tax write-off. A business tax rate will then be applied to the $9,000 to determine the amount of taxes owed.

Can you claim cash expenses without receipts? ›

You can still claim deductions on your taxes without receipts for every transaction. Keep in mind that you don't have to send your shoebox full of receipts to the IRS. You'll only need them if you're audited (which can happen up to 6 years after filing your taxes).

What receipts are valid for taxes? ›

Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. These documents contain the information you need to record in your books. It is important to keep these documents because they support the entries in your books and on your tax return.

How much cash contributions can I claim without receipts? ›

Is the $300 Deduction for Nonitemizers Available for 2021? Yes. For the 2021 tax year, single nonitemizers can again deduct up to $300 in cash donations to qualifying charities. The 2021 deduction for married couples who take the standard deduction has increased; they can deduct up to $600 of cash contributions.

What do I claim to get the most money back on my taxes? ›

Maximize your tax refund in 2021 with these strategies:
  1. Properly claim children, friends or relatives you're supporting.
  2. Don't take the standard deduction if you can itemize.
  3. Deduct charitable contributions, even if you don't itemize.
  4. Claim the recovery rebate if you missed a stimulus payment.
6 Jan 2022

How can I get a bigger tax refund? ›

Check out these six tips to maximize your refund.
  1. Know Available Deductions and Your Exemptions. ...
  2. Build Your Retirement Savings. ...
  3. Pay for Medical Expenses With a Flexible Spending Account (FSA) ...
  4. Deduct Medical and Dental Costs. ...
  5. Make Charitable Donations. ...
  6. Consult a Tax Professional.
1 Mar 2022

What are 5 examples of deductions you can make on your taxes? ›

The 10 Most Overlooked Tax Deductions
  • State sales taxes.
  • Reinvested dividends.
  • Out-of-pocket charitable contributions.
  • Student loan interest paid by you or someone else.
  • Moving expenses.
  • Child and Dependent Care Tax Credit.
  • Earned Income Tax Credit (EITC)
  • State tax you paid last spring.
5 days ago

Can I deduct my cell phone as a business expense? ›

Your cellphone as a small business deduction

If you're self-employed and you use your cellphone for business, you can claim the business use of your phone as a tax deduction. If 30 percent of your time on the phone is spent on business, you could legitimately deduct 30 percent of your phone bill.

What appliances can you write off? ›

While you can't claim your standard energy-efficient appliances (like a dishwasher or a dryer), you can most likely get a federal tax credit for any renewable energy systems that run those appliances. Solar panels, wind power systems, and geothermal heat pumps may get you a tax break for up to 30 percent of the cost.

What does the IRS require for meal receipts? ›

An itemized meal receipt should have the name of the establishment, the date of service, the items purchased, the amount paid for each item, and the tax. If the tip is not included in the total it should be written on the receipt.

Can I count coffee as a business expense? ›

While it's my personal belief that coffee expenses should always be deductible, the IRS disagrees. As a general rule, coffee is only deductible if it's available to your clients or your staff.

How do you prove business meals? ›

There are requirements for proving that meal and beverage expenses qualify for a deduction. You must be able to establish the amount spent, the date and place where the meals took place, the business purpose, and the business relationship of the people involved.

What is the IRS meal allowance for 2022? ›

The amount of the $297 high rate and $204 low rate that is treated as paid for meals for purposes of § 274(n) is $74 for travel to any high- cost locality and $64 for travel to any other locality within CONUS.

Can you write off car insurance on taxes? ›

If you use your car strictly for personal use, you likely cannot deduct your car insurance costs on your tax return. Unless you use your car for business-related purposes, you are likely ineligible to claim your auto insurance premium on your tax return.

Can you write off your cell phone bill on your taxes? ›

You can qualify for a cell phone tax deduction from cell phone charges incurred when the mobile phone is being used exclusively for business. There is not an IRS cell phone deduction for self employed people, exclusively. However, you can also deduct additional business expenses that you incur.

What qualifies business mileage? ›

The IRS considers business mileage as any driving done solely for business purposes. For example, driving out of the office to meet clients, get supplies, or run other business errands. Note that commuting between your home and your place of work is not considered business mileage.

Can I write off clothes for my business? ›

Include your clothing costs with your other "miscellaneous itemized deductions" on the Schedule A attachment to your tax return. Work clothes are among the miscellaneous deductions that are only deductible to the extent the total exceeds 2 percent of your adjusted gross income.

What is not considered a business expense? ›

Political contributions. Governmental fines and penalties (e.g., tax penalty) Illegal activities (e.g., bribes or kickbacks) Demolition expenses or losses.

What are 10 examples of expenses? ›

Common expenses might include:
  • Cost of goods sold for ordinary business operations.
  • Wages, salaries, commissions, other labor (i.e. per-piece contracts)
  • Repairs and maintenance.
  • Rent.
  • Utilities (i.e. heat, A/C, lighting, water, telephone)
  • Insurance rates.
  • Payable interest.
  • Bank charges/fees.

Is it better to write off mileage or gas? ›

Turns out, the actual car expense method would give you a far greater deduction. If you use the standard mileage method, you could have written off $2,725. But if you deducted your actual car expenses, that number goes all the way up to $3,380.

Can I write off both gas and mileage on my taxes? ›

Multiply your business miles driven by the standard rate (56 cents in 2021). This rate includes driving costs, gas, repairs/maintenance, and depreciation. Do NOT deduct these costs separately.

Is gas a 100% write off? ›

The actual expense method

This includes expenses like gasoline, insurance, car lease payments, depreciation, new tires, parking, and tolls. If 100% of your use of a car is for business purposes, you can deduct 100% of your expenses. If you only partly use your car for business purposes, you can deduct a percentage.

How much income is considered a small business? ›

It defines small business by firm revenue (ranging from $1 million to over $40 million) and by employment (from 100 to over 1,500 employees). For example, according to the SBA definition, a roofing contractor is defined as a small business if it has annual revenues of $16.5 million or less.

Can I write off hair and nails as a business expense? ›

Tax Deductions For Business Versus Personal Expenses

The IRS does not let you deduct personal expenses from your taxes. The Court states, expenses such as haircuts, makeup, clothes, manicures, grooming, teeth whitening, hair care, manicures, and other cosmetic surgery are not deductible. However, there are exceptions.

What items can be written off? ›

Compare the best tax software of 2022
  • Property Taxes. Property taxes may be deductible if you itemize, but a limit comes into play. ...
  • Mortgage Interest. ...
  • State Taxes Paid. ...
  • Homeowner Deductions. ...
  • Charitable Contributions. ...
  • Medical Expenses. ...
  • Lifetime Learning Credit Education Credits. ...
  • American Opportunity Tax Education Credit.
26 Oct 2022

Can I claim my phone bill on tax? ›

June 4, 2021. You may be able to make a claim for part of the cost of your mobile and/or home phone plan, if you use it to earn your income, as long as your employer does not reimburse you for the cost. You can't just claim the whole bill though (unless you only use it for work).

How do I maximize my self-employed tax deductions? ›

Here are 15 big self-employment tax deductions to remember.
  1. The home office deduction. ...
  2. Health insurance (maybe) ...
  3. Continuing education. ...
  4. Your car. ...
  5. Retirement savings. ...
  6. Self-employment taxes as self-employment tax deductions. ...
  7. Business insurance premiums. ...
  8. Office supplies.
17 Oct 2022

Can I write off makeup for my business? ›

You want to look your best while running your business, especially when you have to meet with clients or customers. That means investing in clothing, makeup, and grooming, though you can't claim these costs as independent contractor business expenses.

How can an LLC avoid taxes? ›

An LLC can help you avoid double taxation unless you structure the entity as a corporation for tax purposes. Business expenses. LLC members may take tax deductions for legitimate business expenses, including the cost of forming the LLC, on their personal returns.

Can shoes be a write-off? ›

If your shoes qualify as “protective clothing” (slip resistant shoes are certainly protective!) and you are required to purchase them as a condition of your employment, and not normally worn outside of work, you can deduct the cost of them from your taxes!

What receipts should I keep for personal taxes? ›

Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. These documents contain the information you need to record in your books. It is important to keep these documents because they support the entries in your books and on your tax return.

Can I claim WIFI on my taxes? ›

If you're a freelancer, a small business owner, or otherwise self-employed, you can likely deduct at least part of your internet bill. If you're a W-2 employee who works remotely, you can't. (Sorry.) However, you might be able to get reimbursed by your employer.

How much laundry can I claim? ›

If you're doing the laundry at home or the laundromat, you can claim $1 per load or $ 50c if you launder the clothing alongside other items. For repairs and dry cleaning, you can claim the entire expense.

Can I claim Internet if I work from home? ›

For other expenses such as phone and Internet, you can split these between working for yourself, as an employee or as a personal expense. For deducting home office space on your tax return, the IRS requires these expenses to be used exclusively for your self-employed business.

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