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30 Small Business Tax Deductions to Save Money When Filing [Free Checklist]

December 14, 2022 15 min. read

Filing taxes for the first time can be a challenge. But knowing what small business tax deductions to claim can make the process easier and save you money at the same time.

In this article, we’ll define tax deductions for small businesses, explain how they work, and list the types of business expenses you can write off.

(In a rush to file your taxes? Skip ahead to our list of deductible business expenses.)

What is a small business tax deduction?

The business taxes you pay each year are a percentage of your business income. Small business tax deductions (or write-offs) are expenses that you can subtract from that income.

According to the IRS, these expenses include anything that’s required for regular business operations, like employee wages, marketing costs, and equipment purchases.

How do small business tax deductions work?

Small business tax deductions reduce the amount of taxable income your business earned last year, so you owe less money on your tax return.

Simply add up and claim your expenses so the government can see how much money your business actually kept.

It’s a good idea to take as many income tax deductions as you (truthfully) can. It’s not cheating the system—it’s making sure you only pay what your business owes.

That said, always double-check with your bookkeeper, accountant, or tax advisor before claiming a tax write-off.

READ MORE: Bookkeeper vs. accountant: which one does your business need?

What can I write off as a business expense?

Get our list of 30 possible tax-deductible business expenses below, like rent, inventory, education, and travel expenses.

These are typically available to sole operators and business partnerships. However, if you operate an LLCs, corporations, or other business structures, check with your tax advisor to see which deductions apply to you.

Pro Tip: Always hang onto any receipts for business expenses. This will help you remember to include every expense on your taxes—and allow you to prove them in case of an audit.

1. Advertising and marketing

You can claim 100% of anything you spend on advertising and marketing. This includes the cost of designing, printing, or managing marketing tactics like:

Make sure to include the cost of any professional marketing services you used, like a designer or copywriter. You can also deduct the cost of any stock images, video, or audio used in your marketing materials.

2. Bad debts

If your business is owed income but you can’t collect it, you can claim all of that income on your taxes as bad debt. This includes unpaid invoices, vendor loans, and customer lines of credit.

There’s no limit on the income amount you can claim as bad debt. You just have to be able to prove it’s a business debt, not personal, and that you’ve made reasonable efforts to get paid.

READ MORE: Accounts receivable collections: strategies for small businesses

3. Bank fees and debt interest

Have a business loan, credit card, or line of credit? You can claim 100% of any bank fees and loan interest on your taxes.

However, a loan is only eligible for deduction if you’re legally liable for it, you intend to repay it, and you received it through a bank or other traditional lender. Loans and gifts from family and friends don’t count.

READ MORE: 12 entrepreneurs share their best financial advice

If the loan was partly for personal use and partly for business, figure out how much was for which purpose. You can only claim the amount that you used for business purposes.

You also can’t deduct any fees for personal banking, so get a business bank account if you don’t already have one. This will make tax season go much more smoothly, too.

Pro Tip: Taking out a loan so you can make investments? Your interest payments on the loan are also fully eligible for deduction, at least until the interest amount matches your investment income.

4. Business meals

Meals and gifts for your clients and employees can be listed as a deduction on your taxes—but there are some important restrictions to keep in mind:

  • You can deduct 50% of food and drink costs, as long as the expense is reasonable and a necessary part of doing business. This includes a business meeting with a customer, or a meal on the road while you’re traveling for work.
  • Food costs at special employee-only events are up to 100% deductible. This applies to situations like holiday parties, milestone celebrations, or group dinners while your team is working late.

When you purchase a business meal, take note of where and when you had the meal, who was present, and how much the meal cost—and keep your copy of the receipt.

5. Business taxes

You can deduct some of the taxes you pay as part of running your business. As an example, you can deduct up to $10,000 of state income tax, local income tax, sales tax, and property tax.

Other taxes may be available for write-off, too, like FICA and unemployment tax. Check with your bookkeeper, accountant, or tax advisor to make sure you’re doing this properly.

READ MORE: 10 simple ways to increase revenue

6. Contract and freelance labor

When you hire an independent contractor or freelancer, their fees are 100% deductible as a business expense.

Make sure the laborer gives you the right 1099 form. The type of form you need will depend on what payment method you use and whether they earn $600 or more per year.

7. Depreciation and amortization

Buying big-ticket items like office equipment and vehicles comes with a big deduction, but you may or may not be able to write it all off at once. Some large expenses have to be spread out over several years.

To calculate annual depreciation, divide the asset’s total cost by the number of years you’ll use the item, then put that deduction on your tax return.

With a Section 179 deduction, you can deduct up to $1,050,000 of new and used business property purchased that year. You can also carry any unused deduction forward to next year.

If you’re leasing an item instead of buying it outright, you can deduct the full cost of your lease payments each year.

8. Donations

A cash payment to an organization can be a 100% business tax deduction, as long as it’s not a charitable contribution and your donation is directly related to your business.

For example, let’s say you donate $500 to a community event and you get ad space in exchange. You would be able to deduct that amount as an advertising expense.

However, if you donated that money to a charity or didn’t get anything in exchange, you’d need to claim your contribution on your personal tax return.

The only exception is if your business is set up as a corporation. In that case, you can claim charitable donations on your business tax return.

9. Education and publications

You can deduct 100% of any educational costs. The only requirement is that it improves skills in your current field of work or improves the way you run your business. This could include:

  • Certification for a skill or technique
  • Classes, seminars, webinars, and workshops
  • Books, magazines, and journals written for your specific industry
  • Membership fees for professional associations and chambers of commerce

Don’t forget to deduct your travel expenses for getting to and from the educational facility, too.

READ MORE: The 28 best entrepreneur books to read as a small business owner

10. Energy efficiency upgrades

Have you made upgrades to your building or home office to make it more energy efficient? You can deduct up to 30% of the cost for expenses like adding solar panels or upgrading lighting.

If you made upgrades in a commercial building, your deduction is based on square footage. However, you’ll need to prove you’re using less energy as a result of those upgrades.

11. Employee gifts

You can deduct 100% of employee gifts, but only up to $25 per person per year. So go ahead and treat your employees to something nice—they deserve it.

READ MORE: Bonus programs for employees: reward and retain top performers

12. Employee wages and benefits

Your employees’ salaries, wages, bonuses, commissions, benefits, sick days, and vacation time are 100% deductible on your taxes.

The only condition is that wages are reasonable and the employee provided a service. You’ll also need to make sure each employee completes their W-4 form when they’re hired.

Unfortunately, your wages can’t be deducted—you’re the business owner, not an employee.

READ MORE: Hiring your first employee: when and how to do it successfully

13. Home office

If your business is based out of your home, you can deduct a percentage of your housing expenses—as long as you have a designated space just for business purposes. Your kitchen table or guest bedroom doesn’t count.

There are two ways to calculate your home office tax deductions for a small business:

  • If you use the simplified method, you can deduct $5 for every square foot in your home that’s reserved for business use, up to 300 square feet.
  • With the standard method, you track all home expenses and multiply the amount by the percentage of your home that makes up your home office. Your home office deduction can include rent, mortgage and home equity loan interest, property taxes, HOA fees, tenant or homeowner’s insurance, repairs, and utilities, to name a few.

You can only claim a home office deduction if you use this office as your primary place of business and don’t use any other workspace. Take photos of your workspace and be prepared to explain your deductions if you’re ever audited.

14. Insurance

Your business insurance premium—that is, the amount you pay for your insurance—is a 100% tax-deductible business expense. This includes policies like general liability, commercial auto, and property insurance.

Because you’re self-employed, you may be able to deduct all of your health insurance costs if you aren’t part of another plan. This also covers spouses, dependents, and children under 27.

15. Inventory

If you make or resell inventory, you can deduct the full cost of goods sold. For example, this could include your handmade organic cleaning supplies, or lawn fertilizer that you distribute.

You can factor in raw materials, shipping, storage, factory overhead, and the cost of labor to produce these products in-house. Take note of your inventory’s value at the start and end of each year.

READ MORE: How to communicate a price increase to customers

16. Medical expenses

Your health insurance isn’t the only medical deduction you can make on your taxes. You can also deduct the full cost of medical expenses like doctor’s office co-pays, prescriptions, and in-home care.

If you have a physical disability, you can deduct expenses for anything you use only for the purpose of completing your work, like special furniture or technology.

This deduction is available to you as a self-employed business owner, as well as your spouse and any dependents—but only if you aren’t on your spouse’s plan through their employer.

17. Moving expenses

You can deduct all of your moving expenses if you moved inventory, equipment, furniture, and other supplies to a different business location this year.

For example, these moving expenses could include the cost of renting a large vehicle for transporting items, or hiring a moving company to handle it for you.

18. Office or coworking space

You can deduct 100% of the cost of renting an office or coworking space at a reasonable rate. Any fees associated with this rental, like a non-refundable security deposit or lease cancellation fee, are also deductible.

READ MORE: When to move out of your home office

19. Office supplies and furniture

Pens, paper, notebooks, and other office supplies don’t cost a lot of money, but the expense adds up throughout the year. This amount is fully deductible on your taxes.

You can also claim office furniture that’s a necessary part of doing business, like desks and chairs. The only restriction is that you used these items for business purposes in the tax year you bought them.

Pro Tip: Whenever you make a run to your local office supply store, make sure to put your receipts in the same place, like a file folder or storage box. This makes expense tracking much easier throughout the year.

20. Phone and internet expenses

Your phone and internet expenses are an important part of doing business—which makes them a fully deductible expense on your taxes.

But if you’re using your personal phone and internet for business purposes, you can’t write off the full cost as a business expense. You can only deduct the percentage that went toward business use.

Let’s say you use your phone for business 8am–4pm daily, with personal use between 4pm and 10pm. The phone is used for business 57% of the time, so you can deduct that percentage of phone expenses on your taxes.

READ MORE: How to have two phone numbers on one phone

21. Professional service fees

You can deduct the full cost of any professional services that are a vital part of running your business, like working with a lawyer, bookkeeper, accountant, or tax professional.

If you also use these professionals for personal services, you can only deduct the portion of expenses that’s directly related to your business.

READ MORE: Service pricing for small business owners

22. Property and real estate taxes

Whether your business is based in your home or in an office, you can claim up to $10,000 of property and real estate taxes on land that you own.

This amount will depend on the other deductions you’re already making.

23. Retirement contributions

Employer contributions to Individual Retirement Accounts (IRAs) are deductible on your small business taxes, whether it’s for yourself or your employees. The maximum contribution and deduction changes from year to year.

The amount you can claim depends on the plan you offer, whether it’s a Simplified Employee Pension (SEP), Savings Incentive Match Plan for Employees (SIMPLE), defined contribution plan, or defined benefit plan.

If you work alone, you can deduct your self-employed 401(k) contributions.

24. Self-employment tax

As a self-employed business owner, you pay a 15.3% self employment tax on income to cover social security and Medicare. You also pay 7.65% of this tax for your employees.

The good news is, some of this tax is considered a business expense. You can deduct 100% of your contribution to employees’ self-employment tax, and 50% of your personal contribution (since your employer is you).

It’s important to note that there’s an income threshold for Medicare. If you or your employee’s household make more than that, there’s an extra 0.9% tax rate on the amount above the limit.

25. Shipping costs

You can deduct 100% of your shipping costs, including stamps, envelopes, labels, printer ink, and everything else that goes in the mail.

26. Software subscriptions

You can deduct all of your software purchases and subscriptions on your taxes as a miscellaneous expense as long as it serves a reasonable business purpose, like:

27. Startup costs

Did you just start a business this year? You can deduct up to $5,000 for startup expenses in your first tax year, like market research, training, lawyer fees, and government filing fees.

Any expenses above that amount are considered a capital expense, which is a major business asset or improvement. Capital expenses have to be deducted over several years.

There’s one exception for corporations or LLCs, which can deduct an added $5,000 in startup costs.

Keep in mind that you can deduct some of these expenses under other categories, like professional fees or advertising costs. This helps you maximize your startup expense deduction.

28. Travel expenses

You can write off all business travel expenses on your taxes if a trip is outside of your normal business area, lasts longer than a standard workday, and requires you to rest partway through.

The trip also needs to be essential for your operations and have a set business purpose beforehand—for example, drumming up new business or exploring a possible new service area.

The standard meal deduction rules still apply on business trips, but otherwise you can deduct reasonable expenses for business travel costs like:

  • Plane, train, bus, subway, taxi, and rideshare fares
  • Vehicle fuel, rental, mileage, parking, and tolls
  • Hotel or motel stays
  • Hotel laundry and dry cleaning

29. Utilities

Your business needs power, heat, water, and other utilities to stay up and running. These are 100% tax deductible for an office building that you own or rent.

Have a home office instead? Figure out what percentage of your home is exclusively office space. For example, if your office is 120 square feet of your home’s total 1600 square feet, 7.5% of your home’s square footage is for business purposes.

You can deduct that percentage of your utilities on your taxes. So if you paid $2200 in home utilities last year, $165 of that is tax deductible as a business expense.

30. Vehicle use

Using your vehicle for business purposes is either partly or fully tax deductible, depending on whether you use it for personal reasons, too. You can only deduct expenses for business use, and your commute doesn’t count.

Calculate and deduct your vehicle expenses in one of two ways:

  • Standard mileage rate: Add up the miles you drove for business reasons, then multiply by the standard mileage rate to get your deduction amount.
  • Actual expense method: Add up the cost of fuel, maintenance, parts, registration, insurance, and other expenses for the year. You’ll need lots of detailed receipts to use this method.

Whichever method you choose, you’ll need to track how many miles you drove that year for business reasons. Keep records that include time, place, distance, and the reason for travel.

Are there any business expenses I can’t write off?

Even if it’s associated with your business, there are some expenses that you can’t deduct on your taxes. This varies depending on where you live but often includes:

  • Tickets, penalties, and fines (e.g., parking tickets, bylaw violations)
  • Cost of commuting to and from your office building
  • Political contributions (e.g., lobbying, campaign sponsorship)
  • Personal expenses that aren’t associated with business activities
  • Capital expenses (e.g., vehicles, equipment)
  • Expenses that are illegal, like bribes and under-the-table payment

How do I claim business expenses on my taxes?

Use these tips to claim the year’s business expenses on your taxes: 

  • Fill out a Schedule C tax form (or Schedule E, if your business is a partnership or S corporation) and add up your deductions
  • Keep accurate records throughout the year with detailed notes about each expense
  • Work with a bookkeeper, accountant, or tax advisor when you’re filing your taxes
  • Use our free printable small business tax deductions worksheet to make sure you haven’t forgotten anything

Following these guidelines—and the advice of a financial professional—will help you save money on taxes, keep your business financially healthy, and reduce stress at tax time.

First published June 2016. Last updated December 14, 2022.

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