What Expenses Can Small Businesses Write Off?

Owning and operating your own business involves a different set of challenges than working for someone else as an employee. You need to plan your own schedule, be consistent with marketing to bring in sales, and purchase health, life, and other forms of insurance on your own. Another area where a small businessperson is responsible is paying taxes.

As an independent contractor or small business, you need to make sure you are compliant with all federal, state, and local tax laws. In addition, don’t forget Social Security and Medicare, which you are responsible to pay the entire amount instead of half when you are employed by someone else. The tax burden for small businesses can be substantial. However, there is good news; many of the expenses you incur on a daily basis can be used as deductions against your taxable income thus lowering your tax liability at the end of the year.

Deductible Expenses: Small businesses can deduct expenses in several areas including:

  1. Startup Costs/Capital Expenses: Expenses associated with getting your business up and running can generally be deducted against your taxable income. This may include renovating a retail outlet, furniture, equipment, computers, wiring a communication network, initial advertising, etc. Currently, the IRS allows you to deduct $5,000 in capital expenses your first year and the same amount for each additional year (up to 15 years) or until the start up costs are reimbursed.
  2. Business Use of Automobile: Keep track of every mile driven that is business-related in a mileage logbook. As of 2013, the IRS allows you to deduct 56.5 cents for each mile driven for business use. You may also deduct parking fees and tolls paid during business travel.
  3. Travel/Entertainment: Business travel such as airplane tickets and hotel rooms are fully deductible. Meals and entertainment such as golf outings are 50% deductible. Keep accurate records of these outings to give to your accountant.
  4. Training/Education: The cost of continuing education and certifications related to your business are deductible. However, the cost of education not related to your business cannot be deducted.
  5. Marketing/Advertising: You may deduct the cost of advertising but there are some restrictions. For example, if you are running a multi-year marketing campaign but paid the entire fee up front, you must pro-rate the expenses for the number of years the campaign is in effect.
  6. Home Office: If you truly do business out of your home, you may qualify for a home office deduction. However, you must have a room dedicated exclusively to your business. If so, you may deduct a portion of your rent, utilities, taxes, insurance, etc. based on the percentage of the home that is used to conduct business.
  7. Communication: If you have Internet service and a dedicated phone line (or cell phone) for your business, this is a deductible business expense.
  8. Interest: If you took out a loan to finance any part of your business, the interest on the loan is fully deductible.
  9. Insurance: Insurance premiums for business insurance coverage during that tax year can be deducted.
  10. Professional Fees: Legal fees, tax preparation fees, business consulting, and any other professional fees you incur while operating your business are deductible.

These are some of the most common deductible expenses that a small business may incur in the course of operation. As always, it is best to speak with a tax professional to find out which expenses may apply to your particular business.

Scroll to Top