Small Business Tax Deductions: Unlocking Maximum Tax Benefits for Business Owners
Running a small business is challenging. Long hours, hard work, and constant pressure are par for the course. So you need all the help you can get.
Many owners are totally unaware of the small business tax deductions they're entitled to. Taking advantage of these benefits can be the difference between success and failure. Our business tax write-off checklist will ensure that you leave no stone unturned in your quest to reduce your income taxes.
Maximizing Small Business Tax Deductions in 2023
Being aware of small business tax deductions for 2023 is essential for any business owner. Business tax deductions exist to make income tax a fairer process and ensure that the government taxes owners on what they can reasonably afford to pay.
That's the theory, anyway. Yet, putting it into practice requires understanding which business deductions for small businesses you are eligible for. But first, for anyone who is confused, let's explain what tax benefits for business owners are.
Your annual taxable income is the amount of profit your business makes in a year. A tax deduction — also called a "write-off" — is an expense that you can take off from your taxable income. The result is that you owe the IRS less money, which you can use to reinvest in your business, save, or use for yourself.
Maximizing small business tax deductions can make a massive difference to your business. But of course, not every business expense is tax deductible, so you need a solid business tax write-off checklist to keep you up to date.
A Comprehensive Checklist for Business Tax Deductions.
Here is our comprehensive small business tax deductions checklist for 2023.
#1. Marketing and advertising
Marketing and advertising are critical for revenue generation. They're also 100% tax deductible. Some things covered are print and online media ads, website building, marketing campaigns, and event sponsorship. Customer acquisition costs are rising all the time, so finding a way to reduce these expenses is vital.
#2. Business meals
Wining and dining clients is great for relationship building and winning custom. So keep your receipts, and you can deduct 50% from your taxable income.
#3. Internet and phone bills
Your phone and internet bills make our business tax deduction checklist because they're critical services in the digital age. You can write off 50% of the costs against your tax bill.
#4. Work-related travel
Work-related travel expenses are also tax deductible. However, there are narrow criteria that you can find on the IRS website. In summary, you need to be away from home for over a day, travel from the city your business operates within, and the trip must be strictly business-related.
#5. Work-related car use
Car use and maintenance is one of the best tax benefits for small business owners. It covers mileage and repairs, but only for when you use it for work. This tax-deductible helps with $0.56 for every mile, which is great for traveling salespeople, delivery drivers, and anyone who spends a lot of time on the road.
#6. Office admin supplies
Office admin supplies, including pens, paper, computers, printers, and more, are all eligible business write-offs for 2023. However, you can only deduct them during the year they were purchased.
#7. Asset depreciation
Asset depreciation is typically reserved for high-cost items, like machinery, cars, and real estate. The key thing here is that you spread the deductions over a number of years. For example, if a piece of machinery is useful for 10 years, you can divide the cost by 10, and deduct that amount for the next decade.
#8. Employee salaries and benefits
Salaries and benefits are deductible if you're a small business owner. There are some criteria here; for example, the employee can't be an owner or partner. What's more, you can also write off holiday pay, too.
#9. Professional services
Another essential for our business tax deduction checklist is writing off fees for professional services. Professional services include tax, accountancy, attorneys, and consulting services. Of course, they must be business-related and not personal services.
#10. Business Insurance
Business insurance is one of those things that everyone resents paying until they need it. Thankfully, you can soften the blow by writing this expense off against your earnings.
#11. Educational expenses
Learning and development are important to employees and a great way to ensure you retain and upskill your best workers. You can write off the cost of courses, tuition, seminars, and a whole host of subscription magazines and books.
#12. Business-related entertainment
We already discussed how you can write off business-related meals, but these aren't the only venues where deals are won and lost. You can deduct 50% from most forms of entertainment you treat your clients and prospects to, from golf to the theater to a game.
You can also deduct social events for employees by 100%, which is great news for small business owners who want to build loyalty and teamwork.
#13. Home office
In this era of remote work, lots of people are working at home. So, if you've converted a spare room into an office and you use it regularly, the IRS will allow you to deduct expenses for utilities, repair, insurance, and mortgage interest payments.
#14. Business rents
Of course, there is something for business owners who rent their workspaces, too. The good news is that office premises are 100% deductible, whether that's office space, a shop, or a warehouse space.
Utilities like gas and electricity have gone through the roof in recent years. Thankfully, you can claw a little of those expenses back by writing them off against your taxable income. Electric, water, internet, and more are all 100% tax deductible.
#16. Freelance and contract workers
Freelance and contract labor offer businesses a flexible way to gain access to expertise when they need it. Another big advantage of employing these non-full-time workers is their payments are 100% tax deductible.
#17. Office furniture
Not everyone knows this, but office furniture falls under the category of office supplies. As such, it's a deductible. If you've always wanted a fancy swivel chair, this should be all the encouragement that you need.
#18. Business loan interest
If you have a small business loan taken out with a registered lender, you can deduct the interest payments from your taxes. This would be a fantastic opportunity to reduce the costs of the loan, especially if the terms were a little less favorable than you'd have liked.
#19. Employee gifts
Giving your employees a small gift in recognition of their hard work is a class touch that can go a long way. But there is another benefit, too. As long as the gift is less than $25 in value, it's 100% deductible. However, there is a limit of one gift per employee per year.
#20. Bank fees
Bank fees are one of the best LLC tax write-offs for 2023. You need a business bank account to use these deductibles, which you need anyway to stay protected from debts and lawsuits as a Limited Liability Company.
Bank fees that you can write off against your business income include monthly service charges, credit card charges, transaction fees, overdraft fees, and other annual charges. But remember, this is for strictly business-related accounts.
#21. Moving costs
If you're moving business location, you can deduct the expenses. Moving equipment, furniture, products, and supplies isn't cheap, so writing off these expenses against your taxes is a nice way to save some money.
#22. Charitable contributions
Giving a little back is a wonderful thing. However, donations made to a registered organization can be claimed back on your personal tax return.
#23. Childcare expenses
Childcare expenses are extortionate in many cities. Finding a way to claim back some of these outgoings is one of the most important business tax deductions in 2023 for people with young children. Expenses are limited to $4,000 if you have one child and $8,000 if you have a second.
#24. Startup expenses
Getting your business off the ground costs money. However, because you are investing in your company, these costs get treated as capital expenses.
Claiming this money back is a little more complex than some of the other entries on our business tax deduction checklist. Per the IRS, you can recover these amounts through "depreciation, amortization, or depletion" over the course of a number of years.
#25. Cleaning services
Cleaning services and supplies are also deductible expenses that pass many small business owners by. You can also take advantage of this tax write-off if you have a home office, but it only covers the portion of your space that is used for strictly business purposes.
#26. Bad debt
Business loans, lapsed invoices, and credit sales all qualify as tax deductibles. However, you need to prove that the transaction was not a gift.
#27. Shipping costs
Shipping costs are another tax-deductible that can really help small business owners, especially if you are in the retail sector. The same principle applies to postage, so ensure that you keep receipts to keep your taxes down.
#28. Security system
If you install an office security system, you can also claim it as a business expense. Remote workers can also claim a portion of the costs if they can demonstrate they work from home.
Business expenses keep on rising, making it tough for small businesses to survive. So, before you do your tax returns for this year, look through our small business deductions checklist to see what you can write off.
Q: What are the most overlooked tax deductions for small businesses?
There are lots of tax benefits for business owners that are sadly underused. One of the most useful is business-related software, which qualifies for the 100% tax deduction rate.
The Work Opportunity Tax Credit (WOTC) is another one of the underutilized business write-offs that you should know about because it allows you to deduct the costs of tuition and training materials that help upskill staff.
Finally, the HRA-health reimbursement arrangement helps deduct employees' out-of-pocket healthcare costs, which can make your business more attractive to prospective employees.
Q: How can business owners ensure they're maximizing their tax benefits?
Reading our list of small business tax deductions is a good start. Speaking to a tax specialist is another great idea. Other than that, keeping an eye on the IRS website and reading tax-related small business magazines and websites can help you stay ahead of the curve.
Q: What changes to tax deductions should businesses be aware of in 2023?
Small business tax deductions change every year, and 2023 is no exception. Many of the changes for 2023 were COVID-related, so things like eating out at restaurants changed from 100% back to 50% deductible. Similarly, the Employee Retention Tax Credit finished in 2022.
Bonus depreciation on assets like equipment, machinery, and real estate has dropped from 100% to 80% in 2023. It will continue to drop by 20% during the next few years.
Finally, Electric cars for your business are deductible up to $7,500, while you can claim a 100% tax credit (up to $ 5,000) on the costs of starting a retirement plan for your employees for businesses of 50 people or less.