Running a small business is no easy feat, but when tax time comes around, knowing which deductions you’re entitled to can make a huge difference in your bottom line. Whether you’re a freelancer, LLC owner, or S corporation, taking advantage of these deductions can significantly reduce your taxable income

In this blog, I will break down the most important small-business tax deductions, explain how they work, and guide you through the proper claim process, helping you keep more of your hard-earned money.

What Is a Tax Deduction?

A tax deduction is a business-related expense that you can subtract from your income to lower your total taxable income. The IRS allows you to deduct any expense that is ordinary and necessary for running your business. These deductions are outlined in IRS Publication 535 and are subject to specific rules, especially for mixed-use items like your home office or vehicle.

Read more about pre-tax deductions and contributions

Top Small-Business Tax Deductions You Shouldn’t Miss

1. Home Office Deduction

If you use part of your home exclusively and regularly for business, you may be able to deduct associated costs. You can deduct rent or mortgage interest, utilities (including electricity and internet), property taxes, depreciation, repairs, and maintenance.

2. Business Use of Your Vehicle

If you use your car for business, you can deduct expenses related to that use. There are two options: Standard Mileage Rate: 67 cents per mile for business miles in 2024. Actual Expense Method: Deduct a percentage of gas, repairs, insurance, and depreciation.

3. Startup Costs

You can deduct up to $5,000 in startup expenses and $5,000 in organizational costs (for LLCs, S Corps, etc.) in your first year. These include market research, legal fees, business licenses, and consultant or CPA fees

4. Rent and Utilities

If you lease office space or a co-working space, you can deduct the rent. Similarly, you can deduct electricity, water, internet, phone, and trash collection. These must be for your business location, not personal use.

5. Depreciation of Assets

Large purchases like equipment, computers, and furniture can’t always be deducted in full in the year you buy them. Instead, they may need to be depreciated over time. Use Section 179 to deduct up to $1,220,000 of qualifying assets in 2024. Bonus depreciation (80% in 2024, phasing out to 60% in 2025) also applies.

6. Salaries and Wages

If you hire employees, you can deduct wages and salaries, bonuses and commissions, employer-paid benefits (health insurance, retirement plans), and the employer portion of payroll taxes (Social Security, Medicare). Please note that owners’ salaries in S Corps are deductible, but distributions are not.

7. Contractor Payments (Form 1099-NEC)

Paying freelancers or independent contractors? You can deduct their fees, but you must issue a 1099-NEC if you paid them $600 or more in a year. Make sure to collect Form W-9 before payment.

8. Office Supplies and Expenses

You can deduct things like paper, pens, ink, computers, software, postage and shipping, and cleaning supplies. Keep receipts and document business purposes.

9. Professional Services

This includes fees paid to CPAs and accountants, lawyers, consultants, bookkeepers, and marketing agencies. All are fully deductible as long as they’re business-related.

10. Marketing and Advertising

You can deduct website hosting and design, online ads (Google Ads, Facebook), print marketing (flyers, signs), and sponsorships (if they promote your business)

11. Travel and Meals

Business travel expenses are fully deductible if they are ordinary and necessary, including Flights, Lodging, Transportation (Uber, rental cars), and 50% of business meals. Entertainment is not deductible after the 2017 Tax Cuts and Jobs Act.

12. Education and Training

Expenses related to improving your business skills can be deducted, such as online courses, Workshops, Trade publications, and Certifications. This applies only if the education is directly related to your existing business.

13. Insurance Premiums

Deductible business-related insurance includes general liability, business property, workers’ compensation, cybersecurity, and professional liability (E&O). Sole proprietors may also deduct health insurance premiums (self-employed health insurance deduction) if not covered elsewhere.

14. Bad Debts

If someone doesn’t pay you and you’ve already counted that income, you may be able to write it off as bad debt (more common in accrual accounting).

Conclusion

Taking advantage of small-business tax deductions is one of the smartest ways to improve your financial health. Don’t wait until tax season; start organizing your records now. Better yet, consult with a CPA who understands your industry and structure.

At SK Financial CPA, we specialize in helping small businesses like yours get every deduction you deserve. Reach out today and let’s make tax season your most profitable yet.