How to Claim Small Business Expenses and Save on Taxes

Table of Contents

1. Why Claiming Small Business Expenses Matters

As a small business owner, claiming business expenses is essential for reducing your taxable income. By deducting qualifying costs, you can lower your overall tax liability and keep more money in your business.

The IRS allows deductions for ordinary and necessary expenses, meaning they are:

Ordinary: Common and accepted in your industry.
Necessary: Helpful and appropriate for your business operations.

Knowing what expenses you can claim ensures you stay compliant and save as much as possible during tax season.

2. Common Small Business Expenses You Can Claim

1. Office Expenses

Rent or Lease Payments: If you rent office space, the payments are fully deductible.
Utilities: Electricity, water, gas, and internet bills.
Office Supplies: Paper, pens, printer ink, and other day-to-day supplies.
Furniture and Equipment: Desks, chairs, computers, monitors, and other office essentials.

2. Home Office Deduction

If you work from home, you may claim a portion of your home expenses under the home office deduction. The space must be used exclusively and regularly for business.

You can calculate this deduction in two ways:

Simplified Method: $5 per square foot of your home office, up to 300 square feet.
Actual Expenses: Deduct a percentage of your home expenses, including rent/mortgage interest, utilities, and insurance, based on the square footage of your home office.

3. Business Vehicle Expenses

If you use a vehicle for business, you can deduct related expenses using one of these methods:

Standard Mileage Rate: Deduct $0.65 per mile (for tax year 2023).
Actual Expenses: Deduct costs for gas, repairs, insurance, parking, maintenance, and depreciation.

Tip: Keep a detailed log of business miles driven and vehicle-related expenses.

4. Travel Expenses

Business-related travel costs are deductible, including:

Transportation: Flights, train tickets, taxis, car rentals, and mileage.
Lodging: Hotel stays during business trips.
Meals: 50% of the cost of meals consumed while traveling for business.
Miscellaneous: Parking fees, tolls, and tips.

Example: If you travel to a trade show, airfare, hotel, and related costs can be claimed.

5. Marketing and Advertising

You can claim expenses related to promoting your business, including:

Digital Ads: Google Ads, Facebook Ads, and other online campaigns.
Website Costs: Hosting, design fees, domain registration, and maintenance.
Print Advertising: Flyers, brochures, and business cards.
Email Marketing Software: Tools like MailChimp or Constant Contact.
Trade Shows and Events: Booth rentals, promotional materials, and travel costs.

6. Employee and Contractor Costs

You can deduct costs related to employees and contractors, such as:

Employee Wages and Salaries: Payments to full-time and part-time employees.
Independent Contractors: Payments made to freelancers or contractors (file Form 1099-NEC).
Payroll Taxes: Social Security, Medicare, and unemployment taxes paid for employees.
Employee Benefits: Health insurance, retirement contributions, and education programs.

7. Professional Services

Fees for professional services necessary for your business are fully deductible, including:

Legal Fees: Costs for hiring an attorney for business purposes.
Accounting and Bookkeeping: Fees paid to accountants or financial advisors.
Consulting Services: Business coaching or consulting fees.

8. Education and Training

Expenses for improving your skills or growing your business are deductible, such as:

Online Courses: Training platforms like Udemy or Coursera.
Conferences and Workshops: Attendance fees and related travel expenses.
Trade Publications: Subscriptions to industry-specific journals or magazines.

9. Business Insurance

Premiums for insurance policies related to your business are deductible, including:

General liability insurance.
Workers’ compensation insurance.
Property insurance.
Business interruption insurance.

10. Software and Technology

You can deduct expenses for technology and software necessary for business operations, such as:

Accounting Software: QuickBooks, Xero, or FreshBooks.
Project Management Tools: Asana, Trello, or Monday.com.
Cloud Storage: Dropbox, Google Drive, or iCloud.
Communication Tools: Zoom, Slack, or Microsoft Teams.

11. Taxes and Licenses

You can claim the following taxes and fees as business expenses:

Business licenses and permits.
State or local taxes directly related to business operations.
Sales tax paid on business purchases.
Property taxes for business-owned real estate.

12. Depreciation of Business Assets

If you purchase equipment, machinery, or vehicles for your business, you can claim depreciation over time. Alternatively, you can use the Section 179 deduction to deduct the full cost of qualifying equipment in the year you purchase it.

Examples of Depreciable Assets:

Computers and office furniture.
Vehicles used for business.
Large machinery or tools.

3. Expenses You Cannot Claim

Not all expenses are deductible. Avoid claiming:

Personal expenses: Only business-related costs are allowed.
Entertainment costs: Client entertainment is no longer deductible.
Fines or Penalties: Fees imposed by law (e.g., parking tickets).
Unreasonable expenses: Luxury purchases unrelated to business.

4. How to Keep Track of Small Business Expenses

Accurate record-keeping is essential for claiming deductions. Follow these tips:

Separate Business and Personal Finances: Use a business bank account and credit card.
Save Receipts and Invoices: Keep digital or physical copies of all expense records.
Use Accounting Software: Tools like QuickBooks, FreshBooks, or Wave can help track expenses automatically.
Maintain a Mileage Log: Record all business-related vehicle use.
Stay Organized: Categorize expenses to match IRS guidelines for easier tax preparation.

5. Conclusion

As a small business owner, you can claim a wide range of expenses to reduce your taxable income and save money during tax season. Deductible expenses include office costs, vehicle use, marketing, travel, professional services, and employee wages. By keeping accurate records and understanding what expenses qualify, you can maximize your deductions and improve your bottom line.

Martin taggart