6 Tax Deductions To Consider As A Small Business Owner

Q: Dear Ruchi, this is my first year running my own business and I am a little nervous heading into tax season. I’ve been organized with my business expenses but still worry about missing things. I’ve heard from my colleagues that there are a lot more deductions I can take since I work from a home office. What are some things I might be missing?

A: Congrats on your first year in business! That alone is something to celebrate. Now let's keep that good energy as we flow into tax season. Since you are organized you are already one step ahead of the game. Now, it’s just a matter of checking for extra deductions you may have missed. Here are a few things to look at that may help you get a clearer picture of potential tax saving opportunities.

Home Office Deduction

Are you a work-from-home warrior? Good news, if you have a workspace there where you exclusively carry out your business, you can claim a home office deduction! In that case, you may qualify to receive a deduction for a portion of your rent/mortgage, utilities, taxes, and other expenses related to the maintenance of your home. 

Legal & Professional Services

If you have invested in other professionals to help you with your business such as an accountant, bookkeeper, lawyer, coach, etc. you can deduct the cost of those services if the fees relate to your business. Also, when using a tax preparer, you should have them break out the fee related to the preparation of your personal return separate from your Schedule C so that you can deduct a portion of the fee for your business.

Insurance

Yes, even insurance! As a self-employed taxpayer, you may deduct health insurance premiums for both you and your family. However, you must have made a net profit to claim a deduction. Keep in mind that you can only deduct the premiums during the months in which you were not eligible for an employer-sponsored plan. For example, if you left a job in September and began paying for your own insurance the following month, you can only deduct the costs for the final three months of the year.

Professional Development & Association Fees

Investments pay off! You can deduct any professional development costs that help improve your business. For example, a graphic designer who takes a course in Photoshop can deduct the expense of the class, including the cost of the course itself, books or other materials, and transportation to/from the class. This does not include courses that help you change professions, only things that apply to your current career path. If you are a member of a professional association, those fees are deductible too!

Business Meals & Travel

Have you been picking up tabs for client dinners or meetings? Though these add up quickly, you can deduct up to 50% of your total costs as long as the meal is clearly business-related. You can also deduct the costs when traveling. If you spend three days in Miami meeting with clients, the costs of travel, lodging, meals (up to 50%), parking fees, and more are deductible. For any business expense, make sure you keep your receipts, not only to help you or your tax preparer but also to provide documentation in the event that you are audited. But not to worry, there are plenty of smartphone apps that can help you and even allow you to take photos of your receipts to efficiently categorize them.

(Note that for 2021 and 2022, 100% of business meals are deductible if paid to restaurants).

Tech & Office Supplies

Did you buy a new laptop this year? How about a new desk? Or maybe you sell art and purchased new paints or canvases? How about shipping costs, postage, or printing expenses? These are all tax deductions! Similar to professional development, anything you use to perform, improve, or provide your product or service counts as a deduction.

As a final check, even if you have separated personal and business finances you should still take a peek at personal expenses to make sure nothing business-related slipped through. Whether it be software, publications, office items, etc. you want to include everything you can. This is a common and simple way to find additional deductions!

If you have any questions don’t hesitate to reach out!

Here’s to your prosperity!

-Ruchi