As a small business owner, you want to find the best ways to reduce your taxes and hold onto more of your hard-earned money. 

One surefire way to do that is by making sure you’re taking advantage of all the tax deductions your business qualifies for. But with so many different deductions out there for small business owners, it can be tough to know where to start.

But the tricky part is that there’s a lot of deductions, and only some businesses are eligible for certain ones while others aren’t.

Keep reading as we break down the top 10 most important tax deductions every small business owner needs to know and the requirements you need to meet.

1. Home Office Deduction

If you work from home and use part of your home exclusively for business purposes, you can deduct some of your housing expenses. There are 2 methods to do this:

1. Simplified Method: This is the easier way, and it allows you to deduct a maximum of $1,500. So, if your home office expenses are less than that, you can simply deduct the actual amount you spent.
2. Regular Method: If your home office expenses are more than $1,500, or if you prefer a more detailed approach, you can use the regular method. With this method, you can deduct specific expenses related to your home office, like rent or mortgage interest, property tax, insurance, and utilities.

The Catch

• Your home office must be used exclusively for work. You can’t use it for personal purposes.
• It should be the primary place where you conduct your business activities. In other words, it’s where you mainly work.

So, if you meet these criteria and use your home as your main work base, you might be able to reduce your taxes by deducting some of your home office expenses.

2. Rent or Lease Payments

If you’re renting a space for your business or leasing things like vehicles, the good news is that you can deduct these payments. 

The “Augusta Rule”

It’s a “secret” strategy to minimize your taxable income, where your business can personally pay you for using your house for work-related stuff. 

The Catch

Your home can’t be your main place of business. So, if you occasionally use your house for business meetings or events, your business can pay you rent for that, and it’s a legit business expense. Plus, it’s not taxed on your end.

To make the most of this, it’s a good idea to work with a tax expert or strategist, someone who really knows the ins and outs of tax rules. And, of course, keep records of all your payments and expenses related to this – it’ll help you stay on the right side of the tax laws.

3. Business Use Of Your Car 

If you use your car for work/business reasons, you can deduct some of the expenses. There are 2 ways to get a tax break on the expenses related to your vehicle.

1.  Mileage Method: This is the simpler option. You keep track of how many miles you drive for work, and then you can deduct a specific amount for each mile. It doesn’t matter whether you own the car or are leasing it, you can still use this method.
2. Actual Expenses Method: This one’s a bit more complex. With this method, you can deduct the actual costs you incur for your vehicle, such as the cost of the car itself (yes, even if you’re making payments on it!), insurance, registration, gas, repairs, and maintenance.

The Catch 

To get this deduction, you need to be able to prove how much of your car usage is for business versus personal use. 

To do this, you have to keep a record of your personal mileage (like trips to the grocery store or visiting friends) and your business mileage (like driving to meetings or deliveries). Then, you can deduct a percentage of the expenses based on the business use.

So, whether you’re keeping it simple with the mileage method or getting into the nitty-gritty with actual expenses, using your car for business can help you save on your taxes. Just make sure to keep good records!

4. Travel Expenses

If you travel for business reasons and more than half of your trips are work-related, you can get some tax benefits.

This includes expenses like airfare, where you stay (lodging), what you eat (meals), and how you get around (transportation). 

The Catch

These expenses must be directly related to your business. In other words, they should be things you wouldn’t be spending on personally. So, no sneaking in your personal vacation costs!

5. Employee Wages And Benefits

Hiring employees is great for your business, and guess what? You can deduct their wages and benefits, which can save you some cash. 

The Catch 

Many business owners get worried about the extra costs that come with hiring employees. 

Things like salaries, benefits, and taxes can add up. But, there’s a silver lining. The extra taxes you pay when you hire employees, like Medicare and social security taxes, can be cut in half.

These taxes you’re paying on their wages count as a business deduction. It means you can subtract them from your total income, which lowers the amount of money you have to pay taxes on.

But it gets even better! You can also deduct other employee-related expenses like health insurance premiums, contributions to retirement plans, and even fun stuff like team meetings and parties. 

These are known as fringe benefits, and they can also help reduce your taxable income.

6. Professional Services 

Did you happen to need the services of a lawyer, accountant, and other consultant to help you with your business? 

The good news is that you can actually deduct these fees as business expenses. 

The Catch 

You don’t want to skimp on good advice by trying to cut corners by hiring the cheapest professionals. 

Lawyers and accountants, for example, can be super valuable because they can save you more money in taxes than what you pay them. 

But if you hire someone who’s not up-to-date with the latest tax rules, they might miss out on some savings.

So, make sure the fees you are deducting are directly related to your business, not your personal stuff. For example, if you hire a lawyer to handle a legal issue in your business, that’s deductible. 

But if you hire a lawyer for a personal matter, like a divorce or writing your will, that’s not deductible.

7. Office Supplies And Equipment

This one’s a bit more straightforward. If you’re buying new equipment for your office, like computers, printers, or even fun stuff like plants, colorful markers, fancy journals, and a giraffe (just kidding), you can deduct the cost.

Basically, anything that helps you run your business and isn’t for personal use can be written off. 

The Catch 

Just remember, keep your receipts and records to prove what you spent.

8. Depreciation 

This is how you deal with the loss of value over time on assets like machinery and equipment in your business. 

The Catch

If you own these assets (like, let’s say, a big fancy printer or computer), you can’t just write off their entire cost in one go if they’re worth more than $2,500. You have to do it little by little.

Deducting depreciation is like spreading the cost of these assets over several years. This helps you recover the money you spent on them gradually, which can be easier on your business’s wallet.

Now, here’s where it gets interesting. There are some special tax rules, like “Bonus depreciation” and “Section 179 depreciation,” which can be super helpful and they might even save you a lot on taxes. 

But, it’s essential that your accountant knows all about these rules and applies them correctly when doing your taxes. 

9. Advertising And Marketing

As a small business owner, you’ve probably spent money on some form of marketing. This can include things like designing your website, running ads, or making promotional items. 

And don’t forget about Social Media, because everybody and their grandma uses it nowadays  and a lot of people use it for marketing too. 

So, if you’re paying for things like hiring a photographer or videographer, an editor, buying or renting equipment,  and renting cool spaces for photoshoots, those costs are considered business expenses. You can deduct them to lower your taxable income.

10. Insurance

Good ‘ole reliable. Just like you have insurance for your car or your home, you need to have it for your business too. 

Now, the good news is that the money you spend on these insurance premiums can actually help you when it comes to taxes.

Here’s how it works – You can deduct, which means subtract, the cost of these insurance premiums from your business income when you’re calculating how much you owe in taxes. 

Now, the types of insurance we’re talking about can vary, like liability insurance to cover accidents, property insurance for your business space, health insurance for your employees, vehicle insurance if you use cars for your business, and worker’s compensation to help employees if they get injured on the job. 

If you have any of these types of insurance, they can help lower your overall tax bill. It’s a win-win for staying protected and saving some money!

The Bottom Line

These 10 tax deductions will help you minimize your tax bill leaving you with more money, which you can then invest into your business’s growth. 

But you need to keep really good records of all your business expenses and income because you need to be able to show proof when you claim these deductions. 

And to make sure you’re eligible for them, make sure you follow the rules in the tax code. 

If things get confusing, don’t hesitate to contact us, so we can help you navigate through it all. If you ever have questions or are unsure about which deductions you can use, shoot us a message.