The Ultimate Small Business Tax Deductions Checklist

Taxes are an undeniable reality that small business owners have to come to terms with each year. But with the help of a small business tax deductions checklist, you can find the deductions that keep more of your hard-earned money where it belongs—in your pocket. No matter what small business you run, there are tax deductions to claim. But keeping on top of them can be one more thankless task that keeps you from growing your business. That's why we’ve pulled together a comprehensive checklist of all the small business tax deductions so you can make the biggest impact on your federal income tax return.

What are small business tax deductions?

A tax deduction for small businesses is a business expense that can be claimed as a deduction on your federal income tax return. Tax deductions, sometimes called “write-offs,” lower the amount your business will be assessed for taxes.

How do you know what’s considered a tax write-off for small businesses?

The IRS has very clear criteria for what’s considered a tax write-off—and what isn’t. Generally speaking, write-offs are business expenses on your company’s income statement. The IRS has laid out some exceptions. Most business expenses are fully or partially deductible. Small business owners need to claim as many business expenses as possible to decrease the taxes they’ll need to pay. You must run a for-profit business to claim tax deductions—if you run a non-profit or a hobby business that isn’t run to make money, you can’t make deductions for tax purposes.

How do you write off business expenses?

The first step to writing off your business expenses is to track them—whether you use a third-party app or an Excel spreadsheet, you should document all your expenses. Once you’ve set up tracking your expenses, follow these three steps to reduce your small business taxes.

1. Categorize all your expenses.

The first step is determining which expenses qualify for deduction and which don’t. You need to understand what expenses can be written off for your business. A dedicated credit card and business bank account make categorizing your expenses easier. Remember that not everything can be fully deducted—some expenses only qualify for a partial deduction. For example, you can’t deduct all the gas purchases you make for a vehicle you use personally, but you can deduct the standard mileage rate per mile when the car is used for business. Once you’ve determined which expenses qualify for a deduction (full or partial), you’re ready to move on to the next step.

2. Add up your expenses.

With your expenses categorized, it's time to find out their amounts. If you’re using accounting software like Wave or FreshBooks, it should run the numbers for you. But if you’re using an Excel spreadsheet or good old-fashioned receipts, carve out some extra time to add up the expenses yourself.

3. Add the total to Schedule C.

Once you’ve added up your expenses, you’ll list the totals on the itemized deductions on Schedule C (Form 1040). This form can be used to file personal income taxes, whether employed, self-employed, or running a business as a sole proprietor or LLC. If your business is structured as a corporation, you’ll need to file a corporate tax return. To get the most out of your small business deductions, consult a professional like a CPA or tax specialist. Knowing how to write off business expenses is their full time job, so they'll figure out what deductions are available and how they apply to your business.

The comprehensive small business tax deduction checklist.

Now that we’ve filled you in on all the need-to-know info about small business write-offs, it’s time to get into the good stuff: what’s actually tax deductible for your small business? Some business deductions are partial, while others can comprise 100% of your expenses up to a specific limit. This comprehensive list will help you categorize expenses and get the most from deductions.

1. Business startup cost deduction.

Did you start your business this year? Then, you can deduct 100% of your startup expenses, up to $5,000. The cost must be a normal deduction that other established businesses would incur to qualify as a startup expense. But, as a startup cost, these expenses happened before you officially started operating your business. There are a lot of expenses that may qualify for this deduction, including:

• Building your website
• Running an advertising or marketing campaign
• Working with a business coach or consultant
• Attending trainings in your industry

2. Qualified business income deduction.

Some small businesses can deduct up to 20% of their qualified business income (QBI) from their taxes. The IRS defines qualified business income as “the net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business.” In more general terms, it refers to your business’s net profit. It also excludes some types of business income, including:

• Capital gains or losses
• Dividends
• Interest income
• Income earned outside the U.S.
• Certain wage and guaranteed payments made to partners and shareholders

To qualify for the QBI deduction, you must be a sole proprietorship, partnership, S corporation, or limited liability company (LLC).

3. Business vehicle or business use of car tax deduction.

Business vehicles are a tax write-off. But things get a bit more tricky if you use your personal vehicle for business purposes. If a vehicle is used solely for business and never for personal use, you can deduct 100% of the cost of operating and maintaining the vehicle. Any expense related to the vehicle—gas, maintenance, repairs, insurance, registration fees, lease payments, tolls, and more—can be deducted. But if your business vehicle doubles as your personal vehicle, you can only deduct the amount relating to your business expenses. There are two ways to calculate your vehicle tax deduction:

1. Actual expenses: You need to keep track of your actual vehicle costs, such as gas, oil, maintenance and repairs, insurance, registration fees, and lease payments or depreciation.
2. Standard mileage rate: If you choose to use the standard mileage rate, multiply your miles driven by the IRS mileage rate, which is set annually.

4. Office space.

Your monthly payments can be deducted from your taxable income if your business rents office or retail space. It’s important to note that this has to be a physical space outside your home—if you run your business from home, you’ll need to claim the home office deduction instead. The home office deduction allows you to deduct $5 per square foot of space used as a home office, up to 300 square feet for a maximum deduction of $1,500. The deduction includes all associated costs such as heat, Wi-Fi, and electricity, so they cannot be claimed separately. To qualify for the home office deduction, you must meet the following requirements:

1. The workspace has defined boundaries
2. You use the workspace consistently
3. You must engage in business from your home workspace

5. Charitable donations.

When you donate to qualifying charities, you can use that amount as a tax deduction. The IRS sets limits on how much you can deduct. Additionally, sole proprietors, partnerships, and LLC owners must claim charitable donations on their personal income tax returns.

6. Office supplies.

Every business has a list of things that keep it running smoothly. Whether it’s pens and paper or computer software and highlighters, you can write off the cost of office supplies from your taxes.

7. Depreciation.

Depreciation is a tax deduction that lets you spread the cost of an asset over a fixed number of years. Examples of depreciating business assets include:

• Real estate (if you own commercial real estate for your business)
• Machinery
• Business use vehicles
• Office furniture and appliances
• Computers and other electronic equipment

As of 2024, small business owners can deduct a maximum of $1,220,000 in depreciation for qualifying assets. There are restrictions on claiming depreciation—computers and cars, for example, must be written off over five years. In contrast, furniture and appliances must be written off over seven years.

8. Legal and professional fees.

Did you work with a lawyer, accountant, or bookkeeper this year? That’s a tax write-off as long as the professional services provided are relevant to your business.

9. Advertising and marketing.

Advertising and marketing expenses are tax deductible if they are ordinary and necessary for your business. You can write off 100% of your marketing and advertising expenses for the table year up to a maximum of $5,000. Running digital or print ads, hiring a social media manager, and working with freelance copywriters to write blog posts are all business expenses.

10. Employee wages and benefits.

If you have employees, you can deduct the cost of their wages and benefits. This only applies to businesses that employ someone other than themselves—sole proprietors, partners, and LLC members are not eligible. You can also deduct an employee’s paid time off, commission/bonuses, and employment taxes related to payroll.

11. Bad debts.

A bad debt happens when someone owes you money, but there is no way for you to collect it. It becomes worthless because you’ll never recoup that money. For example, a customer buys a $700 item from your store using store credit. But after repeatedly invoicing the customer with no response, their debt becomes bad. If you have bad debt included in your gross income, it can be claimed as a tax write-off to lower your business’s tax liability.

12. Education and training.

Did you hit the books this year or attend training related to your business? You can write off the costs. Work-related educational expenses are tax-deductible for business owners if they meet the following criteria:

• The program improves or maintains the skills you need for your current job
• You are legally required to take the course to keep your job or salary
• The program won’t help you learn skills for a new trade or business

If you’re unsure if your continuing education expenses are covered, speak with a tax specialist or CPA. But some of the tax-deductible costs include:

• Seminars and webinars that apply to your business
• Subscriptions to professional publications if they’re relevant to your business
• Classes and workshops in your field (in-person and online)

13. Insurance premiums.

You can deduct the premiums depending on the type of insurance you have for your business. They must be considered “ordinary and necessary” and used specifically for your business. There is no limit to the amount you can deduct from your tax bill. If you have any of the following insurance policies, you may be able to write off the premiums:

• Health insurance
• Workers’ compensation insurance
• Life insurance
• Liability insurance
• Unemployment insurance

14. Interest on business loans and credit cards.

If you have a small business loan from a financial institution, payments against the loan’s principle aren’t tax deductible. However, there is a chance that you can write off the interest you pay on the loan or a business credit card. You’ll need to show that the funds were used for your business and provide proof of repayment to claim the interest on your business loan.

15. Business meals.

For many businesses, client meals or employee lunches are semi-regular events. It’s easy to assume you can write off the whole meal whenever you’re out with clients or team members. The reality is that the meal needs to be work-related. So, grabbing lunch with your team while you discuss the latest episode of The Bachelor is not a deductible expense—unless you work on The Bachelor, of course. If you’re claiming the business dining tax deduction, keep a log of:

• The price of the meal
• The date and location
• Who was there, and the business relationship

16. Telephone and internet expenses.

You can deduct the cost of your internet and cell phone plan from your federal tax return. To qualify, your phone and internet must be essential to your business’s ability to operate. Additionally, if your phone and internet are used for personal purposes, you can only deduct the percentage of the cost used to conduct your business.

17. Inventory.

If you run an inventory-based business, you can deduct the cost of your inventory from your taxes. Be sure to value inventory at the beginning and end of each tax year to determine the cost of goods sold. Keep track of the following types of expenses to make sure you’re able to figure out the cost of goods sold each year:

• The cost of products or raw materials
• Freight costs
• Labor costs for workers who produce the products
• Factory overhead costs

18. Banking fees.

All small businesses should have a dedicated business bank account. If your bank charges monthly service fees, overdraft fees, or wire transfer fees, you can deduct those costs from your taxes. Additionally, you can deduct the fees of a third-party payment processor, like Square or Wise. You can’t deduct bank fees only if you’re using your personal bank account. So, any profit deposited into your personal account isn’t eligible for the deduction—another reason to get a business bank account.

19. Independent contractors.

Does your business work with independent contractors and freelancers? If you do, the money you pay them counts as a deductible as long as:

• The contractor is not an employee of your business
• The services provided are for the business, not the business owner personally

It’s also important to remember that you must send all freelancers and contractors a Form 1099-NEC if you pay them more than $600 during the tax year. Failure to do so can result in a fine from the IRS.

20. Retirement plan contributions.

Most small business owners make 100% of their retirement plan contributions. Thankfully, the IRS recognizes that you’re doing this and allows you to write off contributions from your income taxes for one of the following accounts:

• Roth IRA
• Traditional IRA
• Keogh plan
• Solo 401(k)

21. Business travel.

Business trips can be a complicated process when it comes to tax deductions. Simply put, the business expenses on a trip are tax deductible. The IRS has strict rules about who can claim this deduction—to qualify, your trip must meet the following criteria:

• The trip was overnight
• You traveled at least 100 miles from home
• The expenses must be ordinary and necessary

It’s essential to keep a record of all expenses from your trip. When you file your taxes, you’ll need all your receipts. Keep everything, but be sure to keep all receipts related to:

• Airfare
• Train tickets
• Taxis and rideshares
• Hotels and Airbnbs
• Shipping items (for a trade show, for example)

Download your free small business tax deductions checklist (PDF).

Tax deductions are essential for small businesses to minimize the taxes they must pay. Keeping track of your expenses will help you maximize your return and keep the IRS happy if they decide to swing by for an audit. This small business deductions checklist will help you keep track of the tax write offs for small business owners to claim each fiscal year: Small business tax deductions checklist. Looking to get more than just your tax deductions managed for your small business? Homebase can help you manage the important—but sometimes tedious—business tasks, like scheduling, payroll, and compliance—in half the time it usually takes. Get your team in sync with our easy-to-use, all-in-one app to manage your hourly team. Get started for free with Homebase.