Checklist for Small Business Tax Deductions

It is true that business owners enjoy some tax savings compared to employees so here is the checklist for small business tax deductions. However, most of the time, business owners do not fully benefit from all the tax deductions to which they are legally entitled. Why? Because business owners often don’t know what deductions they can make! It is never too late to come up with some tax saving strategies. Since deducting expenses from your income reduces your tax bill, it’s important to make sure you have everything you are legally entitled to! Use the following checklist as a guide to ensure you capture all of your business expenses and minimize your tax bill.

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Checklist for Small Business Tax Deductions 1

What exactly is a tax deduction?

A tax deduction (or “tax write-off”) is an expense that you can deduct from your taxable income. You take the amount of the expense and subtract it from your taxable income. Essentially, a tax write-off allows you to pay a smaller tax bill. But the cost must meet the IRS tax deduction criteria.


11 Main tax deductions for small businesses

1. Advertising

The routine advertising and promotional marketing costs associated with your business are fully tax deductible. The cost of advertising and promotion is 100 percent deductible, including things like the cost of printing business cards.

  • This cost can be claimed by individual owners and single-member LLCs on Form 1040, Schedule C.
  • Multi-member associations and LLCs can claim this expense online 20, Form 1065.

2. Car and truck costs

Most small businesses use a vehicle, such as a car, truck, or van, to transport and deliver. The operating cost of the business vehicle is deductible if:

  • Contains the records necessary to prove commercial use, cost (for example, gasoline, oil changes, mileage, etc.)
  • Or use the IRS standard mileage rate of 54.5 cents per mile in 2019 instead of deducting your actual expenses.

3. Charitable contributions

You can deduct charitable contributions made to qualified organizations.

  • Individual companies, single-member LLCs, partnerships and S corporations deduct these costs on your personal tax return
  • Corporations deduct them on their corporate tax return.
  • Use Schedule A (Form 1040) to claim charitable contributions.


4. Employment contract, Commissions

Freelancers and independent contractors can keep their check lines moving during the holidays or create new marketing materials for their store. These are fully deductible and require you to issue Form 1099-MISC to any contractor who receives $ 600 or more from you during the fiscal year. Note: Commissions paid to purchase real estate are not deductible; they are added to the property base and are generally acquired through depreciation.

5. Depreciation

The depreciation deduction is an allowance on the cost of buying real estate or equipment for your business. The section 179 deduction applies to equipment purchases of up to ($ 1 million in 2019). Other limitations may also apply. The depreciation category includes another type of amortization in the year in which expenses are paid or incurred.

6. Education

Education costs are fully deductible as long as they add value to your business and increase your experience. And Education expenses for a new occupation, or costs associated with education outside of your current business area do not qualify as business tax deductions. To find out if your class or workshop qualifies, the IRS looks at whether the cost fosters or improves the skills necessary in your current business. This may include:

  • Books adapted to your industry.
  • Classes and seminars to improve skills in your field.
  • Donations or professional publications related to their trade.
  • Transportation expenses to and from classes.
  • Workshops to increase your experience and skills in your current business


7. Qualified Employee Benefit Programs and Retirement Plans

The cost of employee benefit programs, such as educational assistance and dependent care assistance, as well as contributions to qualified employee retirement plan accounts, are deductible. For self-employed people, Form 1040 is considered personal deductions to claim contributions to their own qualified retirement plan accounts.


8. Home Office

Personal costs directly related to the percentage of a home used regularly and exclusively as a primary place of business are deductible. The deduction includes direct costs (painting, cleaning) and indirect costs (rent, mortgage interest, and property taxes) for the percentage of residence used for business. This may include a Form 5695 to require improvements in energy efficiency.

9. Insurance

Insurance costs for your business owner’s policy, real estate liability, flood insurance, malpractice coverage, cyber liability coverage and business continuity insurance are fully tax deductible. However, there are two rules to keep in mind regarding health insurance coverage. As a better tax exemption than a tax deduction, small businesses may qualify for tax credits of up to 50 percent of the premiums paid by employees. On the other hand, the cost of health insurance for freelancers and corporate shareholders is deducted by more than 2 percent on the owner’s personal tax return rather than as a business deduction.

10. Interest on corporate debt

Interest on commercial loans is generally fully deductible as business expenses (for example, commercial construction interest line of credit). However, companies with average annual income in the previous three years have a limited interest deductible percentage of more than $ 25 million. Also, the interest of business owners in taking loans is different from buying their business. You must distinguish a commercial interest from the owner’s investment interest or a passive activity interest, which is not a commercial deduction.

11. Health care costs

As a self-employed person, paying for your own health insurance allows you to deduct all of your health, dental and long-term insurance premiums. You can also deduct the cost of the premiums you pay for your spouse or dependents. In addition to insurance premiums, you can deduct medical expenses, such as medical fees, the cost of prescription drugs, and inpatient or hospital care. However, if you have the right to participate in your spouse’s employer plan, you cannot choose a plan that you choose to pay.


Before you go, I hope this article checklist for small business tax deductions is helpful for you.


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