20 Small Business Write Offs

As a small business owner, you are your business, and unlike an employee, you can deduct, or “write off,” a lot of your business-related expenses from your taxes. A tax write-off is not a subtraction directly from your tax bill; it is a legitimate, provable business expense that can legally be deducted from your taxable income, such that your calculated tax bill decreases.

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Tax write-offs can get complicated because the rules governing how much you can deduct from each category are idiosyncratic and change often. You are obligated to learn and follow them as you prepare your tax return. There are many categories of expenses that you can legally deduct—but the trick is, you have to know about them and document your expenditures. Let’s explore some of those categories. 

Office Space

If you’ve spent the pandemic freelancing from what used to be a guest bedroom in your house, we have good news: you can deduct five dollars per square foot of your home that you’re using as a work space (up to a max of 300 square feet, so you can’t claim your whole yard). The catch is that the workspace has to be a dedicated office—so, if you work from your living room, that doesn’t count. But if your spare closet/former guestroom/weird bonus room/pantry-turned-office is only used for working, and it’s your primary workspace, you can go for it. 

If, on the other hand, you’re paying rent on office or studio space for your business, you can deduct all reasonable lease payments. (The IRS defines “reasonable” as the prevailing market rate or comparable to a professional appraisal—and they understand that the rent you’re paying in NYC or the Bay Area isn’t literally reasonable.) 

Office Furniture

If you’ve been lusting after a new ergonomic chair, go ahead and splurge, because you can deduct your office furniture, in its entirety, from your taxable income.  

Continuing Education

One huge perk of being a small business owner is the ability to deduct all educational expenses that bring value to your business. So if you want to expand your range with anything from a professional development seminar to graduate courses, you can take the cost right off the top of your taxable income, as long as the course or workshop improves your skills or maintains your professional expertise. You can also deduct subscriptions to trade publications and books related to your work. 

Electronics and Office Supplies

What do you purchase to keep your office running smoothly? Consider all the pens, paper, envelopes, stamps, computers, mouse pads, and phones you’ve invested in over the year. As long as you keep receipts, you can deduct it all, along with postage and shipping costs for business-related packages and deliveries.  

Software

Don’t forget to deduct work-related software, including subscriptions and downloaded purchases on your laptop and mobile devices, as well as cloud storage fees and other easy-to-forget expenses that you incur in the course of doing business. 

Business Travel

If you’re traveling for business, nearly everything you spend on the trip is deductible, as long as the trip is necessary to your business and it is a trip away from your business’s tax home city or area (no five star staycations allowed). To qualify as a write-off, your business trip must last longer than a typical workday, and must require you to sleep or rest somewhere before returning home. 

If your trip meets those standards, you can deduct the cost of travel by plane, car, train, or bus, taxi fares for getting to and from your mode of transit and your lodging and work sites, and the use of a car. If you use your personal car, you can opt to deduct actual expenses or to take the standard mileage rate. If you rent a car, you must take care to only deduct the business-related part of its use. For example, if you fly to San Francisco for an essential business meeting and rent a car on arrival, the car rental is covered for the day of your business meeting and your travel back to the airport. But if you then decide to cruise the 101 for a play day before returning home, that day of car rental can’t be deducted.

On a business trip, you can also deduct your baggage fees, lodging, meals, dry cleaning and laundry, business calls, gratuities for all these services, and “ordinary and necessary expenses related to your business travel,” like printing documents for a presentation, taking an Uber to a meeting, or renting a piece of tech.  

Vehicle-Related Expenses

Figuring out how to deduct vehicle expenses can get complicated, but it’s worth it if you use your own car or truck for work on a regular basis. If you have a dedicated work vehicle, it’s simple: you can write off everything you spend on operating and maintaining it, from oil changes and repairs to gas and detailing. If, like most people, you have one car that you use for personal and business, you have to keep track of your “business usage” of the car—which means tracking your miles. You can either deduct the actual number of miles you drive for work, or you can take the standard mileage deduction (which comes to $0.56 per mile driven).

Business Meals

As a small business owner, you can deduct 50% of qualifying food and beverage purchases. If you entertain clients, hold meetings over meals, feed your staff, or eat at restaurants during the course of your workdays, you can deduct half of those restaurant bills from your taxes. The rules are that you (or one of your employees) must be present at the meal, and it must be from a restaurant (as opposed to pre-packaged takeaway from grocery stores, which is not deductible).

You are allowed to include tax and tip in the total amount that you’ll deduct half of, and it’s worth noting that in 2021 and 2022, a special enhanced meal deduction was added to the tax code to allow the full cost of those qualifying meals and beverages to be deducted. Just remember that the enhanced deduction won’t extend into the following year.

To deduct business meals, you must save receipts documenting the date and location of the meal, the business relationship of the person/people you ate with, and the total cost of the meal (including tax and tip). IRS tax code states that meals must not be “lavish or extravagant,” but doesn’t define those terms with a dollar amount, so use your judgment, and maybe don’t order a second lobster to take home with you.  

Client and Employee Entertainment

Entertaining clients can add up, so be sure to save every receipt and deduct every last drink from your taxable income. The rules for entertainment deductions are that you must discuss business during the meeting, and the entertainment must take place in a business setting for business purposes. So what does the IRS think qualifies as entertainment (and, more importantly, what doesn’t)? They call entertainment “any activity generally considered to provide entertainment, amusement, or recreation.” The examples the IRS provides are nightclubs; social, athletic, and sporting clubs; theaters; sporting events; and hunting, fishing, vacation, and similar trips, which is pretty expansive.

You have to make sure, however, that the entertainment in question passes what’s called the “directly related test,” and that’s where people tend to get tripped up. To be considered “directly related,” the entertainment must take place in a clear business setting. Confusingly, many of the IRS’s own examples (like sporting events and nightclubs) are considered associated expenses rather than directly related expenses, so if being able to deduct entertainment is important to you, consider planning your client events around directly-related programming.  

Phone and Internet Service 

Things get murky when it comes to utilities like cell phone service and Wi-Fi, because we all use those services all day every day, whether we are working or not. Thus, it’s challenging to accurately articulate what usage is personal and what is business-related. If the phone and internet are vital to your business operations, you can fully deduct the expenses. If you use them for a mix of personal and business (and let’s be real, who doesn’t?), the tax code asks you to deduct only the percentage of the usage that is business related. Do your best to accurately assess your usage, with the knowledge that in the worst-case scenario (an audit) you’d have to defend that percentage and how you arrived at it. 

Utilities

Much like phone and internet service, you can deduct any utilities that serve your business, including water, electricity, and trash service. If you work from a dedicated office, it’s clear what’s personal and what’s business, but if your office is in your home, you must keep careful records to prove what is for business and what is personal. Note that you may deduct the cost of a landline telephone for your home office, but it must be a second line (the first landline in the home is not deductible.)

Business Insurance

Deduct with confidence when it comes to business insurance, which can be fully written off. The business owner’s personal health insurance can also be written off, as can property insurance, workers’ comp insurance, auto insurance, business interruption insurance, liability coverage, malpractice insurance, and business-provided employee life insurance. Health insurance for employees is less clear cut—you may be eligible for a 50% tax credit thanks to QSEHRA, the small employer health reimbursement arrangement, but you’ll want to consult with a tax pro to iron out the details on that.  

Professional Services

You probably use more professional services than you realize, and as long as they are necessary to operating your business, they are eligible deductions. Think about the business contacts in your phone: your lawyer, your accountant, your bookkeeper, the mechanic who fixes your work truck. The plumber who handles your office bathroom, the printers who do your blueprints, the cleaners who clean your office, and the service that cares for the plants in your waiting room are all professional services that can be deducted.  

Taxes

Like a snake eating its tail, your business can write the taxes it pays right off this year’s taxable income. There are some nuances here that will depend on your unique financials, so get with your tax person to discuss, but typically you’ll be able to write off the local and state taxes you pay in the same year, or from a previous year. 

You can also look into deducting other taxes, like business licenses, sales tax, and property taxes you paid on real estate owned by your business, payroll taxes.  

Bank Fees

If you keep a separate business banking account (which you should, for clarity of expense reporting), the fees associated with that account are deductible. Add up your annual and monthly service charges, your transfer fees, overdraft fees, and merchant or transaction fees from payment processors like Stripe, and take those right off the top of your business’s taxable income. 

Advertising and Marketing

All the advertising and marketing for your business are fully deductible. If you’re thinking you’ll skip this one because you didn’t exactly invest in any billboards this year, take a beat and consider some of the smaller forms of advertising and marketing, like business cards, your business logo, and even thank you cards sent to clients. Your website, any social media marketing you commission, and online ad space costs also qualify for this deduction.  

Charity

One of the greatest feelings as a small business owner is being able to give back to the communities and organizations that matter to you, and you are allowed to fully deduct the charitable contributions you make to qualifying organizations. The structure of your business (sole proprietorship, partnership, LLC, or corporation) will determine where you take the deduction, so be sure to work with your tax pro to keep everything above board. You should receive a tax form from the organization you donate to, which you need to keep for your tax filing at the end of the fiscal year. 

Childcare and Dependent Care

One of the lesser-known tax deductions is for child and dependent care. If your kids are twelve and younger, you can deduct the money you spend on their care while you are working. If you have adult dependents who require care due to disability, you can also deduct those expenses. 

Moving Expenses

If you move for primarily work-related reasons during the tax year, you can write off your moving expenses, which can take a huge chunk out of your taxable income. To take this deduction, your move has to pass what’s called a “distance test,” which requires that the job location you’re moving to be at least fifty miles farther from your former home than your old job location was from your old home. 

Confused yet? Here’s an example: if you lived in Brooklyn and had an office five miles away in Manhattan, and then you moved ten miles away to Hoboken and set up an office a mile from your new home, that move wouldn’t qualify (because Hoboken is only a few miles away from your previous residence in Brooklyn). If, however, you moved to the Chicago suburbs and set up an office in the city, that move would qualify, because the distance between your new job location (Chicago) and your former home (Brooklyn) is more than fifty miles greater than the distance between your previous office (Manhattan) and your former home (Brooklyn).  

Salaries, Benefits, Subcontractors, and Employee Gifts      

If you have employees, you can write off everything you pay them: salaries, bonuses, benefits, and vacation pay. (If you’re an LLC or sole proprietor, this doesn’t apply, and you can’t deduct salary or benefits paid to a partner in the business.) The benefit programs for employees that you can deduct include education assistance, dependent care assistance, qualified retirement plan contributions, and life insurance. You can also deduct 100% of employee gifts, up to $25 per employee per year. 

If you use contractors in addition to or instead of employees, you can deduct the cost of hiring them—but know that you must issue them a 1099 if you pay them more than $600 in any single tax year.  

Don’t Leave Money on the Table

Running a small business is not for the faint of heart—everything is complicated, and everything is ultimately your responsibility. The price you pay for doing what you love on your own terms can be a steep one in terms of stress and work-life balance, so make sure that you’re getting everything you can in terms of the tax breaks that you are entitled to. It’s always a good idea to work with an accountant, who can help guide you and will be up to date on the nuances of the tax codes as they change each year.