Looking for a federal tax deductions list for small businesses?

Many small business owners ask, “What deductions can I take as a small business?” The video below shares a federal tax deductions list of items allowed on small business tax returns.

One common question of business owners is what can I deduct?

Of course a major deduction for many businesses is cost of goods sold.  This includes inventory sold during the year and labor directly related to the product/service.
Mileage expense – any miles you put on your car for business are deductible (67 cents per mile for 2024 – 10,000 miles = $6,700).  This is a major business expense for those who use their vehicle a lot in their business (realtors, chimney sweeps, etc).  Keep in mind, commuting is not deductible (mileage to and from your main office).  However, if you work out of your home, then any business related travel away from home is deductible.

One big thing is to deduct mileage you need to keep a contemporary mileage log.  Today, most people use apps such as mileage IQ to track their mileage.  If you get audited, this is what the IRS will look for.  They do not like unsupported estimates.

It should be noted you can opt to deduct actual expenses instead of the standard mileage rate.  That goes beyond the scope of what we are talking about here.  If you think you might be better off deducting actual expenses, please consult us or your local tax professional.

Advertising and promotion
Advertising is a common expense for small businesses.
Examples include yellow page ads, flyers, internet marketing, ads in papers, etc.  Basically, this includes any expenses you have to promote your business.

Contract labor – If you hire someone to do work for you (not an employee), then you can list it under contract labor.  Please note, if you pay them over $600 you must issue them a 1099.  Also, only include it under contract labor if it is not recorded under cost of goods sold.

Depreciation – Large assets/purchases should be capitalized  (E.g., a new computer or new desk).  Record date of purchase, description of property, and total cost including taxes and installation.  Some of these assets can be expensed through special depreciation or the Section 179 deduction.  For more info, talk to a tax professional

Insurance – In general, insurance you have for your business is deductible (General liability, etc.).  However, life insurance you purchase through your business is generally not a deductible expense.  Self employed health insurance is deductible on page one of the 1040 (line 29 for 2014).

Meals and entertainment –  For meals and entertainment to qualify, you must have a business purpose.  (Entertaining Clients, discussing business with employees, etc.)  However, only 50% of Meals and Entertainment is deductible.   There are a couple of reasons for this.  For one thing, meals and entertainment expense is easily abused.  Some people want to deduct everything as a business expense.  Secondly, it does more than just serve a business purpose.  For instance, you have to eat anyway.  Or you might enjoy the Spurs’ game as well as trying to land a new client

Interest – Interest on Loans, etc. taken out to maintain cash flows for your business are deductible.
Legal and professional services –  This includes any fees you pay your accountant for bookkeeping, payroll, or tax preparation.  It also includes any amounts paid to an attorney for business purposes.

Office expense
Paper
Calendars
Pens, Ink Cartridges, etc.
Any office related supplies or equipment that is too small to be capitalized (i.e., depreciated)
Rent
Rent for an office space
Rent for machinery or equipment
Repairs and maintenance
Any repairs or maintenance to keep the office and/or equipment up and running

Supplies
This is supplies not included in office expenses or as part of cost of goods sold. It can include small tools, if you don’t have enough for a separate category for small tools.

Taxes and licenses
Any taxes or licenses you have to pay for your business.
Real estate tax on a business property.
Sales taxes are normally excluded from Sales and expense, but if you included them as part of sales then you can deduct them as an expense

Travel
You can take per diem rates for travel and meals while away from home.   Visit IRS.gov for per diem rates.
Conversely, you can take actual expenses.
Either way, you are limited to 50% deduction on your meals expense as noted previously.

Utilities
Electricity
Gas
Water
Television – if it is a legitimate business expense
Phone and Internet
Landlines
Cell phones –  need to allocate based on business use percentage
Internet in the office is deductible
Internet in a home office should be allocated based on business use.

Other common expenses

Continuing education
Dues and Subscriptions
Profession certification expenses
Etc., all businesses are different.  Any legitimate business expense can be deducted.  You may have a category that is unique to your type of business.  You can just list it under other expenses.

Overview: Common business deductions
Advertising
Mileage expenses
Supplies
Office
Legal and professional
Phone
Meals
Insurance
Rent
Depreciation.
Etc.

Contact a professional tax preparer for more details or for more specific questions.

If you’re in the Central Texas area, call Derland G. Bahr, CPA – 254-432-5724 or email us at derland@dbahrcpa.com to learn more about the federal tax deductions list.