Most Common Small Business Tax Deductions

By D.A. Barber , last updated December 22, 2011

If you run a small business then it is important to your bottom line that you are able to keep as much of the money you earn by taking advantage of the most common tax deductions. The U.S. Small Business Administration defines a small business as one with less than 500 employees, but even sole proprietorships are eligible to take full advantage of the deductions available. And as a small business owner, it is important not to miss those tax deductions that you may be neglecting. Some of these deductions require an official worksheet to calculate the amount of your return by organizing your expenses into predetermined categories. Other deductions may not fall easily into any one category and the uniqueness of your business may require professional help.

Vehicle and Travel Expenses

Of all the tax deductions available, it is critical that you retain all receipts and “log” a record of your travel expenses. This includes not just hotels and airfare, but even the little expenses such as tolls, parking, those away-from-home snacks, and even emergency dry cleaning bills. If you use your car or truck to conduct business, such as shopping for office supplies, attending meetings, running to the post office or entertaining clients, your driving expense log will allow you take advantage of the mileage deduction. Or you can choose the deduction for actual vehicle maintenance and subtract the expense of fuel, repairs, and the depreciation the vehicle over a period of years.

Home Office Expenses

If you run your business from home and have a separate room specifically to conduct business, you can deduct a percentage of your mortgage, homeowners insurance, property taxes, and even some maintenance costs. If you have a separate phone line and internet hook-up, those are deductible expenses as well.

Equipment Depreciation

You can take a tax deduction on any depreciable property, such as office equipment, furniture, heavy machinery, and store display fixtures. You will need to keep a running calculation of accumulated depreciation deductions you’ve taken over the previous years, which makes the whole process complicated enough that it usually requires an experienced professional to take advantage of all the deductions available.

Business and Advertising Expenses

Running any small business includes deductible expenses for operation and promoting your products or services. The common deductions for signage, advertising, direct mail, and business cards are well known. But these can also include such overlooked costs as coffee service, stamps, cleaning supplies, bank ATM fees, membership dues to business organizations, business license fees, and accounting or legal service fees.

Employee Expenses

Deductions for labor expenses are normally associated with wages paid to employees. But even labor performed by family members, such as your kids stuffing envelopes, may count as a business deduction. There are also deductions for employee benefit programs, including contributions you make to your own IRA or 401K plan as well as your own health benefits.

Education Expenses

Any seminars, workshops, conferences, and continued education classes that improve your ability to run your business are tax deductible, including the travel costs to attend these events. This also includes subscriptions for industry trade publications and online business sites.

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