The 7 Best Tax Deductions for Small Businesses

By Jason Moll • Updated September 2, 2023

7 Best Tax Deductions

I’ll cut right to it: the best tax deductions are the expenses that you already incur in the normal course of your life.

As a business owner, reducing your net income isn’t hard. You can easily find a way to spend away your profits on legitimate business expenses.

But isn’t the point of running a business to make a profit? Running your profit into the ground to save money on taxes isn’t a “tax plan”—it’s self-destructive.

The personal expenses that can become business expenses are the best tax deductions that you can leverage.

In this blog post, we’ll explore what those expenses are and how you can utilize them in your small business.

Business Expenses

Business expenses are the expenditures required to operate your organization. These include:

    • Advertising
    • Labor
    • Business Insurance
    • Professional Fees
    • Office Rent
    • Business Taxes
    • Office Supplies

    It’s important to note that while these expenses are necessary for the business to operate, these are not expenses that non-business owners incur.

    To put it another way: if you didn’t own a business, you wouldn’t have to incur these expenses.

    I don’t want to diminish the importance of these expenses to the success of your business. My intention is simply to emphasize that these expenses are not expenses that you already incur in your daily life.

    Voluntarily incurring additional business expenses for the sole purpose of reducing your tax liability is a fool’s errand.

    You don’t want to disregard your general business expenses but they’re not the best tax deductions available to you.

    Personal Expenses

    Everyone has personal expenses—including business owners. Despite what you may have heard from your favorite “Tax Influencer,” not everything in your life is deductible.

    This means that personal expenses must be paid with after-tax dollars. If your business isn’t turning a profit, the IRS may have questions about how you’re sustaining yourself.

    Non-deductible, personal expenses include:

    • Clothing
    • Groceries
    • Luxury Items
    • Entertainment

    Universal Expenses

    Personal expenses that can be deducted from your business are what I call universal expenses. By now, you probably understand what I mean by this.

    Being able to deduct these expenses from your business allows you to save money on taxes without having to spend more money than you already are.

    This might be the ultimate form of double dipping. Let’s take a look at 7 of the best tax deductions and how you can turn them into expenses for your small business.

    Best Small Business Tax Deductions

    Best Tax Deductions

    1. Housing

    Everyone needs a roof over their head. A place to call “home.” Whether you rent or own your home, Congress offers certain business owners a “home office deduction.”

    Home office expenses are a way for business owners to deduct the cost of using their home as their principal business office.

    You already have to pay for housing—you may as well find a way to deduct some of it!

    Click here to learn everything you need to know about the home office deduction.

    2. Food

    The IRS allows a deduction of 50% of the cost of all business meals.

    In my opinion, the meal deduction is one of the most lenient business expenses allowed by Congress.

    If you think about it, Congress could very well make the argument that we all need to eat to survive. You were going to eat lunch whether you met with a potential client or not.

    But—it’s totally allowed. I believe that is why Congress only allows a deduction of 50% of the cost of the meal.

    There is no limit on how many business meals you can write off in a year. Take advantage of it!

    So, how do you make a meal a deductible business meal?

    You need to share the meal with someone who is relevant to your business and you need to actually discuss business.

    You can read more about the business meals deduction here.

    3. Vehicle

    In my experience, vehicle expenses tend be a crowd favorite. Due in part to social media, many of the small business owners that I meet with think they can go out and buy a luxury car and expense the entire thing.

    And, that’s partially true. Congress does allow you to deduct the business-use portion of your vehicle if you’re a business owner.

    Business-use portion being the part with emphasis.

    You need a car to get around in anyway, you may as well find a way to use it in your business to make some of it tax deductible.

    If you choose to use your vehicle for business, you are required to keep a meticulous, written mileage log. That is what you’ll use to calculate your business-use percentage.

    Business owners can choose between the mileage method and actual expense method for vehicle expenses.

    Both methods require tracking mileage!

    You can read more about automobile deductions here.

    4. Child Support

    No—I don’t mean the check you write to your ex every month. I’m talking about the money you spend raising your child!

    If you can find a legitimate role that your child can fill in your business, paying them as an employee is a fantastic way to save on taxes.

    The reason this is one of the best tax deductions is because your child can then use their income to fund their own expenditures.

    Food, clothing, entertainment, cell phone, gas—even saving for college or investing in retirement accounts.

    If your business is structured properly, paying your child from your business is income tax and payroll tax free!

    You get a tax deduction and your child gets to learn about financial responsibility—it’s a win-win.

    You can read more about that here.

    5. Cell Phone

    Using your phone for your small business is a great way to deduct part of the bill.

    If you opt for a dedicated business phone, your personal phone bill isn’t deductible at all.

    However, if you use your personal cell phone for business, you are entitled to deduct part of the cost from your business.

    It can be difficult to calculate business-use percentage since usage time can be tough to track or prove.

    As a rule of thumb, you should be able to deduct 50% of the cost of your phone if you use it in your small business.

    6. Travel

    Travel is easily one of the best tax deductions available to small business owners.

    When the purpose of a trip is primarily for business, the IRS allows a deduction for all travel costs including transportation, hotel, and meals while away.

    One of the best tax deduction hacks is planning a weekend getaway in the location of your business travel.

    Travel days and weekends are fully deductible during business trips even if no business is conducted on those days.

    Travel on Thursday, hold a business meeting on Friday, enjoy the weekend, attend a business conference on Monday, head home Tuesday.

    As long as the primary purpose of the trip was for business, all of the travel expenses associated with that trip are deductible.

    You can read more about that here.

    7. Qualified Business Income (QBI) Deduction

    The absolute best tax deductions are those that don’t require you to spend any money at all.

    In that regard, the QBI deduction stands alone.

    The QBI deduction, enacted by The Tax Cuts and Jobs Act of 2017, is a free tax deduction equal to 20% of a pass-through entity’s net income.

    So, if your small business nets $100,000 in a given year, Congress will knock $20,000 right off the top. For income tax purposes, you will only be taxed on $80,000.

    Subject to certain qualifications and guidelines, the deduction is automatic and doesn’t require you to spend any money to take advantage of it.

    Best Tax Deductions Recap

    To conclude, the best tax deductions for you as a small business owner are those that you’re already incurring in your daily life. Those include:

      1. Housing
      2. Food
      3. Vehicle
      4. Child Support
      5. Cell Phone
      6. Travel
      7. QBI Deduction

      Being strategic and finding a way to implement these expenditures in your small business is a great way to save money on taxes without negatively affecting your cash flow.

      Have you found a way to implement these expenses in your business yet?

      As always, feel free to contact us if you need advice from a tax professional. We are more than happy to help!

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