10 Tax Deductions Small Business Owners Often Miss
1. Home Office Deduction
What qualifies: A space in your home used regularly and exclusively for business.
What you can deduct: Either:
- The simplified option: $5 per square foot (up to 300 square feet)
- The regular method: Calculate the percentage of your home devoted to business use and apply that percentage to relevant expenses (mortgage interest, insurance, utilities, repairs, etc.)
Documentation needed: Floor plan showing office dimensions, photos of the space, and records of home expenses if using the regular method.
Pro tip: This deduction is often missed because business owners fear it will trigger an audit. However, if you're legitimately entitled to it, don't miss out on these savings.
2. Vehicle Expenses
What qualifies: Business use of your personal vehicle (not commuting).
What you can deduct: Either:
- Standard mileage rate: 65.5 cents per mile (2023 rate)
- Actual expenses: Calculate the percentage of business use and apply to gas, maintenance, insurance, depreciation, etc.
Documentation needed: Mileage log with dates, destinations, purpose, and odometer readings. For actual expenses, keep all receipts plus the mileage log.
Pro tip: Switching between methods year-to-year is restricted, so consult with a tax professional to choose the best approach.
3. Professional Development
What qualifies: Education that maintains or improves skills needed in your current business.
What you can deduct: Course fees, books, subscriptions to professional publications, webinars, conferences, and related travel expenses.
Documentation needed: Receipts and a brief note on the business relevance of each expense.
Pro tip: Education that qualifies you for a new career isn't deductible, but staying current in your field is.
4. Health Insurance Premiums
What qualifies: Health, dental, and vision insurance for yourself, your spouse, and your dependents.
What you can deduct: 100% of premiums (as an adjustment to income, not a business expense).
Documentation needed: Premium statements and proof of payment.
Pro tip: If you're eligible for a spouse's employer plan, this deduction may be limited.
5. Retirement Plan Contributions
What qualifies: Contributions to qualified retirement plans such as SEP IRAs, SIMPLE IRAs, or Solo 401(k)s.
What you can deduct: Contributions up to the annual limits, which are often higher for self-employed individuals than for employees.
Documentation needed: Account statements showing contributions.
Pro tip: These plans have different contribution deadlines. Some allow contributions until the tax filing deadline including extensions.
6. Business Phone and Internet
What qualifies: The business portion of your phone and internet services.
What you can deduct: The percentage used for business purposes.
Documentation needed: Bills and a log tracking business vs. personal use.
Pro tip: Consider a dedicated business line to simplify tracking and maximize deductions.
7. Bank and Credit Card Fees
What qualifies: Fees for business accounts and cards, merchant processing fees, and interest on business credit cards.
What you can deduct: 100% of these fees if the accounts are used exclusively for business.
Documentation needed: Bank and credit card statements.
Pro tip: Using separate business accounts not only simplifies tracking but also strengthens the business purpose in case of an audit.
8. Startup Costs
What qualifies: Costs incurred before your business began operating.
What you can deduct: Up to $5,000 in the first year (amount reduced if total startup costs exceed $50,000). Remaining costs are amortized over 15 years.
Documentation needed: Receipts and documentation showing these expenses were incurred before business operations began.
Pro tip: Many new business owners aren't aware these expenses can be deducted at all.
9. Business Insurance
What qualifies: Various insurance policies for your business, including liability, professional malpractice, workers' compensation, and business interruption insurance.
What you can deduct: 100% of premiums.
Documentation needed: Insurance bills and proof of payment.
Pro tip: Review your coverage annually to ensure you're neither over-insured nor under-insured.
10. Software and Subscriptions
What qualifies: Software, apps, and online services used for business.
What you can deduct: Monthly or annual subscription fees, one-time purchases, and upgrade costs.
Documentation needed: Receipts or subscription invoices.
Pro tip: For software with both personal and business applications, document the business use percentage.
Maximizing Your Deductions
To ensure you don't miss any deductions:
-
Track expenses year-round: Use expense tracking software that allows you to categorize expenses and attach digital receipts.
-
Consult a tax professional: Tax laws change frequently, and a qualified accountant can often find deductions you'd miss on your own.
-
Use separate accounts: Having dedicated business bank accounts and credit cards simplifies tracking and strengthens your position in case of an audit.
-
Document business purpose: For any expense that could have personal benefits (meals, travel, etc.), note the specific business purpose.
-
Review deductions annually: Set a calendar reminder to review potential deductions before year-end when you can still take actions to qualify.
Conclusion
Smart tax planning is a year-round activity, not just a tax-season concern. By tracking these commonly overlooked deductions throughout the year, you'll not only save money but also reduce the stress associated with tax preparation.
Remember that tax laws change frequently, so consider this article a starting point and consult with a qualified tax professional about your specific situation.