Small Business Tax Deductions Checklist 2023Reading Time: 6 minutes
The 2023 small business tax deductions checklist will help reduce the monies you pay to the government in a taxable year.
Spending a lot of money to start your business or handle day-to-day operations is often a head spinner for small business owners.
For entrepreneurs planning to start a business, there’s usually the cost of research, competitor analysis, marketing, logistics, and other expenses.
Already existing businesses have operating expenses such as hiring, salaries, marketing, office supplies, loan interests, etc.
Whichever category your business falls into, you can have deductions on your taxes.
Let’s get into the…
Small Business Tax Deductions Checklist
Below is a small business tax deductions checklist with 24 items to help you with write-offs when filing your taxes in a taxable business year.
- Start-up expenses
- Qualified Business Income (QBI)
- Business Travel Expenses
- Business meals
- Business interest
- Freelancers or Independent contractors
- Advertising and marketing
- Bad debt
- Legal and Professional fees
- Charitable Donations
- Moving or relocation expenses
- Salaries and benefits
- Home office
- Office Supplies
- Business damages
- Business car use
- Foreign Income
- Client or Employee gifts
Also, check out: The 2023 Income Tax Brackets for Individuals and Married Couples.
Did you launch your business in 2021? Then, you could deduct up to $5,000 on incurred start-up expenses leading to your business launch.
These costs include but are not limited to market and product research, competitor analysis, marketing, travel, and training costs.
If the cost of starting up your business exceeds the deduction limit, you can gradually write off, or amortize, the costs over the next 15 years.
Just so you know, the deduction claim only applies to costs incurred before the business launch.
Qualified Business Income (QBI)
Qualified Business Income is the net income, gain, deduction, and loss related to any business transaction.
In addition to regular business deductions in the U.S., Qualified business income deduction (QBI) allows you to take a 20% deduction based on the net income of your business.
Pass-through businesses such as Sole proprietorship s, Partnerships, S corporations, and Limited liability companies (LLCs) are generally eligible to take this deduction.
Note: QBI does not include some items as listed on the IRS website
Business Travel Expenses
You can apply deductions to business-related travel expenses. Expenses include flight, hotel booking, tips, car rental, train or bus ticket, parking tickets, or costs of taxis, Uber, and Lyft.
To be eligible, you must meet the following conditions:
- The trip must be necessary.
- The trip must be away from your primary business city or area.
Meals served to employees, clients, or potential clients are tax deductible. However, some conditions apply.
- Meals at a company party (100% deductible)
- Personal meals that are business related (100% deductible), and
- Business meals with clients (50% deductible).
Taking your clients out for dinner or drinks that aren’t business related isn’t deductible.
You’ll need the following details to claim deductions:
- Date and location of the meal
- The business relationship with individuals entertained.
- The total cost of the meal
The interest you pay on loans to fund business operations is 100% deductible (up to an amount equal to 30% of your taxable income).
You can deduct the interest charged on business loans, credit cards, bank accounts, or other additional charges, such as service and credit card fees.
Return eligibility includes legally binding documents for debt, proof of debtor-creditor relationship, and intent for debt repayment.
Freelancers or Independent Contractors
If you regularly work with Freelancers or Independent contractors, expenses on hiring them are 100% deductible.
To claims deductions on independent contractor expenses, you must issue form 1099-NEC to any hire earning over $600 or more from provided services to your business.
You’ll need to ensure that:
- The independent contractor doesn’t work for you.
- The provided services were strictly for your business.
Read details about Form 1099-NEC for Independent Contractors
Advertising and Marketing
Monies you spend on promoting your business to acquire new customers is deductible.
For example, the money you spend advertising your business on Google, social media platforms, and more.
You can also deduct on website design, maintenance, and print items such as business cards and flyers.
A bad debt is when an employee, customer, or vendor owes your business money, and there isn’t a way of recovering it.
Bad debts are deductible, with sufficient proof that it’s a business debt, not personal.
The cost of an asset your business uses to generate income is subject to tax deductions over its useful lifetime.
Depreciation deduction for an item doesn’t occur in a single tax year but spreads across the item’s lifetime use.
To calculate depreciation, divide the Total cost of the asset by the Useful lifetime of the asset.
It would be best if you considered the following before filing for depreciation deduction:
- The asset must be a source of generating income.
- The asset must be yours.
- The lifetime use of the asset must be over one year.
The cost of your business insurance is 100% deductible under certain circumstances.
Insurance premiums such as commercial property, business income, liability, fire, and flood are deductible. Employee medical insurance is also deductible in certain conditions.
The insurance policy must serve business purposes and be considered ordinary and necessary.
Legal and Professional fees
You can deduct any fees charged by legal practitioners or professional services you receive from bookkeepers/accountants related to your business operations.
To be eligible, the expenses must meet the criteria of being ordinary and necessary to the business.
See details for legal and professional fees from the IRS.
Your charitable donations are 100% deductible on tax returns.
For a sole proprietorship, LLC, or partnership, you can claim returns on personal tax, while corporations can claim deductions on corporate tax returns.
The donation must be beneficial to a qualifying organization and be a cash contribution to qualify for deductions.
Moving or Relocation Expenses
Any movement from one location to another that is business related is 100% deductible.
However, you’ll need to have your new place at least 50 miles farther from your former location.
Salaries and Employee Benefits
Monies paid to or on behalf of employees—salaries, wages, bonuses, education assistance, and commissions—are subject to tax deductions.
You need to ensure that:
- The employee is not a sole proprietor, partner, or LLC business member.
- The salary is necessary and reasonable.
- The employee provides the associated services paid for by your company.
The monies you spend on running your business—phone, internet, power, water, and heat bills—are deductible on tax returns.
You have to ensure that the bills for phone and internet are for work and not personal purposes. If there is a mix of work and personal reasons, you can only write off the cost for business use.
If you converted an area in your home to an office, you could deduct up to $5 for every square foot used for business purposes.
The IRS allows a maximum deduction of up to 300 square feet for a work area used exclusively for business.
Any part of your house that doubles as an office, guest, or dining room don’t qualify.
Check out items that are deductible for Home Office.
Office supplies such as computers, website hosting fees, paper, subscriptions, printers, pens, and any other work-related software used for business purposes are deductible.
You’ll need to keep proper records of every receipt.
Renting an office space or warehouse for your business is 100% deductible.
For write-off eligibility:
- You must use the property for business purposes,
- You must not own the property nor receive equity from it.
Your business can claim 100% deductions on damages such as theft, vandalism, or natural disasters.
To e eligible, you must be the property owner, and the damages must result from an unpredictable event such as public unrest, natural disasters, burglary, etc.
Business Car Expenses
Expenses on cars or vehicles used for business purposes are 100% deductible.
As of 2022, the IRS allows a deduction of 58.5 cents per mile. This means that if you drive 3,000 miles, $1,755 is deductıble from your taxes.
You can also deduct other related car expenses, such as registration fees, insurance, repairs, etc.
U.S. citizens with businesses in another country can be 100% exempted from taxes on earned foreign income.
There are specific requirements that would make you eligible for the exclusion.
Contributing to an Individual Retirement Account (IRA) can reduce your annual taxable income.
While your contributions can’t exceed the total income earned or annual maximum contribution in a taxable year, it is 100% deductible.
The retirement plans must satisfy IRS requirements and include, but are not limited to:
- Roth IRA
- Simple IRA
- Solo 401(k)
- Keogh plan
You can deduct expenses incurred on providing yourself or employees with professional licenses or educational courses to increase expertise and skills.
Educational expenses that qualify for 100% deductions include subscriptions to professional publications, seminars/webinars, workshops, courses, and classes.
Any expenses associated with a different business line do not qualify.
Client or Employee Gifts
Gifts to clients for their patronage and employees for anniversaries or holidays are 100% deductible with a limit of $25 per person.
Please ensure that the gifts are related to your business and should be tangible, not entertainment.
Tax deductions are a great way to save money on business expenses and increase revenue.
As a small business owner, having a detailed knowledge of expenses can save you loads of money, improving your cash flow.
It would help to keep proper records of your expenses. Akaunting simplifies the documentation of your financial records and enables you to track expenses efficiently.
Also, if you have challenges with tracking your taxable income, it would be best to hire the services of an accountant.