Running a small business takes a lot of time and money. Anytime you can save some cash or keep from having to send it to the IRS, that’s a good thing!
This checklist of small business tax deductions will help you know what expenses you can use to lower your 2021 taxes. You’d be surprised how many business owners aren’t aware of a lot of these!
While this list covers most of the common things your business can claim, you’ll want to meet with a good CPA to make sure you’re not missing out on any deductions you’re entitled to. All of them, however, requires keeping good records of every transaction. (For help on that, be sure to check out our post “Keep Up With Your Receipts Like a Pro.”)
2021 Small Business Tax Deductions Checklist
1. Utilities
Unless your business is teaching surfing lessons, having lights on inside your business and keeping the AC or heat on are usually pretty necessary. Deduct the things it takes to keep your place of business habitable such as water, electricity, trash. Landline telephones are also deductible.
2. Rent
If you rent or lease the space where your business is located, these costs are tax deductible. If your business operates out of your home, you may be able to take advantage of some deductions as well. Here’s the IRS’s official PDF on home-based businesses.
3. Insurance
Business insurance is a must. There are many different kinds; some are universal and some are industry specific. This article from Entrepreneur.com on “7 Types of Insurance You Need to Protect Your Business” covers them well.
Operating without any is like doing a highwire act without a net…or a wire. So make sure you’re covered, then make sure you take the deduction.
As the owner, your personal health insurance is completely deductible. If you offer health insurance to your employees, a portion of that will also reduce your tax burden.
4. Equipment
The machinery it takes to run your business is tax deductible. If you run an agricultural operation, this also includes tractors and other farm implements. See our recent article on Section 179 for more details…it’s helpful even if you’re not a farmer.
5. Office Supplies
Office supplies definitely fall under the IRS’s definition of “ordinary and necessary” for determining if something is tax deductible. Don’t overlook the things you use every single day to keep your business organized and running when it comes to saving money at tax time!
6. Phone and Internet
These are part of the infrastructure of your business. As such, they are deductible. Just be sure to keep up with how much you’re paying for these services throughout the year.
7. Software
If you’ve had to purchase computer programs, you can use them as a tax deduction. (This falls under Section 179 that we mentioned above along with vehicle purchases.)
8. Vehicles
Any vehicles used in your business qualify as a deduction when it comes to expenses related to normal operation and maintenance. You can also claim a mileage deduction of $.56/mile for 2021. For either option, you’ll need to keep accurate records. Here’s a list of the best mileage apps for small businesses from Digital Trends.
9. Advertising/Marketing
You can’t grow a business and generate revenue if no one knows you exist. Since marketing and advertising are directly tied to how much income your company brings in, they are deductible as well.
10. Travel
Sometimes it’s necessary to travel in order to connect with your clients and vendors face to face. If you’re doing business outside of the city you’re based in for more than a full workday, you can deduct any expenses associated with the trip from your taxes. As always, keep good receipts.
11. Interest
If you have taken out a loan from a qualified lender in order to support your business (capital improvements, equipment purchases, etc.), you can deduct the interest on that loan. Loans from friends and family do not qualify, though.
12. Bad Debt
As we mentioned in our recent “10 Small Business Tax Strategies” post, if you are an accrual basis business, you can write off bad debt that is owed to your business. It could occur when you have a customer that simply isn’t going to ever pay, or it might come from a vendor or employee you’ve loaned money to. The loans must be business related, however. Personal loans don’t qualify.
13. Employee Salaries
Any wages you pay to W-2 employees of your company are fully deductible on your taxes.
14. Employee Benefits
Money you spend on benefits for your employees may be tax deductible. There are certain limitations and restrictions, so check with your CPA. Since you are self-employed as the business owner, any money you contribute to your own retirement is also tax deductible.
15. Contractors
Whatever you pay to independent contractors (anyone you paid at least $600 to and file a 1099 for) is fully deductible on your taxes.
16. Legal and Professional Fees
Hired a lawyer this year? You can deduct those expenses. That CPA you’ve been checking with on all those other items…their fees are deductible too.
A Bonus Small Business Tax Deduction That Really Isn’t
There’s another way to reduce your tax bill that isn’t actually a deduction. But since it can save you money, we want to make sure you’re aware of it too.
If your business had any startup or organizational expenses during 2021, you can reduce your taxable income. These are technically “capital expenses”, so they represent money you invested into your business instead of listing as income. As such, you can amortize it over time…typically depreciating it over several years. As with everything else we’ve listed, check with your CPA for full details.
Make Sure You’ve Got a Good CPA
Taxes aren’t anything to settle for “ok” service with. When it comes to how your business interacts with the IRS, you deserve to make sure that everything is done accurately and on time. Beyond that, you should be able to claim every possible deduction that your business qualifies for.
CRS CPA’s tax services have been helping small businesses save lots of money for over 40 years! Our tax experts are really good at finding valuable tax deductions. Then they file flawless returns so that our clients can rest easy.
Schedule a call with your next tax pro today to learn what we can do for you!
