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Before you file your taxes, make sure that you’re taking advantage of all the (many) deductions you’re entitled to as a sole proprietor or single-member LLC.
To help out, we asked Jennifer Dunn, Chief of Content at TaxJar, to give us a quick checklist of everything you might be able to deduct as a small-business owner. Bring each of these up with your accountant to see if you qualify so you can get as much money back as possible.
This article is only for educational purposes and does not constitute legal, financial or tax advice. Make sure you consult a professional regarding your unique business needs.
Common Small Business Tax Deductions
Advertising
Did you put up a website, buy business cards, or go all out on a billboard? You should be able to write off any advertising expense.
Car and truck expenses
Do you drive a vehicle in the course of your business? These expenses should be deductible, but only with meticulous records. Read our post on car and truck deductions for everything you need to know.
Contract labor
Did you hire a contractor to build your website or handle some excess work? The fees you paid to contractors are generally tax deductible. Don’t forget, you should have also sent contractors form 1099-MISC if you paid them over $600.
Depreciating assets
As assets (like equipment or office furniture) get wear and tear, they lose their value and can be a tax write-off. Check the IRS’s comprehensive guide to depreciating property.
Employee-related deductions
You can deduct the amount you paid your employees, as well as their benefits (like insurance or nonprofit sharing plans). Here’s what the IRS has to say about employee-related deductions.
Business insurance
Do you own a policy on your business or a piece of equipment? Those insurance costs are deductible.
Home office expenses
If you use a portion of your home as an office, you can most likely deduct that expense. This deduction can be complicated, though, so check out our post on the home office deduction for more detailed information.
Rent or leases
Rent a workspace? Lease equipment? You can deduct these things as well.
Office expenses
Did you pay a cleaner, install air conditioning, or do something else to maintain your office? That’s also deductible.
Utilities
The utilities you pay at your rented workspace are tax deductible. Remember, as mentioned above, if you work from home, you’ll have to work through the rules of the home office deduction.
Fees and interest
Did you pay interest on a loan, or pay transaction fees to a payment processor like Square? Those fees are generally tax deductible.
Professional services
Did you hire a lawyer, consultant, or other professional for some aspect of your business? You should be able to deduct those fees.
Supplies
Everything you use as office supplies — from paper clips to printer paper and your copier — is deductible.
Repairs and maintenance
Did you have to repair a piece of equipment or perform routine maintenance to keep it in tip top shape? That’s deductible. But the rules may be onerous. We recommend you consult with an accountant.
Taxes and licenses
Did you have to pay business taxes or perhaps apply for a business license? You can deduct those things.
Meals and entertainment expenses
Did you take a client to a business dinner? Then you can deduct 50 percent of that expense (as long as you can prove that it was business related and that you expected to get some business benefit from the outing).
Travel expenses
Did you travel for business? Perhaps to see a client or attend a convention that would benefit your business? You can deduct those expenses, too.
Pro tips for finding tax deductions
Peruse Schedule C
Afraid you’re missing something? Check out lines 8 through 26 on IRS Form Schedule C. This is your handy tax deduction cheat sheet.
Take a picture of your office or workspace
Then show it to your accountant. She may see deductions hiding in plain sight that you never even considered.
Ask your accountant
Speaking of your accountant, also ask her if she sees any common deductions from other businesses in your industry. You may be overlooking something.
Take advantage of CARES Act tax changes
On March 27, 2020, the federal government passed a relief package known as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in response to COVID-19. Along with direct financial relief, the CARES Act also implemented tax changes to help business owners during this time. These tax changes for small businesses include the following:
Employee Retention Credit
This is a refundable tax credit available to eligible employees equal to 50% of wages for certain employees of up to $10,000 per employee, meaning the maximum credit per employee is $5,000. This credit applies to wages paid after March 12, 2020, and before January 1, 2021. Your business is eligible for this credit if your business operations were fully or partially suspended due to COVID-19 or if your business experiences a more than 50% decline in quarterly gross receipts. You can apply for this credit using the Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Deferred payroll taxes
Usually employers would pay 6.2% of Social Security tax on their employees’ wages. For payments owed in 2020, businesses and self-employed individuals can now defer these payments over the next two years. You must pay 50% by the end of 2021 and the remaining 50% by the end of 2022. Note that you can’t defer these payments if you’ve had a Paycheck Protection loan forgiven.
Modifications for net operating losses
Usually if your business experiences a net operating loss, you can only carry it forward to future years to offset your taxable income. This is now being relaxed. If you had a net operating loss in tax years 2018, 2019, or 2020, that loss can now be carried back five years. This allows you to amend previous years’ tax returns to claim the loss now and receive a refund when you might need cash flow. Pass-through businesses or sole proprietorships can also take advantage of this. Typically, these kinds of businesses can’t claim losses of more than $250,000 for a single taxpayer, but this limit is suspended for tax years 2018 and later.
Accelerated credit for minimum tax liability
If your business is due to claim alternative minimum tax (AMT) credits by the end of 2021, you can now accelerate those credits to claim a refund immediately.
Adjusted business interest deduction
For 2019 and 2020, business can increase the amount of interest expenses they deduct from their tax returns from 30% to 50%.
Claim a write-off for property improvements
You can amend tax returns from 2018 and 2019 and write off any improvements you’ve made to your facilities.
Waived excise tax for making hand sanitizer
For 2020, the federal excise tax is waived on distilled spirits if your business is using them to make hand sanitizer.
Families First Coronavirus Response Act (FFCRA)
This act requires some employers to provide paid sick leave or paid family and medical leave to employees, and is meant to help close the gap for employees who wouldn’t have paid sick leave otherwise. For employers who provide this paid leave, the IRS will provide payroll tax incentives to fully cover the cost. Be sure to collect these credits if you provide sick and/or family leave due to Coronavirus.
If any of these credits, deductions or referrals apply to you, be sure to apply them while doing your taxes this year.
Amend your return
Did you read this list after you filed and realize you missed a great deduction? No worries. You can use Form 1040X and amend your return.
— Jennifer Dunn of TaxJar
About TaxJar
Sales tax is complex. That’s why we created TaxJar — to handle the burden of sales tax while you get back to running your business. TaxJar pulls in sales tax collected from all the channels where you sell, compiles your data into return-ready reports, and can even AutoFile your sales tax returns for you in 26 states (and counting). Sign up for a 30-day TaxJar free trial today and put a lid on sales tax. And check out Square App Marketplace for more information on how to link your Square account to TaxJar’s tools.
