15 Tax Deductions and Write-Offs That Entrepreneurs Can Take Advantage Of
Published on February 28, 2022. Updated on March 18, 2024.
The month of April is quickly approaching which means it’s time to file your taxes.
There are 582 million entrepreneurs in the world, and millions more will launch their own business this year alone. If you are currently running your own business or thinking about starting one, it's important to understand the types of taxes your business will owe and your options for tax deductions.
There are many different types of businesses ranging from brick-and-mortar storefronts to online only businesses. As an entrepreneur, it's imperative to know how to manage expenses and file your taxes. One of the perks of running your own business is that you can take advantage of certain tax deductions that will boost your bottom line.
While it’s always best to consult with a financial advisor or accountant to answer any questions you may have, this article will help guide you in common tax deductions entrepreneurs can take advantage of. Keep reading to learn more.
What is a Tax Deduction?
A tax deduction is an item you can subtract from your taxable income to lower the amount of taxes you owe. Tax deductions help companies reduce their overall taxable income and, thus, their tax liability. Deductions are typically business expenses spent throughout the year to operate the business and include everything from utilities and service subscriptions, to meals and even your cell phone.
Each year, tax laws change, and the rules around deductions are updated. Tax laws vary by state. Claiming tax deductions are available at both the state and federal levels for companies.
You can choose from a standardized or itemized deduction.
Standard Deduction
A standardized deduction is the set amount the IRS says is available. This amount is the same for everyone and varies according to filing criteria.
Itemized Deduction
Itemized deductions are more comprehensive deductions. These require calculation and documentation to use on your tax return.
Types of Deductions and Write-Offs
As an entrepreneur, there are many tax deductions you can use. Self-employed individuals are required to pay more taxes, so tax laws include many areas where business owners can reduce their tax liability.
Since tax laws change every year, this list is ever-changing. The write-offs and expenses you can claim will differ depending on the industry you are in.
For example, an online directory business will have different tax deductions than an accounting office. As previously mentioned, it’s always best to consult a tax accountant to determine which deductions are applicable to your business.
Below, you'll find some common tax deductions and write-offs for entrepreneurs and examples of each.
1. Supplies
Supplies can include anything you use to do your work. This can include supplies used to complete administrative tasks, such as printer paper, pens, envelopes, printer ink, and other office supplies.
Office equipment such as tables, desks, chairs, business landline phones, printers, and computers are all deductible under supplies.
You can claim equipment whether you own or rent. The expenses you pay to have it are tax-deductible.
2. Cell Phone Usage
Did you know if you use your phone for business purposes, you can deduct part of the bill as an expense? In order to do this, you will have to calculate how often you use your phone for business purposes.
What qualifies as business purposes? Phone calls with clients or partners, answering emails, sending emails, social media marketing, and scheduling.
You shouldn't claim 100% of your cell phone bill unless you have a phone exclusively used for business purposes.
To calculate how frequently you use your phone for business, you would need to track how often you complete business functions while on it for a period of time and compare it to how often you use it for personal reasons.
3. Utilities
Whether you work in a home office or have a facility, you can claim the utilities associated with operating it. These include electricity, heating, gas, internet service, and water bills.
If you have a home office, you can calculate how much of the utilities are used when working and claim the percentage.
4. Facility Expenses
If you rent or pay a mortgage on your place of business, you can claim the expense as a deduction. As long as you use the facility exclusively for business purposes, you can claim 100% of these expenses.
If you have to repair or renovate your business location, the associated costs are tax-deductible.
Maybe you don't have a home office or a facility and you rent office space at a local business center. This can also be claimed as a write-off. A co-working business space membership is considered an expense, even if you don't use it every day.
5. Educational Resources
If you are actively learning and developing yourself to grow your business, you can write the fees off as a tax deduction.
Examples of educational resources include:
If you require certifications or licenses to do business, these would qualify under educational fees.
6. Software
If you use specific software for your business, it can be claimed. Additionally, you can claim software used to create invoices or manage your accounting books.
If you have business-specific mobile applications you pay for, these would count under software expenses. Cloud-based subscriptions to manage email or websites are also included under software.
Storage sites such as Dropbox or Google Drive are also eligible.
7. Subscriptions
If you have business-related subscriptions, you can deduct these. When you start a website directory business with Ideal Directories, your monthly or annual subscription for the platform can be a write off.
This also includes subscriptions to legal websites, a contract generating website (such as Dropbox Sign), or websites used to create marketing materials (think Canva or Photoshop).
If you subscribe to a newspaper, magazine, or journal to further your industry knowledge, you can claim the expense as a tax write-off.
8. Marketing and Advertising
Marketing and advertising can be anything used to promote your business. This can be social media, digital, print, radio, and TV ads. It also includes business cards you buy, pens with your logo/information on them, and any other marketing materials used to promote your business.
Examples of advertising/marketing expenses:
There are many forms of advertising. If you're unsure if it qualifies, it would be best to speak to a tax professional.
9. Home Office
If you work at home and have a dedicated home office, you can claim it as a tax deduction. To qualify as a home office, you have to have a portion of your home used exclusively for business operations.
To claim this deduction, you have to know the size of your office/percentage of the office compared to the rest of your home.
10. Insurance
If you are self-employed and buy insurance for yourself or your employees, it can be written off. This only qualifies if you buy it as a self-employed individual. If you have insurance coverage from another job or spouse, it will not qualify.
You can also claim the expenses associated with business insurance, such as malpractice, cyber liability, or business continuity plans.
11. Business Travel
Do you have regular meetings with clients? Do you attend conferences to network or expand your skills? Any business-related travel is a tax deduction!
Airfare, fuel, train tickets, and bus tickets are all deductible when filing your taxes.
12. Professional Services
If you hire an independent contractor to do services for your business, this is also a tax deduction. For example, maybe you hired a sales representative to sell business listings on your directory website? You may have chosen to put them on salary or commissions only.
This type of service and any other service that is contributing to your business provided by an independent contractor can be a write-off.
13. Startup Expenses
Are you a new business owner? Did you have to invest to get the equipment, supplies, and materials you need to operate? Good news, you can claim these as a tax deduction!
The fees to register your business or obtain permits/licenses to operate are considered startup costs. You can also write off the fees for renewing these licenses each year.
14. Gifts
Do you send gifts to new partners or new customers? Maybe a welcome package with cool things that promote your brand. Or perhaps you send a thank you gift after a client uses your services.
These are all tax-deductible. You can be generous and kind while getting a tax write-off!
15. Bank Fees
Do you have a business bank account? You can write off the fees for having it! This applies to business credit card fees and interest, too. You have to be able to prove the interest and fees are for a card that is used for business purposes.
Personal checking accounts used for business are not eligible. Nor are personal credit cards. You have to prove your business is responsible for the debt.
Do you use PayPal or a card processor, like Stripe, to complete transactions? The fee for those transactions can also be a tax deduction.
Ready to Start a Business? Get Started!
You now understand your options for tax deductions as a self-employed entrepreneur. Tax deductions lower your taxable income, thus lowering the amount of taxes you'll owe.
With so many options to deduct from your tax liability, starting a business doesn't seem as financially daunting as it once did. If you are ready to start a business and need help, contact us today.
The month of April is quickly approaching which means it’s time to file your taxes.
There are 582 million entrepreneurs in the world, and millions more will launch their own business this year alone. If you are currently running your own business or thinking about starting one, it's important to understand the types of taxes your business will owe and your options for tax deductions.
There are many different types of businesses ranging from brick-and-mortar storefronts to online only businesses. As an entrepreneur, it's imperative to know how to manage expenses and file your taxes. One of the perks of running your own business is that you can take advantage of certain tax deductions that will boost your bottom line.
While it’s always best to consult with a financial advisor or accountant to answer any questions you may have, this article will help guide you in common tax deductions entrepreneurs can take advantage of. Keep reading to learn more.
What is a Tax Deduction?
A tax deduction is an item you can subtract from your taxable income to lower the amount of taxes you owe. Tax deductions help companies reduce their overall taxable income and, thus, their tax liability. Deductions are typically business expenses spent throughout the year to operate the business and include everything from utilities and service subscriptions, to meals and even your cell phone.
Each year, tax laws change, and the rules around deductions are updated. Tax laws vary by state. Claiming tax deductions are available at both the state and federal levels for companies.
You can choose from a standardized or itemized deduction.
Standard Deduction
A standardized deduction is the set amount the IRS says is available. This amount is the same for everyone and varies according to filing criteria.
Itemized Deduction
Itemized deductions are more comprehensive deductions. These require calculation and documentation to use on your tax return.
Types of Deductions and Write-Offs
As an entrepreneur, there are many tax deductions you can use. Self-employed individuals are required to pay more taxes, so tax laws include many areas where business owners can reduce their tax liability.
Since tax laws change every year, this list is ever-changing. The write-offs and expenses you can claim will differ depending on the industry you are in.
For example, an online directory business will have different tax deductions than an accounting office. As previously mentioned, it’s always best to consult a tax accountant to determine which deductions are applicable to your business.
Below, you'll find some common tax deductions and write-offs for entrepreneurs and examples of each.
1. Supplies
Supplies can include anything you use to do your work. This can include supplies used to complete administrative tasks, such as printer paper, pens, envelopes, printer ink, and other office supplies.
Office equipment such as tables, desks, chairs, business landline phones, printers, and computers are all deductible under supplies.
You can claim equipment whether you own or rent. The expenses you pay to have it are tax-deductible.
2. Cell Phone Usage
Did you know if you use your phone for business purposes, you can deduct part of the bill as an expense? In order to do this, you will have to calculate how often you use your phone for business purposes.
What qualifies as business purposes? Phone calls with clients or partners, answering emails, sending emails, social media marketing, and scheduling.
You shouldn't claim 100% of your cell phone bill unless you have a phone exclusively used for business purposes.
To calculate how frequently you use your phone for business, you would need to track how often you complete business functions while on it for a period of time and compare it to how often you use it for personal reasons.
3. Utilities
Whether you work in a home office or have a facility, you can claim the utilities associated with operating it. These include electricity, heating, gas, internet service, and water bills.
If you have a home office, you can calculate how much of the utilities are used when working and claim the percentage.
4. Facility Expenses
If you rent or pay a mortgage on your place of business, you can claim the expense as a deduction. As long as you use the facility exclusively for business purposes, you can claim 100% of these expenses.
If you have to repair or renovate your business location, the associated costs are tax-deductible.
Maybe you don't have a home office or a facility and you rent office space at a local business center. This can also be claimed as a write-off. A co-working business space membership is considered an expense, even if you don't use it every day.
5. Educational Resources
If you are actively learning and developing yourself to grow your business, you can write the fees off as a tax deduction.
Examples of educational resources include:
- Webinars
- Professional courses
- Professional books
- Conventions
- Seminars
- Training
If you require certifications or licenses to do business, these would qualify under educational fees.
6. Software
If you use specific software for your business, it can be claimed. Additionally, you can claim software used to create invoices or manage your accounting books.
If you have business-specific mobile applications you pay for, these would count under software expenses. Cloud-based subscriptions to manage email or websites are also included under software.
Storage sites such as Dropbox or Google Drive are also eligible.
7. Subscriptions
If you have business-related subscriptions, you can deduct these. When you start a website directory business with Ideal Directories, your monthly or annual subscription for the platform can be a write off.
This also includes subscriptions to legal websites, a contract generating website (such as Dropbox Sign), or websites used to create marketing materials (think Canva or Photoshop).
If you subscribe to a newspaper, magazine, or journal to further your industry knowledge, you can claim the expense as a tax write-off.
8. Marketing and Advertising
Marketing and advertising can be anything used to promote your business. This can be social media, digital, print, radio, and TV ads. It also includes business cards you buy, pens with your logo/information on them, and any other marketing materials used to promote your business.
Examples of advertising/marketing expenses:
- Newsletters
- Sponsorships
- Facebook advertising
- Google My Business
- Google Adwords
- Content marketing
- Coupons/deals
- Giveaways
- Speaking at events
There are many forms of advertising. If you're unsure if it qualifies, it would be best to speak to a tax professional.
9. Home Office
If you work at home and have a dedicated home office, you can claim it as a tax deduction. To qualify as a home office, you have to have a portion of your home used exclusively for business operations.
To claim this deduction, you have to know the size of your office/percentage of the office compared to the rest of your home.
10. Insurance
If you are self-employed and buy insurance for yourself or your employees, it can be written off. This only qualifies if you buy it as a self-employed individual. If you have insurance coverage from another job or spouse, it will not qualify.
You can also claim the expenses associated with business insurance, such as malpractice, cyber liability, or business continuity plans.
11. Business Travel
Do you have regular meetings with clients? Do you attend conferences to network or expand your skills? Any business-related travel is a tax deduction!
Airfare, fuel, train tickets, and bus tickets are all deductible when filing your taxes.
12. Professional Services
If you hire an independent contractor to do services for your business, this is also a tax deduction. For example, maybe you hired a sales representative to sell business listings on your directory website? You may have chosen to put them on salary or commissions only.
This type of service and any other service that is contributing to your business provided by an independent contractor can be a write-off.
13. Startup Expenses
Are you a new business owner? Did you have to invest to get the equipment, supplies, and materials you need to operate? Good news, you can claim these as a tax deduction!
The fees to register your business or obtain permits/licenses to operate are considered startup costs. You can also write off the fees for renewing these licenses each year.
14. Gifts
Do you send gifts to new partners or new customers? Maybe a welcome package with cool things that promote your brand. Or perhaps you send a thank you gift after a client uses your services.
These are all tax-deductible. You can be generous and kind while getting a tax write-off!
15. Bank Fees
Do you have a business bank account? You can write off the fees for having it! This applies to business credit card fees and interest, too. You have to be able to prove the interest and fees are for a card that is used for business purposes.
Personal checking accounts used for business are not eligible. Nor are personal credit cards. You have to prove your business is responsible for the debt.
Do you use PayPal or a card processor, like Stripe, to complete transactions? The fee for those transactions can also be a tax deduction.
Ready to Start a Business? Get Started!
You now understand your options for tax deductions as a self-employed entrepreneur. Tax deductions lower your taxable income, thus lowering the amount of taxes you'll owe.
With so many options to deduct from your tax liability, starting a business doesn't seem as financially daunting as it once did. If you are ready to start a business and need help, contact us today.
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