6 Small Business Tax Deductions To Remember

Starting a business often doesn't include tax deductions on the radar, but they can play a vital role in saving money. By reducing your taxable income, tax deductions help you retain more funds within your business. Understanding common small business tax deductions is important for making smarter financial decisions. Let’s explore the key small business tax deductions you don’t want to miss.

What are Tax Deductions for Small Businesses?

Small business tax deductions are specific business expenses that the IRS allows you to subtract from your total revenue, reducing your taxable income. In simple terms, they lower the portion of your income that's taxable by the government. This means lower taxes and more funds to reinvest in your business. However, not every expense qualifies.

A deductible expense must be both ordinary (common in your trade) and necessary (helpful for your business). Think office rent and software subscriptions. Even paying your accountant may qualify. The true value of tax deductions lies in knowing which ones apply to you and using them wisely to boost your savings.

Many business owners are familiar with the big-ticket items, but there’s a long list of small business tax deductions that often go unnoticed. Some tax deductions are industry-specific, while others apply across the board. Understanding how deductions work is the first step. Then, it’s all about knowing what qualifies and using that insight to make smarter, tax-efficient decisions throughout the year.

Top 6 Small Business Tax Deductions You Shouldn’t Miss

Here’s a list of small business tax deductions you might not know about, including some of the best ones you don’t want to overlook:

1. Home Office Deduction

If you run your business from home, you may qualify for a home office deduction. The space must be used regularly and exclusively for business. You can deduct a percentage of your:

• Rent or mortgage

• Utilities

• Insurance

• Repairs based on the square foot used

Many business owners miss out on this, assuming it’s only for full-time remote workers, but it’s also available to small business owners.

2. Startup Costs

You can deduct up to $5,000 in startup expenses and $5,000 in organizational costs in the first year of business. Qualifying expenses include:

• Market research

• Business license

• Legal fees

• Website development

Many first-time business owners miss this deduction, thinking tax deductions only apply once they start generating revenue. However, the IRS lets you claim these early investments as long as the business becomes active and returns are filed within the first year.

3. Professional Services

Fees paid to lawyers, accountants, or consultants are deductible. What many business owners may not know is that even the cost of using a PEO or HR platform to help with payroll or HR compliance can be deductible. Administrative fees that support your business operations and HR compliance can be turned into valuable small business tax deductions.

4. Employer-Paid Payroll Taxes

When you run payroll, you’re responsible for different types of payroll taxes, including:

• Social Security

• Medicare

• Federal and state unemployment taxes

These are common tax deductions that can add up, especially if you’re growing your team. Even if you use a payroll provider or PEO, the employer-paid portion of these taxes remains deductible. Just ensure your payroll records clearly distinguish between employee withholdings (which aren’t deductible) and employer-paid taxes.

5. Employee Benefits and Premiums

Do you provide access to health insurance or any other employee benefits? These expenses can be tax-deductible, along with your contributions to retirement plans and employee assistance programs. Employee benefits help attract and retain top talent, but they can also reduce your taxable income.

6. Business Meals

You can typically deduct 50% of business meals with clients and employees as long as the meal has a clear business purpose. This includes:

• Meals during business travel

• Team training sessions

• Office-provided meals

The important part is to document who attended and the purpose of the meal. However, it may not qualify if it’s an extravagant, five-star event.

How to Leverage Tax Deductions to Lower Your Taxable Income

Understanding the best small business tax deductions is one thing; using them strategically is another. Here’s how to use deductions to reduce your tax bill actively:

1. Keep Accurate, Year-Round Records

Track your expenses as they happen. Save digital and physical receipts and separate your personal and business finances. You may also log your business mileage. Insufficient documentation is one of the main reasons deductions get denied.

2. Use the Calendar to Your Advantage

Need to buy equipment or renew software? Make those purchases before December 31 to deduct them for the current tax year. Strategic timing can lower your taxable income when it matters most.

3. Categorize Everything Correctly

Ensure that you’re categorizing your expenses, such as home office, meals, benefits, and professional services, correctly. This helps you capture the full value of both standard and overlooked deductions.

4. Work With a Qualified Tax Professional

An experienced advisor can help you identify missed opportunities, such as industry-specific deductions or more effective accounting methods. Their professional insight can transform a list of small business tax deductions into a strong business strategy.

Optimizing Your Tax Savings with Justworks

Maximizing the value of your small business tax deductions begins with maintaining accurate and well-organized records. Justworks’ PEO platform streamlines payroll. It helps maintain detailed documentation of payroll expenses, such as retirement contributions and employer-paid payroll taxes. This makes it easier for you and your tax professional to identify opportunities for savings.

Justworks' PEO platform also helps you stay compliant with payroll tax laws across multiple states. You can focus on growing your business instead of chasing paperwork. Ready for a system that transforms payroll into a strategic advantage? Get started with Justworks today.