Small Business Tax Deduction Checklist – Part 2

Last week’s blog listed many tax deductions you should be aware of as a small business owner, but there is still plenty to discuss. This week, let’s complete our list of deductions your company may be eligible for, and discuss how to take full advantage of them.

  •  Mileage. The mileage deduction allows individuals to deduct the cost of using their personal vehicle for business purposes from their taxable income. This requires meticulous records of trips and miles including date, starting point, destination, and purpose. Consider using one of the various apps that are available to help keep track.

  • Home office. The home office deduction is available to self-employed individuals, as well as those who are employed by another company. To qualify, the space must be used regularly and exclusively for business activities; this means that it cannot be used for residential purposes such as sleeping or watching television. Additionally, the space must serve as the primary place where your work is completed, although you are still allowed to work from other locations such as clients’ offices or coffee shops.

  • Tools and equipment. We have covered some of this with specific items like software or office furniture in part one, but the Section 179 Deduction allows businesses to deduct the full purchase price of many qualified items that are bought or leased during the taxable year. These items generally include anything necessary for business operations. Business owners can also include improvements to these items as well as off-the-shelf software and tangible personal property used to furnish a business space.

  • Rent. In order to qualify for the rent deduction, your business must be actively engaging in an activity with the intent to make money. This means that it cannot just be a hobby or side job – it must be your primary source of income. The Internal Revenue Service (IRS) allows you to deduct rent paid for use in your business from your gross income before calculating taxable income. You must have a written lease agreement in place and your name must appear on it as the tenant; otherwise, you cannot claim the deduction. Additionally, the IRS requires that you show proof of rental payments such as bank statements or canceled checks.

  • Moving expenses. Businesses can deduct certain qualifying relocation costs, including transportation and storage of household goods and personal effects, travel expenses for employees and their families, and certain other related expenses. This deduction also applies to individuals who have been relocated by a business or organization. Furthermore, the cost of lodging while an individual is in transit may also be deductible. The amount of the deduction is based on the actual cost incurred or the standard IRS mileage rate depending on which is less.

  • Internet services. This deduction allows businesses to write off a portion of their internet-related expenses including monthly service fees, hardware, and software costs. There are specific eligibility criteria when it comes to claiming this deduction – the expenses must be related to activities which are considered ordinary or necessary for the business. Furthermore, any equipment purchased must have a useful life of more than one year in order for it to qualify. Additionally, if the business has multiple locations or employees who work from home they may also be able to claim an additional deduction as long as they meet certain conditions.

  • Taxes. In many cases a business can deduct other taxes paid throughout the year. This could include deductions for state and local sales taxes, property taxes, general excise taxes, and even foreign country taxes. There are maximum limits set in place by the IRS that must be taken into consideration while attempting to write off any sort of taxable income on your return.

  • Legal fees. The deduction can be taken as long as the legal fees relate directly to any costs associated with running or managing the business, such as tax or trademark filings and litigation services. Additionally, some companies may be eligible for additional deductions depending on the state in which they operate, such as those related to employee benefits or retirement plans.

  • Bank and credit card fees. Banks and financial institutions often charge processing fees when customers pay with credit cards, and these additional costs can be deducted as an “ordinary and necessary expense.” In addition, fees incurred when using credit cards for business purposes, including interest charges and late fees.

  • Startup costs. These deductions typically include supplies, equipment, marketing materials, employee salaries and wages, legal fees, business insurance premiums, and other miscellaneous expenses associated with setting up a new business. In addition to providing an immediate tax break for the new business owner, it also helps them build equity in their venture by forcing them to invest upfront in its success. Finally, this deduction may also be extended to cover costs incurred during the first two years of operations that were not initially deductible when they occurred.

  • Research and experiment costs. This includes expenditures for activities such as testing products, improving production processes, and conducting market surveys. Businesses can even receive tax deductions for costs related to the development of prototypes and for hiring outside consultants or professionals to conduct research. Deductible expenses may include salaries and wages of employees, materials used in the research, travel and other costs necessary to complete the experiment or study. Additionally, businesses may be able to deduct a portion of their legal fees associated with obtaining patents related to their research. Businesses can carry forward any excess credits that exceed the yearly deduction limit into subsequent years until they are fully utilized. 


The various taxes that small businesses have to pay out each year are significant, so it’s important to be aware of every opportunity the tax man gives you to reduce your bill. So be sure to consider whether any or all of the items in this checklist apply to your business and discuss them with your bookkeeper and accountant to ensure you are documenting and claiming every deduction available to you.