Small business tax deductions: What can you claim in the US?

As a small business, tax-deductible items are incredibly helpful. They directly reduce your taxable income — which lowers the overall amount of taxes you owe to the government — and enable you to invest your resources in growing and managing your business.

But what exactly can you deduct? And how do you go about doing so?

In this article, we’ll show you everything you can deduct (including the most commonly-overlooked — and the most unusual — items), and explain the claims process. So let’s jump straight in.

What are the main tax deductible items for small businesses?

For most small businesses, the following items are standard tax deductions:

Advertising and marketing

Advertising expenses are the costs you incur promoting your business, such as digital ads (e.g., Google Ads, social media campaigns), print materials (flyers, brochures), and branded items like business cards. Sponsorships for community events or influencer partnerships may also fall under this category.

These kinds of activities are essential for customer acquisition and are fully deductible if they are directly tied to your business.

Business meals

If you are dining with clients, prospects, or team members for business purposes, you can deduct 50% of the meal cost.

Ensure you keep receipts and note the purpose of the meeting to justify the deduction. Meals provided during in-office meetings — such as catered lunches — may also potentially qualify.

Office supplies

From paper and pens to staples and sticky notes, supplies used in your daily operations are deductible. Even small purchases, like folders or USB drives, can add up over time.

Ensure that you keep all receipts for purchases made at office supply stores or online retailers.

Utilities

If you work on-site, the electricity, water, heating, and internet costs in your business location are deductible. If you work from home, you can deduct the business-use portion of your home utilities.

Employee wages

If you hire employees, their wages are generally deductible (as well as their overtime, bonuses, and commissions). The wages must be “ordinary and necessary” for your business operation, and must be deemed “reasonable” for the work performed.

Independent contractor payments (reported on Form 1099-NEC) also qualify.

Employee benefits

Benefits like health insurance, life insurance, retirement contributions, and wellness programs may also be deductible, as long as they’re directly tied to your business.

Training and education

Workshops, certifications, and training programs to improve your employees’ skills are deductible. These can include tuition reimbursements, seminars, and online courses, provided they are business-related.

Legal and accounting fees

Professional fees paid to attorneys, accountants, consultants, or other experts for services directly related to your business are deductible. This includes costs for preparing taxes, reviewing contracts, or getting financial advice.

Business taxes

State and local income taxes, property taxes on business assets, and payroll taxes for employees are deductible. Note that federal income taxes are not deductible.

To see a full breakdown of state-specific taxes, check out our free US State Explorer tool.

Office rent

Rent paid for your business’s office space is fully deductible. This includes shared workspaces, leased office buildings, or storefronts. For businesses operating from home, only the portion of the home used exclusively for business qualifies.

Home office expenses

If you use part of your home exclusively and regularly for business, you may deduct expenses such as mortgage interest, rent, utilities, and repairs proportionate to the size of the office. The IRS simplified option offers a flat $5 per square foot deduction, up to 300 square feet.

Equipment leasing

Leasing equipment such as copiers, printers, or machinery used in your operations can be deducted. This includes rental agreements for temporary equipment needs.

Business travel

Traveling for conferences, client meetings, or branch visits allows you to deduct transportation (i.e., flights, trains, and taxis), lodging, and a portion of meals. The purpose of the trip must be business-related, and personal activities during the trip should be excluded.

Vehicle expenses

For business vehicle use, you can deduct either actual expenses (e.g., gas, maintenance, and insurance) or use the Internal Revenue Service (IRS) standard mileage rate. Maintain a log of miles driven for business purposes to claim this deduction accurately.

Business insurance premiums

Insurance coverage for property, liability, cyber threats, or workers’ compensation is deductible. This also includes premiums for professional malpractice insurance or business interruption insurance.

Depreciation of assets

The cost of long-term assets like vehicles, machinery, and furniture can be spread out over several years through depreciation. The IRS allows for accelerated depreciation under certain conditions (e.g., Section 179), enabling you to deduct the full cost in the year of purchase.

Subscriptions

Subscriptions to industry journals, research databases, or software-as-a-service (SaaS) tools essential for business operations are deductible. Examples might include Adobe Creative Suite or Bloomberg Terminal.

Dues and memberships

Membership fees for professional organizations, trade associations, or local chambers of commerce that help you network and stay updated in your field are deductible. Social club memberships, however, are not deductible.

Telephone and internet

If you have a business-specific phone line or internet connection, the cost is deductible. For shared services, only the business-use portion qualifies.

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What are some of the most commonly missed tax deductions for small businesses?

Although the items listed above are relatively standard, companies often miss out on lesser-known deductions. Some of the most overlooked tax write offs include:

Startup costs

Costs incurred before your business begins operations — such as market research, business plan development, and initial advertising — can be deducted up to $5,000 in the first year (phased out if total costs exceed $50,000).

Business software

Business-related software — including accounting tools like QuickBooks or project management platforms like Trello — can be fully deducted. Subscription models or one-time purchases are eligible.

Bank fees

Banks often charge businesses for maintaining accounts, handling transactions, and other financial services. These fees — as well as those for bounced checks, wire transfers, and merchant accounts — are deductible.

This is also another good reason for setting up a dedicated business account (if you haven’t already done so).

Interest payments

Interest paid on loans used for business purposes, such as a line of credit or equipment loan, can be deducted. Note that personal loans do not qualify unless used directly for business needs.

Bad debts

Money owed to your business that you can’t collect — such as unpaid invoices or loans — may qualify as a deductible business loss.

Energy efficiency improvements

Upgrades to make your office energy-efficient (e.g., installing solar panels or energy-efficient windows) may qualify for deductions or tax credits.

Moving costs

If you relocate your business, the cost of moving equipment, furniture, and inventory is deductible.

Unused inventory or obsolete equipment

Unsellable inventory or equipment no longer usable for your business can be written off.

Uniforms (or unique work clothing)

If your business requires specific uniforms or clothing that cannot double as everyday wear (e.g., branded apparel or safety gear), you can deduct the cost.

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Unusual tax deductions

Most businesses will incur many of the costs listed above, but there are also potential deductions for niche items. Some of these include:

Petty cash expenses

Small, irregular expenses paid in cash (e.g., coffee for clients or last-minute supplies) are deductible as long as they’re business-related and properly documented.

Business use of a swimming pool

If your business requires a swimming pool (e.g., for fitness training or physiotherapy), you may be able to deduct expenses for maintaining and operating the pool. This requires clear documentation that it’s used for business purposes.

Entertaining clients at home

If you use part of your home to entertain clients for business purposes, such as hosting business dinners, you can deduct a portion of related expenses, like private catering and cleaning services.

Meals for overtime work

If your employees must work late and you provide meals to keep them working productively, the cost may be fully deductible as a business expense.

Volunteer event costs

Costs associated with organizing or participating in community volunteer events (e.g., materials, banners, or branded T-shirts) can often be deducted as advertising or marketing expenses.

Business-related gifts

You can deduct up to $25 per year for gifts given to each client or customer, plus the cost of incidental expenses like wrapping and shipping.

Annual holiday parties

Throwing a party for employees (and sometimes their families) is potentially fully deductible if it’s primarily for business purposes and inclusive of all employees.

Creative marketing stunts

Unique marketing strategies, like creating a custom mascot or hosting an unusual public event to promote your business, are deductible as long as they’re tied to business advertising.

How to claim tax deductions

To claim your tax deductions, you should first ensure that you are always keeping detailed records of all your receipts, invoices, and bank statements, and that you are carefully and accurately organizing them using an accounting tool like Xero.

For payroll-related items, you should use an automated payroll system that makes it quick and easy to manage and access your payroll records.

The process itself for claiming deductions should be conducted when filing your annual taxes. The form(s) you’ll need depends on how your business is structured.

• For a sole proprietorship or single-member LLC: Use Schedule C (Profit or Loss from Business) attached to your personal tax return (Form 1040).

• For a partnership or multi-member LLC: File deductions on Form 1065 (Partnership Return) and issue Schedule K-1s to partners.

• For an S-Corporation: File deductions on Form 1120-S and allocate expenses to shareholders via Schedule K-1.

• For a C-Corporation: File deductions on Form 1120 (Corporate Income Tax Return).

Note that each type of expense has its own specific forms and documentation requirements.

How can Remote help?

Understanding how deductions can impact your tax liability is crucial for making informed financial decisions. With this knowledge, you can confidently manage your earnings, optimize your tax strategy, and keep your business finances in check.

Alternatively, if you don’t have the time or resources to manage your payroll tax obligations confidently, you can work with a quick, easy, and reliable payroll tool, such as Remote Payroll. We ensure that your business remains fully compliant with all relevant payroll tax laws, saving you time, money, and countless headaches in the process.

To learn more about how Remote can help your small business, speak to one of our friendly experts today.

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