With tax filing for the 2023 calendar year around the corner, it’s a good time to look at your potential tax deductions on your small business taxes. And we’re here to provide information to help you maximize your tax reductions. Here are some tips for your business.
Keep in mind, not all deductions listed may apply to your business. Be sure to discuss details with your accountant or tax advisor. Every business is different, and consulting a tax professional helps ensure you’re deducting the right things – and not overlooking a possible deduction.
Read on for the most common deductions for small businesses:
Health Insurance and Other Insurance Premiums: Current law allows most businesses to deduct the premiums paid for employees’ health insurance. You may be able to deduct the costs of life insurance costs for officers and employees if you are not a beneficiary of such coverage. Your deductions apply to both federal income and payroll taxes. In addition, most businesses can deduct the costs for property insurance, liability coverage, workers’ compensation insurance, business interruption insurance, business vehicle insurance, and cybersecurity insurance.
HRA, HSA, and QSEHRA Contributions: Your business can deduct contributions and reimbursements to employees for a Health Reimbursement Arrangement (HRA) and contributions to your employees’ Health Savings Accounts (HSAs).
Small employers that don’t offer group health insurance to employees can help them pay for qualifying medical expenses through a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). Reimbursed costs are tax deductible for the employer and tax-free for employees. To qualify to use a QSEHRA, a business must:
- have fewer than 50 full-time employees,
- not offer a group health plan or Flexible Spending Account (FSA),
- offer the QSEHRA to all full-time employees on the same terms.
More information about HRAs and QSEHRAs is available at HealthCare.gov.
Over and above standard tax deductions, small businesses may qualify for a health insurance tax credit as part of the Affordable Care Act (ACA). It depends on group size, contribution toward employee premiums, and how and where you purchase your coverage.
The highest tax credit is offered to companies with fewer than 10 employees who are paid an average of $27,000 or less. More information on the Small Business Health Care Tax Credit is available at HealthCare.gov.
Rent: If you pay rent for your business property, you’re likely able to deduct that cost from your business taxes. If you have a home-based business, you may be able to deduct expenses related to the business use of your home.
You can get additional information on the deductibility of rent and other expenses in several publications produced by the Internal Revenue Service:
- Publication 15, Employer’s Tax Guide
- Publication 15-B, Employer’s Tax Guide to Fringe Benefits
- Publication 334, Tax Guide for Small Business
- Publication 463, Travel, Gift, and Car Expenses
- Publication 529, Miscellaneous Deductions
- Publication 525, Table and Nontaxable Income
- Publication 538, Accounting Periods and Methods
- Publication 542, Corporations
- Publication 544, Sales and Other Dispositions of Assets
- Publication 546, How To Depreciate Property
- Publication 551, Basis of Assets
- Publication 587, Business Use of Your Home
Links to all of these forms (and others) are on the IRS website.
Electricity/Gas/Water/Telephone/Internet: Business utilities are deductible, too. For a home-based business, you cannot deduct the cost of your landline telephone. If you have a second phone line used primarily for business, you can deduct that cost.
Equipment and Machinery Rent and Depreciation: If you lease equipment or machinery for your business, those costs are deductible. Examples include:
- computers
- printers
- copiers
- company vehicles (like trucks or vans)
If you want to claim depreciation on these items, costs must be deducted over multiple years. More information about Section 179 deductions can be found in an updated Business News Daily article.
Your business may be able to take additional deductions for other expenses, including:
- inventory
- office furniture
- office supplies
- business entertainment
- travel
- interest on loans
- bad debts
- employee gifts
- contract labor
- legal fees
Again, discuss your options with a professional tax advisor to be sure you’re not missing out on any deductions. You may also want to read Small Business Taxes: What to Expect in 2024, published by Business News Daily.