22 Top Tax Deductions for New Business Owners

Are you an entrepreneur in your startup phase? If so, you should know the government offers tax deductions for new business owners to support economic growth and job creation.

Unfortunately, many new business owners miss these tax deductions, causing them to overpay taxes.

Maximizing tax deductions should be a priority when you are in the startup phase. 

Why? Because claiming tax deductions can reduce your taxes immediately. 

To avoid missing out on substantial savings, follow this article on the top tax deductions for new business owners. 

Understanding Tax Deductions

Starting a new business can come with a laundry list of expenses. 

The good news is that many of these costs can be tax-deductible, helping you reduce your tax bill and free up cash to reinvest in your business.

Here is a list of important tax deductions for new business owners along with tips to maximize your early expenses. 

1. Incorporation Costs

When you form a legal business entity such as an LLC or Corporation, you may incur a variety of startup costs that are fully deductible. 

The costs can include state filing fees, legal fees related to incorporation, and other administrative expenses directly associated with establishing your legal business structure.

Whether working with a lawyer or using an online service to file, these early-stage costs are considered ordinary and necessary for launching your business. 

They can help reduce your taxable income in your first year of operation.

2. Legal Fees

Hiring lawyers to help with structuring legal agreements is another cost that can be deducted. 

This includes expenses for drafting or reviewing partnership agreements, customer contracts, lease agreements, and any other legal documentation necessary for your business operations.

These services can protect your company and ensure compliance, making them a wise investment and a valuable tax deduction for any new business.

3. Accounting Fees

Setting up a proper bookkeeping system and managing your financial affairs is necessary for maintaining your business’s fiscal health. 

The costs associated with setting up a bookkeeping system, managing your finances, and ensuring tax compliance are fully deductible. 

This includes fees paid to accountants, bookkeepers, and financial advisors who help organize your accounting systems, handle monthly financial reporting, or prepare and file your business taxes. 

These services support your business’s economic health and ensure you stay compliant with IRS requirements while reducing your taxable income.

4. Licenses and Taxes

To legally operate your business, you may be required to obtain specific licenses and permits or pay local business taxes, but these costs are fully deductible. 

This includes state and local fees for business licenses, zoning permits, health department certifications, and any other regulatory filings required to comply with city, county, or state laws. 

These expenses are considered necessary for your business to function legally. 

They can be deducted as part of your startup and ongoing operational costs.

5. Business Insurance 

You can fully deduct premiums you pay for business insurance as ordinary and necessary expenses. 

These policies can protect your business against various risks and liabilities. 

Common deductible insurance types include general, property, and professional liability insurance. 

They cover things like your physical workspace, legal risks, and the services you offer.

These insurance options can support your operations while positively impacting your taxable income.

6. Advertising and Marketing

Marketing and advertising costs are another effective way to invest in business growth while gaining valuable tax deductions. 

Any expense for promoting your business, such as online ads, print marketing, branding campaigns, or promotional events, is deductible.

This also includes digital strategies like email marketing, social media advertising, content creation, and fees paid to marketing consultants or agencies.

7. Business and Office Supplies

You can deduct expenses like office furniture, printer paper, staplers, pens, calculators, business cards, and specialized supplies if they are used solely for your business operations. 

However, this deduction is for items you expect to use within the year you purchased them. 

For longer-lasting items, you must account for them under “depreciation.“ 

For example, desks and chairs, expected to last several years, would be categorized as depreciated assets.

Correctly classifying these items ensures you stay compliant and capture the full tax benefits available to your business.

8. Software, Electronics, and Online Apps

For new small businesses, the tools and technology used daily to operate efficiently are often eligible for tax write-offs. 

This includes purchasing computers, laptops, tablets, and other electronics used primarily for business. 

Similarly, the cost of software such as accounting programs, customer management tools, or productivity suites like Microsoft Word is fully deductible in the year of purchase. 

Ongoing subscriptions to online platforms that support your business, like Hootsuite or Buffer for social media management, are also eligible for deduction. 

Investing in the right technology can boost your day-to-day efficiency and provide immediate tax savings, making it a smart move for your operations and bottom line.

9. Business Property Rent

Rent paid for business properties falls under the top tax deductions for new business owners.

If you rent an office space, retail location, conference room, or co-working space necessary for your business, these costs can typically be deducted from your taxable income.

This can include:

• Meeting with clients and handling administrative tasks.
• Leasing a storefront to sell clothing and accessories.
• Booking a conference room at a hotel to host quarterly team strategy sessions.
• Paying a monthly fee to a local co-working space for remote client work.

This deduction allows you to reduce your taxable income and offset one of the most significant ongoing expenses for growing businesses.

Additionally, if you operate your business from home, you may also be able to deduct portions of your rental or mortgage expenses with the home office deduction. 

The IRS specifically excludes these situations to prevent conflicts of interest and ensure the rent deduction is used purely for rental situations.

10. Depreciation on Tangible Assets

For new business owners who invest in equipment, furniture, or other tangible assets, it is important to know how to deduct these costs to effectively reduce your tax burden.

This approach allows you to match the asset’s cost with the income it helps generate over time, providing a more accurate view of your business’s financial performance.

Depending on your business’s tax situation, options like the Section 179 deduction and bonus depreciation may allow you to deduct more of the cost upfront (or even the full amount). 

These options can benefit startups managing early-year cash flow while maximizing deductions.

Section 179 deduction: Allows businesses to immediately deduct the full purchase price of qualifying equipment, software, and certain vehicles in the year they are placed in service, rather than depreciating them over time.

This is ideal for businesses looking to lower their taxable income in a profitable year.

Bonus depreciation: Lets businesses deduct a large percentage of an asset’s cost in the first year—60% in 2024—with the rest depreciated over time.

It can be used in addition to or instead of Section 179.

De Minimis Safe Harbor election: Allows you to immediately deduct purchases of tangible property that cost $2,500 or less per item or invoice. 

11. Repairs and Maintenance

One area where you can potentially save on taxes is through the costs associated with repairing and maintaining your business property. 

It is important to understand the tax implications of these expenses, as they can affect your deductible amounts.

The classification of expenses is as follows:

Repairs: These expenses are incurred to keep your property in normal operating condition without enhancing its value. Repairs are fully deductible in the year they are made. 

For instance, if you recondition the floors of your office to maintain its current appearance, this cost is considered a repair and is fully deductible.

Renovations: In contrast to repairs, renovations involve enhancements that increase the property’s value or extend its life. 

These are considered capital expenditures and must be depreciated over time. 

For example, replacing your building’s standard roof with a high-end, energy-efficient roofing system that significantly improves the property’s durability and long-term value would be considered a renovation. 

The way you classify these expenses has a significant impact on how you can deduct them. 

While repair expenses can immediately reduce your taxable income, renovation costs are capitalized and depreciated, providing a tax benefit over several years.

12. Vehicle Expenses

If you use a vehicle for your business, you can take advantage of the vehicle tax deduction to lower your tax liability. 

The IRS provides two methods for claiming vehicle deductions:

Business mileage, where you can deduct each business mile you drive using the IRS standard mileage rate, and actual vehicle expenses, where you can choose to deduct a percentage of actual expenses related to your vehicle.

Actual vehicle expenses include costs such as gas, repairs, insurance, lease payments, maintenance, and registration fees.

Additionally, vehicles weighing over 6,000 pounds may qualify for bonus depreciation. 

This option allows you to deduct a larger portion of the vehicle’s cost up front, providing a substantial tax benefit in the year of purchase.

13.  Employee Salary and Contracted Labor

Hiring talent to help run your business is not just an investment in productivity but also an opportunity for valuable tax deductions.

You can write off the full range of salaries, wages, commissions, and bonuses paid to your part-time or full-time W-2 employees.

In addition to regular compensation, employers can also deduct expenses for employee benefits, such as health insurance premiums, retirement plan contributions, and paid time off, as long as they meet IRS guidelines. 

Similarly, payments to freelancers and contract workers are also considered deductible expenses.

These benefits can help reduce your tax burden and support recruitment and retention in your growing business.

14. Business Meals

It is very common to pay for meals during business meetings with clients, employees, vendors, or other business contacts. 

Fortunately, you can deduct a significant portion of meal costs when dining with business contacts if you discuss business topics. 

This deduction is beneficial for new businesses aiming to build relationships while managing expenses effectively.

Business meal expenses can include a client lunch to discuss a project, a coffee meeting with a prospective partner, or team meals during off-site training.

Typically, you can deduct 50% of these meal expenses. However, meals consumed during business travel are often 100% deductible.

15. Professional Services and Fees

Getting expert help can be necessary when starting and growing a business. 

You can write off fees for professional services directly related to operating your business. 

This includes expenses for legal advice, consulting, business coaching, bookkeeping, accounting, and tax preparation services. 

These deductions are valuable for new businesses seeking expert guidance without significantly affecting their operating budget.

16. Interest and Bank Fees

Managing startup finances often means using credit lines, loans, or business accounts to cover daily expenses. 

Fortunately, you can deduct business-related interest charges and bank fees, which is particularly beneficial for new businesses managing initial costs. 

This includes interest on business credit cards, small business loans, and fees for maintaining a business bank account.

Interest deductions should be strictly from debts incurred for business purposes, such as purchasing inventory or funding other operational needs. 

Maintenance fees for business bank accounts are also fully deductible. 

Maintaining separate bank accounts for your business and personal finances is advisable. 

This separation simplifies your financial management and supports the clear documentation needed for tax purposes.

When you manage these financial aspects effectively and ensure appropriate documentation, you can maximize tax deductions, thereby reducing the overall financial burden of your business.

17. Cost of Goods Sold

If your business manufactures products or purchases them for resale, you can deduct the cost of these goods. 

This deduction is known as the Cost of Goods Sold (COGS). COGS is deducted from your revenue to determine gross profit. 

The deduction is typically made in the year the products are sold, aligning the cost with the associated revenue.

Expenses included in COGS are those directly related to the production or purchase of the products sold. 

This can include raw materials, direct labor costs (such as wages for staff who make the products), storage, and factory overhead.

18. Travel Expenses

Traveling for business can lead to significant tax savings since direct business-related expenses are fully deductible. 

This includes costs for flights, hotels, meals, and transportation.

Note that every expense you deduct should be directly related to the business purpose of your trip. 

This includes travel for board meetings, conferences, seminars, or meetings with business contacts.

A skilled tax planner may be able to help you plan your business travel days to write off up to 100% of your costs.

19. Memberships and Subscriptions

Staying informed and connected can benefit your business and your pockets.

For new businesses, professional memberships and subscriptions to business-related publications are tax-deductible expenses. 

These expenses are considered ordinary and necessary for many industries, especially in your startup phase when staying ahead of trends and building connections is essential.

Professional memberships in trade associations, industry-specific groups, or networking organizations are fully deductible. 

These memberships can provide access to valuable resources like training programs, networking events, certification opportunities, and exclusive industry updates that can directly support your business growth.

Business-related subscriptions to trade journals, industry magazines, online publications, or newsletters are also deductible if they help you stay current with developments in your field. 

This can be a subscription to a marketing journal, tech magazine, or a niche industry resource.

Lowering your tax bill while investing in professional development and industry expertise is a win-win! 

20. Education and Training

For new business owners, investing in education is not only a way to stay ahead; it can also be tax-deductible.

The education should enhance or maintain the skills required for your existing business to qualify.

For example, this can include a real estate agent taking advanced negotiation courses or a fitness coach attending a certification workshop to maintain credentials.

Courses that help you comply with legal or industry-specific requirements, such as OSHA training, cybersecurity compliance, or continuing education credits, may also qualify.

Deductible education expenses may include tuition and enrollment fees, books and supplies related to your coursework, and travel and transportation costs to and from classes, workshops, or seminars.

21. Moving Expenses

If you are a new business owner relocating your operations to a new office or commercial property , you may be eligible to fully deduct the costs of your move. 

Deductible moving expenses may include the transportation of equipment, inventory, and supplies and costs related to setting up your new workspace. 

This can cover many relocation needs, such as hiring professional movers, purchasing packing materials and boxes, and even travel expenses for scouting or preparing the new location before the move.

22. Home Office

For new business owners working from home, the IRS offers a valuable opportunity to deduct home office expenses as long as they meet specific requirements.

If a portion of your home is used exclusively and regularly for business, you may qualify to deduct a portion of your household expenses related to that space.

Exclusively means the space is used only for business purposes.

Regularly means you use the space consistently and continuously to conduct business.

The IRS provides a method to calculate and deduct home office expenses. 

Under the regular method, you can deduct 100% of direct expenses such as repairs or improvements made solely to your home office.

You can also deduct a percentage of indirect expenses, such as utilities, rent, mortgage interest, property taxes, homeowners insurance, and general maintenance, based on the square footage of the home used for business.

By clearly establishing the business use of your home, you can confidently claim this deduction and reduce your taxable income—turning your at-home workspace into a powerful tax-saving asset.

Bottom Line

Educating yourself about the tax deductions for new business owners can save you money.

The deductions we have discussed can be beneficial as you start your journey.

However, tax laws are complex, and IRS regulations often change from year to year.

The best way to ensure your finances and taxes are in order is to work with a top-rated CPA.

A CPA can help you follow the rules and ensure you are claiming all the deductions your business qualifies for.

Stay updated on tax regulations to maximize your deductions and save money.