Did you know there are countless creative tax deductions for a small business to take advantage of, significantly reducing their tax bill at the end of each year?
However, many creators and small business owners are unaware of those tax deductions, often resulting in higher tax bills. Those who are aware may misinterpret the criteria to qualify for those deductions.
The IRS generally allows you to write-off any ordinary and necessary expense incurred for business purposes.
In this article, we’ll walk you through a list of 30 creative tax deductions for small businesses.
Table of Contents
1. Marketing and Advertising
When it comes to marketing and advertising expenses, there are some creative tax deductions for a small business to keep in mind.
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Generally, you can deduct the costs associated with ads, marketing fees, website creation and maintenance, and more – as long as the expenses are reasonable and considered ordinary (typical in your trade) for your industry.
However, there may be some exceptions where extravagant or excessive marketing tactics would not qualify as deductible expenses.
You can deduct marketing efforts like the ones below as legitimate business expenses:
- Printing flyers and business cards
- Running digital advertising campaigns
- Purchasing branded promotional items like pens
As with any deduction, be sure to carefully document and record these marketing and advertising costs.
Keeping detailed receipts and records will make it easier to claim eligible deductions when filing your small business taxes.
2. Cell Phone
If you have a dedicated cell phone that you use exclusively for your business, you may be able to deduct all of the associated costs as a business expense.
However, claims for cell phone deductions are often closely examined by the IRS, as most people use their phones for work and personal purposes.
In situations where you have a single phone for combined business and personal use, you can deduct a percentage of the cell phone costs that is proportional to the amount of business-related usage.
To support this deduction, it is important to carefully track and document your business versus personal cell phone use.
Maintaining a detailed log of business calls, emails, and other work-related activities conducted on your phone can help substantiate the deductible portion of your expenses.
3. Home Office
If you use a portion of your home exclusively for business purposes, you may be eligible to deduct some of your housing expenses against your business income.
Exclusive use refers to a specific area of your home designated solely for business activities, with no personal use at any time.
Common home expenses you may be able to deduct include:
- Mortgage interest
- Rent payments (if you don’t own your home)
- Real estate taxes
- Utilities (electricity, gas, water)
- Homeowners or renters insurance
- Repairs and maintenance (related to the office space)
- Depreciation (if you own the home)
You can deduct a percentage of these expenses based on the portion of your home dedicated to business use.
4. Software
To run a small business efficiently, software programs may be necessary.
These programs might include project management tools, productivity suites like Microsoft Office, or creative applications like Adobe Photoshop.
The deductible amount will depend on how much of the software usage is dedicated to business purposes versus personal or recreational use.
To maximize your deduction, be sure to carefully track and document your business-related software utilization.
Maintain logs or records that clearly demonstrate the extent to which each program is employed for legitimate business needs and operations.
5. Insurance
When it comes to creative tax deductions for a small business, one area often overlooked is insurance premiums.
While insurance might not seem like the most exciting expense, the costs you pay to protect your business can provide some valuable tax savings.
Insurance premiums are considered deductible business expenses by the IRS since they view various forms of insurance as a necessary cost of operating a company.
By properly documenting and claiming these costs, you can reduce your overall taxable business income.
Some examples of insurance premiums that may qualify as deductible expenses include:
- General liability insurance
- Property insurance
- Errors and omissions insurance
- Health insurance premiums for employees
To take advantage of these deductions, be sure to carefully track and record your insurance payments throughout the year. Maintain documentation like receipts, invoices, and policy information.
When filing your taxes, you can deduct the full value of premiums paid for qualifying insurance policies related to your business activities.
6. Loan Interest
If you’ve taken out a loan to fund your operations, the interest paid on that debt can offer creative tax deductions for a small business.
The IRS allows you to deduct qualified business loan interest from your taxable income, thereby reducing your overall tax liability.
However, there are some key requirements to be eligible for this deduction:
- The loan must be from a legitimate lender like a bank or professional lending institution. (Not from family, friends or personal acquaintances.)
- You must be legally liable for repaying the debt under the loan terms.
- You and the lender must have intended the loan to be repaid, not treated as a cash gift.
If your business loan meets these criteria, you can deduct the interest payments made throughout the tax year.
Be sure to carefully document the loan details and interest paid.
7. Clothing
Did you know you could possibly write off a suit, scrubs, or company-branded gear you bought for work?
When deducting costs for work clothing and uniforms, there are some specific rules and criteria established by the IRS that must be met.
For an item of clothing to qualify as a deductible business expense, it needs to be considered ordinary and necessary for your business operations:
- Ordinary: The attire is an industry norm or standard for your line of work.
- Necessary: The clothing is essential for you to properly conduct business activities.
If the clothing meets the ordinary and necessary criteria, you may be able to claim the costs as miscellaneous deductions on your individual tax return.
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8. Contract Labor
If you hire freelancers or contractors and their services are legitimately necessary for your business, you may be able to deduct their fees as a business expense.
Some examples where contract labor costs could qualify as a deduction include hiring a freelance writer to produce content for your company website or paying an independent delivery service to rush an order to a client.
However, be sure to properly document and report payments to contractors. If you pay any individual contractor $600 or more over the course of the tax year, you need to send them a Form 1099 to report that income.
As long as their work was necessary for your business, deducting their contract fees can provide a creative way to lower your taxable business income.
Maintaining good records and issuing required tax forms shows that you treated these contractors legitimately for tax purposes.
9. Moving Expenses
If you’re a business owner planning to relocate to a new office or commercial property, you may be able to deduct moving expenses related to your business operations.
Eligible deductions include the costs associated with transporting equipment, inventory, and supplies, as well as expenses incurred while setting up your new workspace.
It may also include various moving expenses, such as:
- Hiring movers for office equipment
- Packing materials and supplies for your business assets
- Travel expenses for scouting or preparing the new business location
It’s important to track and categorize these expenses, as they may qualify as legitimate business deductions, provided they are ordinary and necessary for your business.
10. Legal Accounting and Services
To maximize creative tax deductions for your small business, legal and professional fees present a valuable opportunity.
These costs, while necessary for operating your company, can take a bite out of profits – fortunately, the IRS allows you to offset some of those expenses through tax deductions.
Legal fees paid to attorneys for any business-related matters, like contract reviews, lawsuits, or compliance issues, are generally deductible.
The same applies to fees for accountants, bookkeepers, tax preparers, and even online bookkeeping services that support the financial management of your business.
11. Meals
Enjoying a meal with business contacts can actually provide some large tax benefits.
Generally, a business owner can deduct 50-100% of meals purchased during business travel and meetings, depending on the circumstances.
Deductible business meal expenses may include:
- Lunch with a client to discuss a potential project
- Dinner with a business partner while traveling for work
- Coffee with a vendor to review contracts
- Meals ordered from a restaurant during a staff meeting
- Catered food for a company training session
- Food delivery to your office for a working lunch
- Gratuities (tips) paid to servers during a business meal
- Sales tax included on restaurant bills
12. Repairs and Maintenance
As a small business owner, keeping your assets and operations in proper working condition is important.
Fortunately, many of the costs associated with regular repairs and routine maintenance can qualify as deductible business expenses come tax time.
Things like changing the oil in company vehicles, repairing broken windows or equipment, and other work required to keep things running safely and smoothly are generally tax deductible under the repairs and maintenance category.
However, it’s important to distinguish between true repairs and capital improvements that add value or extend the life of an asset.
While repair costs provide an opportunity for deductions, improvements like adding components to upgrade machinery or installing energy-efficient windows are considered capital expenditures that cannot be fully deducted as a repair expense.
13. Travel
If you’re a small business owner constantly on the go, travel costs can add up.
However, creative tax deductions for a small business are hidden in all those miles logged – the ability to deduct qualifying travel expenses directly related to business purposes.
Whether you’re jetting across the country for an industry conference, driving to meet with potential clients, or anything in between, expenses like flights, hotels, meals, and ground transportation associated with the business travel can potentially be fully deductible.
The key is ensuring every deductible expense directly correlates to the legitimate business purpose behind each trip.
Examples include attending board meetings, networking events, seminars to learn new skills, meetings to scout new locations, or make sales pitches.
By carefully tracking all travel costs and the specific business reasons necessitating each trip, you can maximize this deduction opportunity.
14. Augusta Rule
As a business owner, you can rent your personal residence to your business. This write-off is formally referred to as the Augusta Strategy.
When using the Augusta Strategy, two things happen:
- The money the business pays you can be used as a tax write-off.
- The money you receive from the business is tax-free as long as you don’t do this for more than 14 days in any tax year.
There should be a business purpose for the expense. Typical use cases are board meetings, company events, employee training, video or photoshoots, or other events that require a physical meeting location.
You may need to meet some requirements to implement the Augusta Strategy successfully, so be sure to get a tax professional involved if this interests you.
15. Education and Conference
You may want to keep your skills sharp as a business owner.
The good news is that costs related to attending work conferences or taking educational courses can potentially be deducted as business expenses.
If you take classes, attend seminars, or enroll in training programs to improve job-related skills, you may be able to deduct things like registration fees, workshop costs, industry books or online courses, trade publications, and tuition fees.
As always, the education must be related to maintaining or improving skills for your current business activities.
16. Gifts
One of the most creative tax deductions for your small business on this list is gift-giving.
The IRS allows you to deduct up to $25 per recipient per year for business gifts given directly or indirectly.
Here are some key points about this deduction opportunity:
- $25 limit applies per person you gift to during the tax year
- Gifts to companies count as indirect gifts to whoever receives them
- Spouses are treated as one taxpayer for the $25 limit
- Partnerships count as one taxpayer as well
There are a few exceptions to the $25 limit, including:
- Inexpensive items $4 or less with your company name imprinted
- Promotional materials meant for use at the recipient’s business
While a $25 limit may seem small, the ability to deduct gift costs can add up, especially for businesses that rely heavily on gifting for marketing, client relationships, employee recognition, and other purposes.
17. Cars
If you use a car for business, you can deduct vehicle expenses.
For personal vehicles used for business, you can either split the actual expenses based on mileage or use the standard mileage rate.
Remember, daily commutes are not deductible. However, you can deduct travel costs to business meetings and related events if you work from a home office.
18. Hiring Your Children
Hiring your kids as a tax strategy can help you in two ways.
First, you can write-off your payment to them, reducing your taxes.
Secondly, the income can be tax-free if you pay less than the standard deduction.
The standard deduction is around $15,000, so if you paid them up to or under that amount, they’d pay no income tax when they file their tax return.
By doing this, you are effectively shifting income from your (higher) tax bracket to their lower tax bracket.
You may benefit from paying your children beyond the standard deduction amount to shift more of your income into their lower tax bracket.
However, your children will need to be doing legitimate work for the compensation your business pays them.
Be sure to get a CPA involved to carefully plan around these write-offs.
19. Hair and Makeup
For content creators and other entertainment-based businesses, the cost of hair and makeup can be deducted as a business expense if it’s ordinary and necessary for your work.
Suppose an Instagram influencer with a beauty brand partnership pays for a professional makeup session before a major campaign shoot. In that case, these costs directly support revenue-generating activity and are tax-deductible as business expenses.
You should keep detailed records and receipts to justify the deductions as business-related during tax filings.
20. Pension (Defined Benefit Plan)
A Defined Benefit Plan, commonly referred to as a pension, provides a fixed, pre-established benefit for employees at retirement.
Employers can deduct contributions made to these plans on their taxes.
This is especially beneficial in attracting and retaining employees by offering them a secure retirement benefit based on their salary and years of service.
21. Real Estate
When you purchase an office building or residential property for business purposes, you can deduct the cost of the property over time through depreciation.
This accounting method recognizes the property’s decrease in value across its useful life, as defined by IRS rules.
By claiming depreciation each year, you reduce your taxable income, which helps lower your overall tax burden.
22. Country Club / Golf Club
Membership fees for a country club or golf club can be deductible if you can demonstrate that the membership is used primarily for business purposes, such as networking or advertising.
To qualify for this deduction, you should clearly document how these activities are directly related to the conduct of your business.
23. Gym Memberships
Gym memberships can be deductible as a business expense if they are part of a health reimbursement benefit plan offered by a corporation.
Under such plans, businesses can reimburse employees for health-related expenses, including gym memberships, tax-free.
This benefits the employee’s health and wellness and can be a tax-efficient way for employers to provide additional perks.
The corporation should structure these plans according to IRS guidelines to ensure that the expenses qualify for tax deductions.
24. Daycare
Corporations can offer a Dependent Care Benefit Plan, which allows employees to use pre-tax dollars to pay for daycare expenses.
This provides a valuable benefit to employees and offers tax advantages for the corporation.
Expenses paid through this plan are deductible for the business and reduce employees’ taxable income.
As always, to ensure compliance and qualify for these deductions, the plan shouldmeet specific IRS criteria and be properly documented.
25. Bad Debts
When customers owe you money and do not pay you, it is a considered a “bad debt expense”.
The IRS allows you to write off this expense depending on your accounting method.
There are two accounting methods you can choose from: cash or accrual.
With cash accounting, income is reported when you receive payment.
Bad debt deductions cannot be claimed for amounts owed to you that you have never received and cannot collect.
With an accrual method of accounting, income is reported as it is earned.
Bad debt deductions are available if you include uncollectible receivables in your income.
26. Office and Technology Expenses
As part of the operation of your business, you can deduct 100% of direct office, administrative, and technology expenses required to operate.
This includes:
- Computers and accessories
- Printers, paper, pens, notebooks
- Accounting software
- Payment processing services
- Business apps and tools
- Websites and hosting
- Office furniture
- Administrative supplies
Basically, if you need it to administer and run your company day-to-day, it’s deductible.
27. Bank Fees
Bank fees associated with your business account are fully deductible.
This includes monthly maintenance fees, wire transfer charges, ACH transactions, overdrafts, and late fees.
You should keep a separate business bank account from your personal one for organizational purposes and to separate business expenses for tax purposes.
28. Merchant Processing Fees
Merchant processing fees can add up quickly but are deductible.
These fees are often charged by platforms such as Stripe, Square, PayPal, and QuickBooks for payment processing services.
Since these costs are typically deducted directly from your deposits, they can be easily overlooked.
To ensure you capture these deductions accurately, request an annual statement of fees from your payment processor.
This allows you to include the total expense accurately on your tax return.
29. Tax Preparation Fees
The cost of hiring a tax professional, such as a CPA, is fully deductible as a business expense.
Many business owners aim to minimize their tax liabilities, making it practical to invest in a skilled tax professional.
Although they may not be the cheapest option, the benefits are twofold: you get a tax deduction for their services, and they can potentially identify additional tax deductions for you.
Essentially, you’re obtaining a deduction for finding more deductions.
30. Shipping Costs
If you sell physical products, chances are you’re paying for shipping. The good news? Those shipping expenses are tax-deductible.
Deduct shipping for inventory
When ordering supplies or inventory, you can deduct delivery costs through USPS, UPS, FedEx, or others.
This includes:
- Shipping charges from suppliers
- Delivery fees for materials
- Postage for incoming stock
For instance, if you spend $2,000 on products and $150 on shipping, you can deduct that $150.
Deduct shipping to customers
When you ship orders to customers, every dollar spent on postage, packaging, and delivery is deductible.
For example, spending $800 shipping 100 orders via USPS can be fully deducted on your tax return.
Stay on Top of Your Deductions
As a small business owner, it can be hard to remember all the costs you can deduct from your taxes.
You may try to gather everything at the end of the year, but then miss some deductions.
For example, do you remember the internet bill from March last year? Most people forget about expenses like that.
The best way is to keep recording possible deductions as you go.
Staying organized makes taxes easier and ensures you don’t overlook any costs you can deduct.
The Do’s and Don’ts of Claiming Deductions
Now that you know about the creative tax deductions available for your small business, here are some best practices when claiming them.
What to do:
- Get advice from a qualified tax pro familiar with small business deductions
- Review the expense categories to properly categorize
- Have an organized bookkeeping system to track deductible expenses
What not to do:
- Procrastinate and end up rushing your tax filing at the last minute
- Deduct expenses without understanding the deductibility rules
- Disregard professional tax assistance for your business
The key is being diligent about tracking potential deductions all year and working with a tax expert to claim them properly.
Bottom Line
Keeping track of potential creative tax deductions is very important for small business owners.
This list can serve as a valuable guide to many deduction opportunities, saving you hundreds of dollars come tax season.
We all know how complicated tax laws can be. If you need CPA expertise on your side, our firm specializes in helping small businesses like yours maximize deductions.
Just contact us for a free consultation to learn more about how you can save money while keeping you fully compliant.
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