How to pay less in income taxes: 24 business deductions you need to know
Taxes can’t be avoided, but there’s no reason to pay more than you have to. When you file your 2022 taxes, make sure you’re taking these deductions if they apply to you. And we even have one tax credit to share with you, so be sure to read to the end.
1. Mileage. If you use your personal vehicle for business, keep track of the number of miles you drive. The IRS says you can deduct 58.5 cents for each mile you drove from January 1 – June 30, and 62.5 cents per mile from July 1 – December 31. The rate was increased because of the spike in gas prices.
2. Business travel. Going out of town to meet with a client or complete a project? Your travel expenses are a deduction.
3. Meals. Be careful with this one. You can deduct 100% of a dinner for all employees, and for your own meals when doing business. You can deduct 50% of business meals with clients and office snacks. But if you take a client out to eat and business is not discussed, no deduction is allowed.
4. Self-employment tax. When you work for an employer, you each pay half of the FICA tax that covers Social Security and Medicare. When you’re self-employed, you are the employer and the employee, so you have to pay the whole thing. The tax includes 12.4% for Social Security and 2.9% for Medicare. The good news is, half of this amount is deductible as a business expense.
5. Home office. If you use part of your home as your office, you can deduct some of your home expenses. You have to calculate the percentage of your home that you use as an office and apply that percentage to your expenses.
6. Office rent or mortgage. If you don’t work out of your home but rent your office space, you can deduct that amount. If you own the building, the mortgage interest and any maintenance costs can be deducted.
7. Internet, phone, and utilities. Deduct the cost of your internet service, cell phone and landline, and utilities. Note that, if you work from a home office, this may be part of your home office deduction.
8. Retirement contributions. If you make contributions to employee retirement accounts (even your own), this company match is deductible.
Related: Choosing a retirement plan for your business
9. Consultants. If you hire a consultant for a project or to help you with your business, the amount you pay them is a deductible expense.
10. Contractors. If you hire workers on a contract basis, you can deduct the amount you pay them.
11. Employees. The amount you pay your staff can be deducted from your business income.
12. Phones. You can deduct the cost of your business cell phone and business landline.
13. Equipment. If you purchase business equipment, like computers, printers, copiers, etc., you can deduct their cost.
14. Depreciation. If you have business equipment, machinery, vehicles etc., that you expect to have for more than a year, you may be able to claim the depreciation of these assets as a deduction.
15. Inventory. Products that you purchase to resell are deductible.
16. Supplies. The supplies you need to run your business, like paper, pens, printer toner, etc., can be deducted.
17. Insurance. You can deduct the amount you pay for your liability insurance, workers compensation insurance, etc. (You do have liability insurance, right? If not, get a quote today.)
18. Professional services. You can deduct the amount you pay your attorney, accountant, and other professionals whose services you use for your business.
19. Interest. Whether you borrow money for working capital or to purchase equipment, machinery, or supplies, you can deduct the finance charges or interest you pay.
20. Website. The money you pay to have your website hosted is a deduction. If you paid someone to design the site, you can deduct that too.
21. Software. Be sure to deduct any software you purchased as well as subscriptions you may pay monthly. Don’t forget your cloud storage costs, office software, accounting software, customer relationship manager, project management software, etc.
22. Courses. If you paid for any classes, for yourself or for an employee, you can deduct the cost of those.
23. Marketing and advertising. Deduct the amount you paid for social media boosting, as well as print, radio, TV, or billboard ads. If you paid someone to design or place those ads, that’s a deduction too.
24. Licenses. The cost of business licenses required by your state or municipality is deductible.
When you take a tax deduction, it reduces the amount of income you have to pay taxes on. A deduction is different from a credit, which is a reduction in the amount of tax you have to pay.
There is one important tax credit small business owners should be aware of. The Employee Retention Tax Credit was created as part of the CARES Act and, while it doesn’t apply to wages paid in 2022, you can still claim it if you qualified based on wages paid in 2020 and/or 2021.
If your small businesses suffered financial losses due to COVID-19, you may be eligible. You must have paid wages between March 12, 2020 and September 30, 2021, and your business must have reported gross receipts in 2020 or 2021 that were at least 20% less than the same quarter in 2019. See the IRS website for more information.
Keeping impeccable records of everything you spend will help you take advantage of all these deductions at tax time. After all, no one wants to pay more than they have to.