Small Business Tax Deductions 2022

The first step in itemizing is to list all the deductions you want to claim. The next step is to gather all necessary records that prove these deductions: receipts, property tax documentation, and employee benefits records (if you have employees). You’ll refer to these materials as you fill out a Schedule A form with your tax return. And if the IRS audits you, these documents will be your first line of defense.

What’s new in 2022?

Before diving into the complete list of small business tax deductions, note these three changes to the list of expenses you can deduct when filing your 2021 taxes.

• Business use of car. If you used your car for business and tracked your mileage, be aware that the deductible mileage rate for 2021 is 56 cents per mile, down from 57.5 cents for 2020 miles.
• Business interest. If you paid interest on a business loan, there’s a new limit on how much of that interest counts as a deduction. For the 2020 tax year, you could deduct interest expenses up to an amount equal to 50% of your taxable income. For the 2021 tax year, you can deduct interest expenses up to an amount equal to 30% of your taxable income.
• If your small business lost more money than it earned in 2021, you can no longer count the entire net loss as a deduction. If you’re married and filing jointly, your business loss deduction is limited to $524,000. If you’re single, your business loss deduction is limited to $262,000. You’ll have to treat the remaining loss as a net operating loss for the taxable year. Also, because of a clarification included in the CARES Act, you’ll have to count any W-2 income outside of your business (including your spouse’s W-2 income) as taxable income, even if your business lost money. If you’re in this situation, it’s best to see a CPA or other tax professional.

Complete list of small business tax deductions

Which small business tax deductions are you eligible for? The following list gives you the complete rundown of possible deductions you can take when filing your 2021 taxes. Be sure to consult a CPA or other tax professional before sending your return to the IRS. (The fee you pay is tax deductible.)

• Business meals
• Business insurance
• Business interest
• Advertising and marketing
• Business use of car
• Education
• Depreciation
• Legal fees
• Moving expenses
• Rent
• Salaries and benefits
• Phone and internet expenses
• Travel expenses
• Home office
• Office supplies/expenses
• Startup expenses
• Business bad debt
• Business casualty losses
• Charitable donations
• Investment interest
• Foreign earned income exclusion
• Retirement
• Contract Labor
• Employee and client gifts

Business meals

Business meals for employees, clients, and potential clients can be tax deductible, depending on the purpose of the meal. Are you rewarding employees with a company party? That’s 100% deductible. Are you taking clients out for dinner and drinks but not discussing business? Unfortunately, not deductible.

• Percentage deductible:
• Company-wide party – 100% deductible
• Your own meals as part of doing business – 100% deductible
• Office snacks and meals – 50% deductible
• Business meals with clients – 50% deductible
• Entertaining clients – 0% deductible
• Eligibility:
• The expense must be reasonable and not extravagant or excessive.
• You or an employee must be present.
• The meals must be served to a current or potential business customer, consultant, client, or similar business contact.
• If the meal is provided at an entertainment activity, it must be purchased separately from the activity itself.
• Example deductions:
• Meal expenses while traveling on business
• (Reasonable) food and beverage expenses during social company activities, including holiday parties and happy hours
• Special considerations: To be eligible, meal costs must be considered reasonable. Exorbitant prices for extravagant meals likely won’t qualify as a deductible business expense.

Business insurance

The cost of business insurance is 100% deductible if the insurance is considered both ordinary and necessary for your company’s operation. Most modern businesses are required by state laws, industry regulations, or contracts to carry some form of business insurance.

• Percentage deductible: 100%
• Eligibility: The business insurance policy must benefit the business and serve a business purpose.
• Example deductions:
• Data breach insurance
• General liability insurance
• Workers’ compensation insurance
• Commercial real estate insurance
• Professional liability insurance
• Special considerations: Not all business insurance premiums can be deducted. If the insurance policy in question is not considered ordinary and necessary, the IRS likely won’t approve.

Business interest

If you take out a loan for business purposes (including a mortgage on business real estate) or obtain a line of credit for business purchases, the interest you pay is tax deductible. There is a limit on this, however, and it has changed for the 2021 tax year. The interest expense deduction has gone down from 50% of your taxable income to 30% of your taxable income.

What does that mean? Say you take out a loan for your small business, and you pay interest on that loan. For the 2020 tax year, you could deduct that interest, but your maximum deduction would be equal to 50% of your taxable income. If your taxable income is $100,000, and you paid $60,000 in interest on your loan, you could claim $50,000 (50% of $100,000) of that interest as a deduction. With the same income and interest in 2021, you can take only a $30,000 deduction (30% of your taxable income).

• Percentage deductible: 100% (up to an amount equal to 30% of your taxable income)
• Eligibility:
• You are legally liable for the acquired debt.
• You and the lender have a true debtor-creditor relationship.
• You and the lender must intend for the debt to be repaid.
• Example deductions:
• Investment interest expenses
• Interest on purchases made on credit for inventory stock
• Prepaid mortgage interest on loans for business property
• Interest on credit card debt
• Special considerations: Interest that must be capitalized does not qualify as tax-deductible. This includes any interest added to a principal balance of a business loan or mortgage. Capitalized interest should be assessed and depreciated along with other costs. (This is when you should talk to a tax professional.)

Advertising and marketing

If you pay for advertising or marketing to promote your small business, those costs are fully tax deductible. As long as the expenses are considered ordinary, reasonable, and necessary, they qualify.

• Percentage deductible: 100%
• Eligibility: Any marketing or advertising expenses spent on campaigns to generate or retain customers.
• Example deductions:
• Costs of producing physical advertising materials such as business cards or flyers
• TV, radio, print, and online advertising costs
• Influencer marketing
• Special considerations: Costs that are considered primarily personal are exempt from deduction, even if they have some promotional value.

Business use of car

If you use your vehicle for business purposes, you can deduct the associated costs. Beginning on January 1, 2021, the optional standard mileage rate used to deduct the costs of operating a business vehicle is 56 cents per mile.

• Percentage deductible: 100%
• Eligibility: Business vehicles are cars and trucks that are used for business activities. If you want to deduct vehicle expenses, you’ll need meticulously kept records.
• Example deductions:
• Registration fees and taxes
• Gas and oil costs
• Maintenance and repairs
• Licenses
• Vehicle insurance
• Rental or lease payments
• Tolls and parking fees
• Special considerations: If you use the vehicle for both business and personal purposes, you must split the costs based on mileage. Vehicles used as equipment, such as dump trucks, and vehicles used for hire, such as taxis and airport shuttle vans, do not qualify.

Education

If you provide yourself or your employees with qualifying educational benefits, you can deduct the costs. Tax-deductible education expenses include continuing education and courses for professional licenses.

• Percentage deductible: 100%
• Eligibility: Deductible education costs must add value to the business and increase the workforce’s expertise and skills.
• Example deductions:
• Classes and workshops intended to improve skills in the business’s field
• Subscriptions to professional publications
• Industry-related seminars and webinars
• Special considerations: You can’t deduct educational expenses that qualify you or an employee for a different trade. Also, courses necessary to meet the minimum education requirement for the job don’t count.

Depreciation

Depreciation enables you to allocate the cost of fixed and tangible assets over time. In other words, it enables small business owners to over its usable lifetime, considering age, wear, and decay.

• Percentage deductible: 100% of the depreciated value
• Eligibility:
• You must own the asset.
• You must use the asset as part of your income-generating operations.
• The asset must have an estimated useful life expectancy of more than one year.
• Example deductions:
• Computers
• Machinery
• Office furniture
• Business vehicles
• Special considerations: Bonus depreciation enables you to claim a larger portion of depreciation on assets purchased within the tax year. With bonus depreciation, up to 100% of an asset’s cost can be deducted as long as the asset is business qualified.

Legal fees

Legal fees that your small business pays qualify as tax deductible. This includes fees in legal cases that you didn’t win.

• Percentage deductible: 100%
• Eligibility: The expenses incurred must be considered ordinary and necessary to the business.
• Example deductions:
• Fees for resolving tax issues
• Fees related to whistleblower claims
• Fees related to unlawful discrimination claims
• Special considerations: Any legal or professional fees related to personal issues are exempt from deduction, including child custody, personal injury, and property claims.

Moving expenses

Did you move your business 2021? You might be able to deduct your moving expenses.

• Percentage deductible: 100%
• Eligibility: The costs associated with transporting business equipment, supplies, and inventory typically qualify as deductible.
• Example deductions:
• Transporting inventory stock
• Relocating machinery
• Special considerations: Moving expenses that are not directly correlated to the move of the business are no longer deductible. Personal moving expenses are exempt, although there are some exceptions for military members.

Rent

If you rent office space, a warehouse, or another type of business property, this might provide you with another deduction.

• Percentage deductible: 100%
• Eligibility: The property must be used for business purposes.
• Example deductions:
• Rent paid on a building
• Rent paid on a business parking garage
• Special considerations: If you have or will eventually receive equity in or title to the property in question, rent expenses are not deductible. If you use a home office, you might be eligible to write off a portion of the cost. See the home office deduction for more information.

Salaries and benefits

If you’re a small-business owner with one or more employees, you can deduct the cost of the employees’ salaries, benefits, and vacation pay. This includes regular wages, commission, and bonuses.

• Percentage deductible: 100%
• Eligibility:
• The employee must not be the sole proprietor, a partner, or an LLC member.
• The salaries and benefits must be considered reasonable, ordinary, and necessary.
• The salaries and benefits must have been paid in the year in which you are claiming the deduction.
• Example deductions:
• Employee salaries
• Employee paid time off
• Employee commission and bonuses
• Special considerations: Generally, the IRS does not challenge itemized salary and benefits deductions. There are, however, some cases when the IRS will deem a deduction unreasonable—for example, if the employee is an investor or a personal acquaintance.

Phone and internet expenses

If you use phone and internet for your small business, you can deduct the costs.

• Percentage deductible: 100%
• Eligibility: Phone and internet usage must be essential to your business’s operation.
• Example deductions:
• Internet service
• Phone service
• In-flight internet purchases during business travel
• Special considerations: If you use your work phone and internet for personal purposes, you can deduct only the percentage of the cost that represents business use.

Travel expenses

If you travel to meet a client, to attend a conference, or for any other business-related reason, you can deduct your expenses.

• Percentage deductible: 100%
• Eligibility: For a trip to qualify as business travel, it must be considered ordinary, necessary, and to a destination away from your state.
• Example deductions:
• Plane, train, or bus ticket costs
• Parking and toll fees
• Fares for taxis, Ubers, Lyfts
• Cost of lodging
• Special considerations: If you spend most of your trip not doing business, the IRS considers this a vacation, and your expenses aren’t deductible. Make sure to save documentation that proves your trip was for business.

Home office

Many small-business owners—especially contractors and freelancers—need a home office. If you use a home office, you might be able to deduct the costs of creating and maintaining your workspace.

• Percentage deductible: This is based on what percentage of your home is used for business. To find this percentage, divide the square footage of your office by the total square footage of your home.
• Eligibility: Your office doesn’t need to be in a separate room, but it must be in a space solely designated to work and business operations.
• Example deductions:
• Designated office phone lines
• Paint and other building and improvement materials
• A portion of utility bills
• A portion of homeowners’ insurance
• Special considerations: You have two primary options for the home office deduction: simplified and standard. The simplified option is easier (obviously) but could result in a smaller tax break. The standard option requires a bit more math and precise recordkeeping but could get you a larger deduction.

Office supplies/expenses

Necessary supplies for running and maintaining a functional office are fully tax deductible.

• Percentage deductible: 100%
• Eligibility: There are three key IRS rules you have to follow for an office supply to be tax deductible:
• You must not keep a record of when the supplies are used.
• You must not take inventory of the supplies.
• Deducting these items must not significantly skew your business’s final income.
• Example deductions:
• Printers and ink cartridges
• Janitorial and cleaning supplies
• Work-related computer software, including software subscriptions
• Internet hosting fees for your company’s website
• Disposable kitchenware
• Pens and paper
• Special considerations: If you bought a large quantity of office supplies on December 31, 2021, you can’t deduct that cost this year, because it’s highly unlikely you used all of those supplies in 2021.

Startup expenses

If you launched your small business in 2021, you can deduct up to $5,000 in startup expenses.

• Amount deductible: 100% (up to $5,000)
• Eligibility: A start-up cost is deductible if it’s a cost you would normally deduct when operating an existing business but it’s a cost you incurred before the day your business began.
• Example deductions:
• Marketing costs
• Travel costs
• Training costs
• Special considerations: If you are buying tangible assets for your business that you will use for more than one year, the costs of these assets must be depreciated over their lifespans. (See the Depreciation section above.)

Business bad debt

When someone owes your business money and you can’t collect it, this is business bad debt (as opposed to nonbusiness bad debt). Business bad debt can happen if you sell a good or service to a customer with the understanding that they’ll pay you later (in other words, on credit), and it becomes clear you’re not going to get paid.

• Percentage deductible: 100% (for fully worthless debt)
• Eligibility: The debt in question must be partially or fully worthless to be considered deductible. Worth is based on the chance the amount owed will be paid back.
• Example deductions:
• Loans to clients, distributors, suppliers, and employees
• Credit sales to customers
• Business loan guarantees
• Special considerations: Business bad debts can be fully worthless or partially worthless (this means you’ve collected some but not all of the debt). To make sure you’re claiming the correct amount as a deductible, it would be a good idea to consult a tax professional.

Business casualty losses

This deduction applies if your business suffers theft or physical damage.

• Percentage deductible: 100%
• Eligibility: You must be the owner of the property, and the loss must be the result of a sudden, unpredictable event.
• Example deductions:
• Natural disasters—fires, hurricanes, tornadoes, storms
• Vandalism
• Pandemic restrictions
• Burglary
• Civil disturbances
• Special considerations: Things like erosion, wood decomposition, and termite damage are considered long-term losses. They don’t count as business casualty losses.

Charitable donations

If you’re interested in giving back to your community through charitable donations, you can deduct the entire amount contributed.

• Percentage deductible: 100%
• Eligibility: To qualify, the donation must:
• Benefit a qualifying organization
• Be a cash contribution
• Example deductions:
• Donations to a church, synagogue, or other religious organization
• Donations to a civil defense organization established under federal, state, or local law
• Donations to a war veterans’ organization established in the U.S.
• Special considerations: If your business is set up as a sole proprietorship, LLC, or partnership, you should claim charitable donations on your personal taxes. If your business is an S-corporation, you should claim charitable donations on your corporate tax return.

Investment interest

Interest capitalized on money your small business borrows with the intention of making investments can be deductible.

• Percentage deductible: 100%
• Eligibility: Deductible investment interest strictly applies to interest you have accrued on money borrowed to produce future investment income. This includes interest, dividends, annuities, and royalties that you would expect to appreciate in value.
• Example deductions:
• Capital losses
• Qualified dividends
• Special considerations: You can’t deduct more in investment interest than you’ve earned in investment income.

Foreign earned income exclusion

If you’re a U.S. citizen and own a small business in another country, under certain circumstances, you can exclude your foreign income from your U.S. business tax return. Essentially, the foreign earned income exclusion prevents you from getting taxed twice.

• Percentage deductible: 100%
• Eligibility:
• You are a U.S. citizen or resident alien.
• You have a qualifying presence in a foreign country met by the Bonafide Resident Test.
• You’ve paid foreign taxes on foreign earned income.
• Example deductions: Any foreign income earned and taxed in the respective foreign country.
• Special considerations: Money you receive as a distribution of earnings and profits—rather than reasonable compensation—does not qualify.

Retirement

As a small-business owner, you are responsible for funding your own retirement plan. Fortunately, your contributions are tax deductible.

• Percentage deductible: 100%
• Eligibility: Retirement accounts must comply with IRS regulations and be deemed tax-qualified.
• Example deductions: Contributions made to the following types of tax-qualified retirement plans:
• Roth IRA
• Simple IRA
• Keogh plan
• Solo 401(k)
• Special considerations: If you have employees, your selected retirement plan must benefit all of your employees, not just you.

Contract labor

Maybe you don’t have regular employees, but you paid a freelancer or independent contractor to work for your small business in 2021. Or maybe you do have regular employees and you still hired a freelancer or independent contractor. You can deduct their fees as a business expense.

• Percentage deductible: 100%
• Eligibility:
• The freelancer or contractor is not an employee of your small business.
• The services the freelancer or contractor provided were for your business, not for you personally.
• Example deductions:
• You pay an independent accountant to review your small business taxes.
• You pay a web designer a one-time fee to optimize your business’s website.
• You pay a freelance editor to proofread monthly blog posts for your business’s website.
• Special considerations: If you pay a contractor $600 or more during the tax year, you’re required to send them a Form 1099-NEC by January 31 of the following year. They’ll need this when they’re doing their own taxes.

Employee and client gifts

If you give each employee a snow globe at the holidays, or if you send a client a fruit basket to thank them for their patronage, you can deduct the costs of these gifts, with limitations. Make sure you keep records that prove the business purpose of the gift and show the amount spent.

Percentage deductible: 100% up to $25 per person

Eligibility:

You give the gifts in the course of business.

The item should be a tangible gift, not entertainment.

Example deductions:

An employee has a baby, and you send them a gift basket of baby items.

You send a client a bottle of wine.

Special considerations: When you’re calculating the $25-per-person limit, there’s no need to count gifts that cost you $4.00 or less that have your business name on them, like stickers or stress balls. If you and your spouse both give gifts to the same person, the two of you count as one taxpayer.

Count on QuickBooks

There’s a lot to love about running your own small business. Doing your taxes probably isn’t on that list. But QuickBooks can make the process less taxing (pun intended) by helping you track expenses throughout the year—either on your own or with the help a QuickBooks bookkeeper who you chat with live. And if you’re considering seeing a CPA or other tax professional, we have resources that can help you with that process, including a list of the documents to bring with you when you meet with your tax preparer. No matter what route you choose, you don’t have to go it alone.