A Stress-Free Guide to Small Business Deductions and Tracking Expenses

Small Business Owner

Running a small business is an exciting journey filled with opportunity, but it also comes with responsibilities—especially when it comes to taxes. One of the biggest perks of owning a small business is the ability to deduct a wide range of expenses from your taxable income, which can save you money at tax time. The key is knowing what you can deduct and keeping track of everything. Let’s break it down in a way that will help you make the most of your deductions. 

What Are Deductible Business Deductions? 

Deductible business expenses are costs that are both ordinary (common in your industry) and necessary (helpful and appropriate for your business). The IRS provides guidelines, but what qualifies can vary depending on the nature of your business. For small business owners, understanding which expenses are deductible can make a big difference when it’s time to file taxes. 

Common Deductible Business Expenses 

Here are a few common deductions that many small business owners can take advantage of: 

1. Home Office Deduction 
   If you work from home (even part-time), you may qualify for the home office deduction. To claim this, your home office must be used exclusively and regularly for business. Whether it’s a dedicated room or just a space in your home, you can deduct a portion of your rent, mortgage, utilities, and even repairs. 

2. Supplies and Equipment 
   Anything you use for your business—office supplies, machinery, tools, and furniture—can be deductible. This also includes things like computers and software that help you run your business more efficiently. 

3. Vehicle Expenses 
   If you use a vehicle for business purposes, you can deduct the costs associated with it. There are two ways to do this: using the standard mileage rate or deducting actual vehicle expenses, such as gas, maintenance, insurance, and depreciation. 

4. Travel and Meals 
   Business travel is deductible, so if you're traveling for work, you can deduct transportation, lodging, and even some meals. Just make sure your travel is strictly business-related! For meals, the IRS allows you to deduct 50% of business meals when you're meeting with clients or colleagues. 

5. Marketing and Advertising 
   Any money you spend to promote your business—whether on ads, social media marketing, or your website—can be deducted. 

6. Employee Wages and Benefits 
   If you have employees, their wages and benefits are deductible. This includes payroll taxes, retirement contributions, and health insurance premiums. 

7. Professional Services 
   Hiring outside professionals—like accountants (hello!) or legal services—is a common business expense. These fees are deductible and help keep your business running smoothly. 

How to Track Your Business Expenses 

It’s one thing to know what you can deduct, but keeping track of everything is just as important. Here are some practical tips to help you stay on top of your expenses: 

1. Use Accounting Software 
   Programs like QuickBooks or Xero can automatically track your income and expenses, categorize them for you, and make tax time a breeze. They also generate reports to help you understand where your money is going. 

2. Save Your Receipts 
   Whether you go digital or stick with paper, it’s crucial to keep records of all your business transactions. Apps like Expensify and Shoeboxed allow you to scan and organize receipts quickly and efficiently. If you prefer paper, invest in a good filing system and label your folders by month or category. 

3. Have a Separate Business Bank Account 
   Mixing personal and business expenses is a headache come tax season. Keep things simple by opening a separate account dedicated to your business expenses. This will make it easier to track what’s deductible and keep your finances organized. 

4. Track Mileage Automatically 
   If you drive for work, keeping a log of your trips can be tedious. But with apps like MileIQ, you can track your mileage automatically and generate easy-to-read reports when it’s time to file your taxes. 

5. Create a Monthly Review Habit 
   Set aside some time at the end of each month to review your expenses. This will keep you on top of your records and ensure nothing slips through the cracks. You’ll thank yourself come tax season! 

Final Thoughts 

Understanding and maximizing deductions is key to running a financially healthy small business. By tracking your expenses and staying organized, you'll reduce your tax liability and keep more money in your pocket. Every deduction adds up, and it’s worth taking the time to track them properly! 

If you're ever unsure about what counts as a deduction or how to track it, or would like to ensure you’re getting the most out of your business expenses, contact us.

Looking for more deductions to consider? Download our Tax Deduction Guide for Small Business Owners for an extended list of common deductions you might be able to claim.