19 tax breaks and deductions 2024

Small businesses need all the help they can get, so knowing what is relevant and a legitimate tax break or deduction can make a big difference to the financial health of your business.

Nobody wants to pay more tax than necessary, but you might not know what is tax deductible, and wading through thousands of in-depth pages of the tax code is time consuming.

The US tax code is complex – it spans nearly 7,000 pages and does not make easy reading.

For anyone that is focused on the day-to-day running of their business and doesn’t have the time, we’ve done the hard work for you. We’ve pulled out a list of tax breaks and tax deductions that you can make as a small business.

This list shows what and when you can claim, but there are some rare exceptions to the rules that are more complex than we can cover here.

Use this guide to make sure you’re asking your qualified tax advisor or CPA the right questions before making a claim.

The list is not exhaustive but does cover some of the most accessible tax breaks and deductions, including a few that are under the radar.

Here’s what we’ll cover

What is a business tax deduction?

A business tax deduction is an expense that a business subtracts from its revenue to reduce the amount of income subject to income tax.

This article will focus only on US federal business tax deductions. State income tax deductions vary from state to state, so consult with your tax professional for more information.

What qualifies as a business tax deduction?

According to the IRS, an expense that qualifies as a business tax deduction should be ordinary and necessary.

Ordinary expenses are common and accepted in a specific industry. A necessary expense is one that is helpful and appropriate for a particular business.

Let’s dive deeper.

Not ordinary, or necessary

Suppose an IT consultancy firm based in New York City hires a yacht to travel to Norfolk, Virginia to meet a client and claims this as a tax-deductible expense. Will the IRS let this pass?

It might be true that the IT firm rented a yacht and met clients, but this type of expense is not ordinary or necessary for an IT firm. Therefore, the IRS will not consider this a tax-deductible expense.

If the IT company wants to claim for a flight or a road trip, then the IRS would be more likely to consider this ordinary and necessary.

Ordinary, but not necessary

Fines and penalties can be ordinary expenses, but they are unnecessary, such as parking tickets, penalties for late payment of tax, and fines for failing to display a mandated poster.

The argument here is that it was unnecessary to incur these types of expenses because you only needed to comply with the law to avoid them.

Although membership dues to a golf club may be an ordinary expense in your industry, especially because the company regularly takes clients there to discuss business, the IRS does not consider them necessary.

Necessary, but not ordinary

There are unique situations where an expense will be tax deductible, even if it is necessary but not ordinary.

An excellent example is when an office building burns down so you have to rebuild it to continue operations.

This type of expense is not ordinary but is necessary.

Tax breaks and deductions for small businesses overview

	Deduction	Requirement	Amount
1	Employees’ salaries and wages	Must be business-related	100%
2	Bad debts	Customer’s bad debt and reasonable steps taken to collect	100%
3	Rent	Business use and fair market value	100%
4	Business licenses	For the current year	100%
5	Taxes	For property taxes, property must be for business use	100%
6	Interest	Loan must be for business use	Generall, not more than 30% of earnings
7	Depreciation	Equipment must be owned and used by the company	100%
8	Advertising and promotion	Not sponsoring political campaigns	100%
9	Insurance	For life insurance, the employer should not be a beneficiary	100%
10	Start-up costs	Does not cover research	Up to $5,000 for the first year. Then equally over the next 180 months
11	Travel and meals	Must be reasonable. Entertainment excluded	50% or 100%
12	Vehicle expenses	Vehicle should be for business	100%
13	Credit card processing	Must be business-related	100%
14	Certain education expenses	Not to equip a worker for another career	100%
15	Legal and professional	Business related	100%
16	Certain repairs	Improvement costs are capitalized and depreciated	100%
17	Telephone and internet	Business related	100%
18	Software subscriptions	The subscription is necessary and common among similar businesses	100%
19	Membership dues	The organization’s main purpose is not to provide entertainment facilities to members	100%

19 tax breaks and deductions for small businesses 2024

The following is a list of deductions that every small business should know about. You might be aware of some, but others are not so common.

As we said above, there can be exceptions, so please use this list as a guide and take advice from your tax professional.

1. Employees’ salaries, wages, and commissions

Employees’ salaries, wages, and commissions are tax deductible and can reduce taxable income if the following criteria are met.

• The employee being paid must not be the sole proprietor, a partner, or an LLC member since the IRS does not consider these individuals employees. The IRS considers these people owners.
• The salary should be reasonable, ordinary, and necessary
• The salaries paid must be for actual services provided

Examples of taxdeductible salaries and wages include:

• Wages paid to your spouse for completing the company’s bookkeeping, assuming your spouse isn’t a co-owner of your business
• Commissions paid to your salesperson for closing a sale
• Salaries paid to customer service employees

There is a slight exception for S-corps where owners must be paid a salary or wage. Corporations, both S and C-corps, allow owners to be employees.

S-corp owners must pay themselves reasonable compensation for the work they do for the company. The amount of compensation must be comparable to what the company would pay a non-owner to do the same work.

The S-corp can deduct these salaries and wages from its income when calculating taxable income.

2. Bad debts

Unfortunately, some customers don’t pay back what they owe you.

The IRS treats bad debts as tax-deductible items and permits businesses to deduct bad debts against net income when calculating taxable income.

Before deducting bad debts, a business must establish that it has taken reasonable steps to collect the debt.

Plus, it must show that it previously included the amount in its income or loaned it out as cash.

Finally, the uncollectible debt must be business-related not personal.

3. Rent

If your company operates from property it doesn’t own and pays rent, you can deduct the rent you’ve paid against your net income when calculating taxable income. 

Rent paid by a business is deductible in the year it is incurred.

This means rent prepayments are not tax deductible in the year it was paid.

For example, if you pay $90,000 for business rent for November, December, and January and your financial year ends on December 31, you can only deduct $60,000 (2 × $30,000) from your net income when calculating taxable income.

The remaining $30,000 will be deductible the following year.

Remember: The amount of rent paid must be reasonable. It should not be higher than market value or a professional appraisal.

4. Business licenses

To operate a business in the US, you will most likely need one or more licenses depending on your state and industry.

Examples of tax-deductible business licenses include:

• General business licenses from your state, county, or city
• Health permits, especially for businesses in food service and healthcare
• Alcohol licenses
• Zoning permits
• Environmental permits

5. Taxes

The following are some common types of taxes businesses pay that are tax deductible.

State and local income tax

State and local income taxes imposed on businesses are tax-deductible expenses. Not all states charge and collect business income tax.

But if your state does, you’ll get to deduct that amount from your income on your federal income tax return.

Foreign income taxes, if applicable

If your company paid taxes to another country, these amounts can be a tax deduction or a tax credit.
As we know, tax deductions lower your company’s taxable income.

But a tax credit is more valuable to your business. A tax credit directly offsets the amount of tax you owe.

Tax credits work like this:

As an example, an American business paid $6,000 as income tax to Canada. And the company’s US federal income tax bill was $8,000. The tax credit would be $6,000.

Tax payable on US income	$8,000
Foreign tax credit	($6,000)
Final tax payable on US income	$2,000

As a comparison, a taxable income of $38,000 for the foreign tax deduction (which would generate a US income tax bill of ~$8,000), we’d deduct the $6,000 in Canadian taxes from the $38,000 to arrive at $32,000 of US taxable income.

Income tax on that is $6,720 ($32,000 x 21%).

Note, this example is only for C-corps. Any other type of company would be taxed at the owner’s individual income tax rate (which may be higher or lower than the corporate tax rate of 21%).

Foreign taxes’ impact on your US federal tax obligations is a complicated subject. It’s best to discuss your tax scenario with a tax professional.

Employer portion of payroll taxes

If your business pays employment taxes, these are deductible as a business expense.

Employment taxes include:

• Social Security taxes
• Medicare taxes
• Federal unemployment taxes
• State unemployment taxes

The employer-equivalent portion of self-employment tax, which is 7.65%, is also deductible for tax purposes.

State property taxes on business property or equipment

The IRS treats state and local real estate taxes and state and local personal property taxes as tax-deductible items. This allows businesses to use them to lower their taxable income.

To qualify as a deduction:

• The business must be the owner of the property,
• The property must be primarily for business use, and
• The business must have paid the tax during the tax year under consideration

Don’t let the word “personal property” confuse you. Personal property means any tangible, movable asset that’s not affixed to real estate, and a business can own personal property.

Examples of business personal property include:

• Office equipment
• Machinery
• Vehicles
• Storage trailers or containers
• Office furniture

Excise taxes, if applicable

The IRS permits businesses to deduct the excise taxes they pay before calculating their taxable income.

Excise taxes are typically levied on products such as beer, cigarettes, and gasoline and can either be ad valorem (a stated percentage) or specific (based on a stated dollar amount).

Examples of excise taxes that are tax deductible are:

• Alcoholic beverages taxes
• Tobacco taxes
• Fuel taxes
• Airline ticket taxes
• Environmental taxes
• Telecommunications taxes

6. Interest

If a business has debt, it can deduct the interest paid to the lender, including a credit card company, provided it meets the following requirements.

• The loan must be for business use, not personal use. For a mixed-use loan, the business must allocate the interest portion attributable to business use.
• The business and the lender must expect the debt to be repaid.
• The business must be legally liable for the debt, not a third party.
• The business owner and the lender must have a “debtor/creditor” relationship.

There are limits on how much interest can be tax deductible. Generally, no more than 30% of the company’s earnings can be tax deductible.

7. Depreciation

The IRS permits businesses to spread the cost of purchasing or building fixed assets, including furniture, equipment, and buildings, over the years they’ll be in use. This cost allocation is known as depreciation and is deductible against net income to lower the amount of income subject to tax.

Expensing the large portion or the entire cost of fixed assets in a single year provides immediate tax benefits. The IRS offers several options for accelerating the tax deduction in year one as follows:

• Bonus depreciation: The IRS permits businesses to expense 60% of the cost for qualified property placed in service during 2024. For 2025, it drops to 40%. For 2026 it drops to 20% and goes away entirely in 2027.
• Section 179 expensing: The IRS permits businesses to deduct the cost of equipment and certain business assets used over 50% of the time for business purposes. Section 179, however, caps the annual limit to $1,220,000 for 2024. The annual limit is adjusted each year for inflation.
• De minimis safe harbor: Your business can always expense in the first year any tangible personal property that costs up to $2,500. This simplifies tax reporting for small-dollar expenditures.

8. Advertising and promotion

The cost of advertising, running a social media marketing campaign, and the cost of printing business cards is tax deductible. However, amounts paid to influence legislation or fund political events are not considered advertising and promotion expenses and are not deductible for tax purposes.

Costs related to initiatives that create business goodwill are also deductible for tax purposes provided there’s a conspicuous connection between the sponsored event and the business.

For example, a plumber, roofer, dentist or summer camp could justify a connection to sponsoring a youth baseball team, as the parents coming to watch the children play baseball are the target audience for these types of business.

Whereas a night club, pawn shop, or gun store would have a tougher argument to justify their business has a connection to a youth baseball team.

Building overall goodwill in a community could qualify for a deduction. But it’s a judgment call for the business and the tax preparer on deciding if that expense is tax deductible.

9. Insurance

Premiums paid for business insurance are deductible for tax purposes. These include:

• Property: Policies that cover business property, particularly fixed assets such as furniture, equipment, and buildings.
• Cyber security: These are policies that protect your business from cyber threats and cover the cost of claims, including those associated with stolen customer data.
• Employee medical: including long-term care: Businesses can deduct the cost of long-term care insurance premiums paid for non-owner employees. Also, companies can deduct most of their health insurance-related expenses, including dental and vision insurance premiums.
• Liability: These are policies that cover the cost of compensation claims and any legal defense expenses for bodily injury or property damage.
• Malpractice: Malpractice insurance is professional liability insurance that protects professionals against claims of negligence or misconduct made by clients or patients.
• Workers’ compensation: These are policies that cover the cost of medical expenses and missed wages related to a work-related injury or illness.
• Some life insurance policies: Businesses can deduct life insurance premiums paid on behalf of an employee or officer if the premium payments are reasonable and the employer is not a beneficiary under the policy.
• Business interruption: Businesses can deduct insurance premiums paid to cover business income lost from an event that disrupts its operations.

10. Start-up costs

The IRS defines start-up costs as the expenses a business incurs “for creating an active trade or business” or for investigating the creation of an active trade or business.

Start-up costs include expenses such as surveys of potential markets, advertisements for the opening of the business, travel costs to secure distributors or customers, and salaries for employees being trained for upcoming roles.

Businesses can deduct start-up costs of up to $5,000 in the first year of active business, provided the total start-up costs are not more than $50,000.

If the start-up costs are more than $50,000, the deductible amount reduces dollar for dollar for the amount above $50,000. For example, if the start-up costs are $51,000, the deductible amount in the first year of business will be $4,000 ($5,000 – $1,000).

If the start-up costs are $55,000, the deductible amount in the first year will be zero.

Businesses should amortize any remaining start-up costs over 180 months. They can then deduct the amount amortized on their tax return.

For example, if start-up costs are $200,000, the deductible amount in the first year of business will be zero. But the business will amortize and deduct $1,111.11 ($200,000 ÷ 180) each month, for the next 180 months.

11. Travel and meals

You can deduct business-related travel expenses, including plane tickets, hotel room charges, and taxis, to reduce taxable income.

It’s a different story with meals. Most work-related meals are 100% or 50% deductible. Meals provided in a company-wide party and meals included in employee compensation are 100% deductible.

On the flip side, a meal with a client where work is discussed and meals during business travel are 50% deductible.

But expenses for entertaining clients such as green fees for rounds of golf or concert tickets are not deductible for tax purposes.

The following summary can come in handy.

	Meals and Entertainment Expense Tax Deductibility
50% Deductible	100% Deductible	Non-deductible
A meal with a client	Company-wide party	Client entertainment expenses
Employee meals at a conference	Meals included in compensation
Employee meals while traveling	Meals provided to employees during recreational activities
Food for a board meeting	Meals for events that support a charitable cause
Dinner for employees working late

12. Vehicle expenses (including mileage)

Use either of the following two methods when claiming vehicle expenses on vehicles the company owns.

• Actual expense method: You’ll track all the costs of operating a vehicle, including gas, repairs, and insurance and deduct them to lower your taxable income.
• Standard mileage rate: You’ll total the number of miles driven for the tax year and use the standard mileage rate set by the IRS to calculate your tax deduction. For the 2024 tax year, the standard mileage rate is 67 cents per mile.

13. Credit card processing fees

If your company accepts credit card payments from customers, all the credit card processing fees you pay are tax deductible. 

14. Certain education expenses

As a business, you can claim a tax deduction when you pay for some of your employees’ education expenses provided the education equips workers to keep their current jobs or improves the skills they use at their current jobs.

Education expenses incurred to meet minimum requirements for a job or to qualify the employee for a new career are not deductible for tax purposes.

So, if you employ an administrative assistant and pay for their undergraduate tuition to become a nurse, you can’t claim the fees you paid as a deduction.

This type of training qualifies the employee for a new trade, not enhancing or maintaining skills required to be an administrative assistant.

Other education-related expenses you can deduct for tax purposes include workshops and webinars, textbooks, subscriptions to trade or professional publications, and seminars provided all these improve or maintain skills in an employee’s current field.

15. Legal and professional fees

You can deduct the fees charged by lawyers, accountants, bookkeepers, and other consultants to lower the taxable income of your business.

For example, if an IT firm hires a marketing consultant to create a targeted advertising campaign, it can deduct the fees paid to the consultant to reduce its taxable income.

16. Certain repairs and maintenance

If your business has vehicles, furniture, or equipment, you’ll need to repair them once in a while and regularly maintain them to keep them in good working condition. Fortunately, repair costs are 100% tax deductible.

But the IRS considers expenses that result in a “material increase” in the property’s capacity, productivity, strength, or quality as improvement costs, not repair costs.

Regrettably, improvement costs are generally not immediately deductible. Instead, these expenses are added to the original cost of the property and depreciated.

17. Telephone and internet

You can deduct telephone and internet-related expenses on your end-of-year returns to lower the portion of your business income that’s subject to tax. However, your telephone and internet expenses should be business related, not personal.

Businesses that use phones and internet for both personal and business reasons should allocate the portion attributable to business use.

18. Software and subscriptions

If you pay for software subscriptions, you can claim the amount you pay as a deduction provided you genuinely need the software, and the subscription is common among similar businesses in your industry.

19. Membership dues

Membership dues you pay to business and professional organizations are deductible if the organization’s main purpose is not to provide entertainment facilities to members.

That means your membership dues to your local chamber of commerce are deductible but dues to a country club aren’t.

Similarly, subscriptions to a professional or trade journal are deductible.

A personal tax deduction for business owners

Business owners sometimes incur expenses that cross the boundary between strictly personal and strictly business.

The most common example applies to working from home.

Home office deduction

When the primary place of business is your home, and you use part of your home exclusively and regularly for business, you’ll qualify for the home office deduction. There are two options for calculating the home office deduction.

• Simplified method: Uses a $5 deduction per square foot of space used for business up to 300 square feet. This method eliminates the need to track home expenses.
• Standard method: Tracks all expenses of maintaining your home and multiplies the total by the percentage of your home devoted to business use.

Examples of home office expenses you can track include real estate taxes, utilities, repairs, mortgage interest, rent, and homeowners’ association fees.

Assume your house is 2,500 square feet, and the space you use exclusively and regularly for business is 250 square feet. Your total home expenses for the year were $30,000. Your home office deduction is $3,000, calculated as:

The percentage of your home devoted exclusively and regularly to business use is 10% {(250/2,500) × 100}.

Your home office deduction will be $3,000 ($30,000 × 10%).

Get help to claim all the tax breaks and deductions you’re entitled to

Hopefully this list will help you to make sure you are claiming all the deductions you are entitled to.

As we have said above, please note that there are some complex and unusual scenarios where the rules above do not apply. So, use this list as a guide and always speak to your tax advisor.

Using financial management software in your business can significantly help in tax preparation.

Tax complexities can overwhelm businesses of all sizes. Navigating tax laws, rates, and rules is a challenge, especially with local variations. Sage sales tax compliance software simplifies compliance by ensuring adherence to current regulations.

Explore Sage Intacct and discover how it can increase your finance team’s productivity by 40%.

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You can also find more information on the official IRS site.

And review the US tax code referenced above.

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Frequently asked questions about tax deductions

What can I deduct from my taxes?

You can deduct all ordinary and necessary business-related expenses to reduce your taxable income and lower your taxes.

What doesn’t count as a tax deduction?

Expenses that aren’t ordinary or necessary don’t count as a tax deduction.

These include fines and penalties, some charitable contributions, entertainment expenses, certain club membership dues, and certain insurance premiums.

Also clothes (except in specific situations like safety clothes that are only worn for work), commuting costs, and loan principal repayments are not a deduction.

Are there limits on tax deductions?

The IRS caps certain tax deductions, including start-up costs, depreciation, and interest.

Start up cost deductions are limited to a maximum of $5,000 in the first year with the remainder spread out over the next 180 months.

There are limits on bonus and Section 179 depreciation amounts (read above 7. Depreciation). And interest expense deductions are generally capped at 30% of adjusted taxable income for companies with annual gross of more than $30 million.

What state tax deductions can a business deduct?

State tax deductions are similar to federal tax deductions and you can claim the same deductions on your federal and state income tax return.

Most states follow the federal tax rules, but because state tax law varies between all 50 states, we can’t cover them here

Always review your state tax situation with your tax professional so you don’t miss out on any state tax deduction.

Can you write off tax from the previous year?

No, you can’t write off tax from the previous year.

Can I pay my children to work for my company?

You can pay your children to work for your company so long as they are paid a reasonable wage for work completed and the work is age appropriate.

Federal labor laws generally state that children can’t work before they are 14 years old.

However, your state labor laws may differ. There are often limitations on the number of hours and types of work a child can do.

Also, federal labor laws allow employees under age 20 to be paid a minimum of $4.25 per hour during their first consecutive 90 days of employment.

After that, the federal minimum wage of $7.25 per hour must be paid. Again, state labor laws may be different and overrule the federal rules.

Check with your state’s labor or employment board to ensure you remain compliant.

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This article was verified by a US-based Certified Public Accountant (CPA). Accounting rules are complex and change frequently and we recommend you seek any accounting advice from a qualified CPA.

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