Running a small business is tough enough without overpaying on taxes because of tax deductions. Did you know that many small business owners miss out on tax deductions simply because they do not know they exist? The good news is, the tax laws offer many ways to reduce your taxable income – you just need to know where to look.
The tax commissioner understands no taxpayers love to pay tax. Hence, all deductions will require evidence of expenditure. This you get in receipts and invoices. Remember, tax is based on records and documents.
In this article, we will break down the current top tax deductions for small businesses, helping you keep more of your hard-earned money. Whether you are a freelancer, a startup founder, or a seasoned entrepreneur, these deductions could save you thousands when paying your taxes. It is important to understand that the list is updated frequently.
Why Should Small Business Owners Care About Tax Deductions?
Before we dive into the deductions, let us answer a key question that many small businesses may ask:
Why do tax deductions matter so much for small businesses?
Simple – every dollar (or whatever currency you use) you deduct is a dollar not taxed by the tax commissioner (of your country’s tax authority). That means more cash in your pocket for growth, hiring, or even a well-deserved bonus.
Now, let us explore the best tax deductions available to small businesses. Tax laws in every country allow for deductions – (refer to section 15 of the income tax Act).
Top Tax Deductions for Small Businesses
Taxpayers have many tax deductions they can use. The following are ten tax deductions you can use as an owner of a small business.
- Home Office Deduction (Do You Qualify?)
If you work from home, you may be eligible for the home office deduction. This applies to a dedicated workspace used only for business.
How it works: You can deduct a portion of rent, utilities, and even internet bills. Allocate the expenses to the home office.
Two methods:
a) Simplified method. Here you measure the office size and charge according to the size occupied. For example, you can charge $5 per sq. ft., up to 300 sq. ft. for the space occupied. or
b) Actual Expenses (based on % of home expenses used for business). These are expenses that are used for the business. You can be able to link the expenses directly.
Pro Tip: If you meet clients at home, this deduction becomes even more valuable. Always account for the expenses and if you have receipts for your expenses, the better.
- Business Vehicle Expenses (Mileage vs. Actual Costs)
Do you use your car for business, for example, to attend meetings? You can deduct either:
- Standard mileage rate check with the tax commissioner the latest costs (2024: 67 cents per mile)
- Actual expenses (fuel, repairs and maintenance, insurance, depreciation, etc.)
The deductions are for vehicle purchase and using the vehicles.
Which is better? Depends on you. If you drive a lot, mileage is simpler. If your car is expensive to maintain, actual costs may save you more.
- Office Supplies & Equipment (Yes, Even That New Laptop!)
Pens, paper, printers, and even software subscriptions (like QuickBooks or Slack) are deductible.
Check the recurrent regulations on deductions allowed for equipment and eligible assets – phased down.
Example: If you buy a $2,000 laptop, can you deduct the full cost this year?
- Salaries, wages, and benefits (Including Yours?)
If you have employees and/ or directors, their salaries, bonuses, and benefits (health insurance, retirement contributions) are deductible for taxation. If you are also receiving a salary, bonuses and benefits, it is also tax deductible.
Sole proprietors and partners cannot deduct your own salary if you do not receive. But you can deduct expenses such as health insurance premiums and retirement contributions.
- Travel & Meals (But There’s a Catch!
As a taxpayer, you can deduct travel and meals expenses.
- Travel: Flights, hotels, and rental cars for business trips are 100% deductible but with evidence. You would not have incurred these expenses if you did not have a business trip.
- Meals: Only 50% is deductible (must be business-related). But you can fix this under the non-cash (where allowed) benefit and also under per diem.
Watch out: Lavish expenses may raise red flags. Keep receipts, especially if the businesses is paying and also for reimbursement!
- Advertising & Marketing Those ads you place on Facebook Ads, TikTok, etc. count.
All marketing expenses, such as website hosting, SEO, social media ads, and even business cards, are fully deductible but with evidence.
Question: Did you know even Google Ads and influencers’ sponsorships qualify for tax deduction?
- Professional Services
May small businesses receive professional services from lawyers, accountants, consultants, etc.
Fees paid to accountants, lawyers, and business consultants are deductible. These expenses are in the business’s furtherance. With lawyers, remember that businesses do not err, but directors are responsible. Ask who is to blame? Some of the legal expenses you may not claim.
Why this matters: Professional services can help you earn more money or save money. A good tax professional can save you more than they cost by maximizing deductions.
- Insurance Premiums (Protect Your Business & Save)
There are many insurance premiums, for example:
- General liability insurance
- Workers’ compensation
- Professional liability insurance
All are these premiums are 100% deductible. However, you must check the latest regulations by the tax commissioner.
- Education & Training (Invest in Yourself!)
Workshops, online courses, and industry conferences that improve your skills are deductible. This encourages business owners to continue improving in their businesses. The better they become, the more money they will earn and the more the taxes.
Example: A $1,000 digital marketing course you attend can cause tremendous business sales improvement. This expense is tax deductible!
- Bad Debts (When Clients Do not Pay)
If a client refuses to pay, you may write it off the amount as a bad debt. However, when establishing the taxable amounts, you will add back for income tax purposes. For VAT, you claim back the VAT output from the tax commissioner.
Note: This only applies if you previously reported the income.
Those are ten tax deductions. The list is not exhaustive. There are many other deductions that are allowed by the tax commissioner. During your free time, find out by logging to the KRA website.
Common Mistakes to Avoid
- Mixing personal & business expenses. Record the expenses separately. And always use separate bank accounts.
- Missing tax deadlines – Extensions of tax deadlines don’t mean extra time to pay. We may disqualify some tax deductions.
- Not keeping receipts – you will need evidence of the expenses. Have them in place, including digital copies as long as they are tax invoices and receipts. Just save them!
Final Thoughts:
Are You Claiming All Your Deductions?
Tax deductions are legal ways to lower your tax bills. If you are not claiming the deductions, why leave the money on the table? After some time, review your expenses, consult a tax professional if needed, and make sure you are not overpaying tax. Pay only the tax you owe; nothing more, nothing less.
Important points
- Home office, mileage, and equipment are big money-savers.
- Meals (50%) and travel (100%) have different rules.
- Always keep receipts – “digital copies count too!’
- Consult a tax professional if unsure.
Now, go maximize those deductions and keep more of what you earn!
Would you like a downloadable checklist of these deductions? Let us know in the comments!
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