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The Ultimate Small Business Tax Deductions Worksheet for 2022

March 31st, 2022Small Business Resources, Tax Time

If you’re a small business owner, there’s a good chance thinking about taxes stresses you out.

You’re not alone. The fear of making a mistake on taxes terrifies many people. A recent Pew Research study showed that the complexity of the federal tax system significantly bothers 47% of Americans.

Well, there’s good news: tax preparation doesn’t have to be intimidating. With this list of deductible business expenses at your disposal, you can easily lower your income tax bill—all without worrying about fines and penalties or being an expert on the complicated U.S. Tax Code.

These tax deductions are especially important, as small business owners faced an increase in operational costs in 2021, with 34% of surveyed small business owners saying costs of supplies and inventory rose by more than 25%. In these difficult times, all SMB owners should take advantage of tax deductions to save money.

Download our free 2022 Small Business Tax Deductions Worksheet, and we’ll walk you through how to use it right now in this blog post. When we’re done, you’ll know exactly how to reduce your income tax bill by making sure you’re claiming all the tax deductions available to your small business.

Download your 2022 Small Business Tax Deductions Worksheet [PDF]

Ready? Let’s dive in.

Disclaimer: This blog post is intended to provide generalized information designed to educate a broad segment of the public. It’s not personalized tax, investment, legal, or other business or professional advice. If you have questions, speak with a qualified professional.

What is a tax deduction?

A tax deduction is an expense you can subtract from your taxable income. Also referred to as “tax write-offs,” deductions allow you to lower your taxable income, which lowers your tax liability and allows you to pay less in taxes.

However, not every business expense and business activity is deductible. The Internal Revenue Service (IRS) decides what actual expenses fit the criteria for a small business tax deduction.

How do small business tax deductions work?

Your actual tax savings with deductions will depend on your effective tax rate.

Say you earn $50,000 a year and qualify for $5,000 in tax deductions. You’ll only be liable for taxes on $45,000 of that business income.

The percentage of that $45,000 income that is taxed depends on your business’s tax rate. According to Fundera, on average, the effective small business tax rate is 19.8%, adding that sole proprietorships pay a 13.3% tax rate and small partnerships pay a 23.6% tax rate.

Assuming your effective tax rate is 20%, that $5,000 tax deduction will save you $1,000.

Without deductions: $50,000 x .2 = $10,000
With deductions: $45,000 x .2 = $9,000
Savings: $10,000 – $9,000 = $1,000

Over the course of the tax year, record business-related expenses so you can easily tell which costs are deductible when it’s tax time.

For example, attendance at a conference that doesn’t guarantee revenue appears to be a risky and expensive idea at first thought. However, knowing that you can write off your hotel room, gas mileage, and various conference fees can quickly turn it into a worthwhile business trip.

55 small business tax deductions

Unfortunately, there’s no master list in the Internal Revenue Code that details what you can deduct and what you can’t. There’s only Code Section 62, which says any expense incurred in the production of income is a valid write-off.

This lack of clarity often leads to businesses and individuals not taking advantage of tax deductions available to them. In fact, the IRS is currently holding $1.5 billion in refunds that can’t be claimed after April 18, 2022.

So if you’re wondering what business expenses are deductible in 2022, the short answer is, “it depends.”

A business expense must be both ordinary and necessary to be deductible.

  • An ordinary expense is one that’s common in your trade or line of business.
  • Necessary expenses are helpful and appropriate for your business. An expense doesn’t have to be indispensable to be necessary.

A good place to start your tax deduction research is IRS Publication 535. This document discusses common business expenses, explains what is and is not deductible, explains general rules for deducting business expenses, and lists the forms you need to file deductions.

However, there are always expenses that don’t fit into general categories, which is why it never hurts to perform extra research and make sure you’re taking advantage of every available tax deduction.

To help you get started, we’ve put together a list of the most common (and some less common) tax deductions that small businesses can write off.

Disclaimer: This blog post is intended to provide generalized information designed to educate a broad segment of the public. It’s not personalized tax, investment, legal, or other business or professional advice. If you have questions, speak with a qualified professional.

  1. Business use of your car: If you can document and verify that you use your vehicle for business, not personal use, you can deduct the operation costs. You can choose to use the standard mileage rate for the deduction, which is 58.5 cents per mile for 2022, or itemize specific costs.
  2. Home office: If you have a dedicated workspace in your home you use regularly and solely for business, you’re eligible for home office deductions related to that portion of your home. The simplest calculation is deducting $5 per square foot, up to 300 feet. Or, calculate the percentage of your home office area and apply that percentage to your home expenses like rent, mortgage interest, property taxes, utilities, etc. So if your home office area accounts for 5% of your home’s square footage, deduct 5% of your mortgage interest.
  3. Bonus depreciation: This tax deduction is a result of the Tax Cuts and Job Act of 2017. Essentially, it’s a first-year “bonus” depreciation that applies to depreciable business assets. Instead of depreciating qualified property by 50% the first year you purchase it, you’re allowed to depreciate certain assets by 100% if the property was purchased and used after September 27, 2017, and before January 21, 2023. According to the IRS, property like business vehicles, computers, software, machinery, and equipment qualify for this “bonus” depreciation.
  4. License fees: List any license fees you pay as a valid deduction. You can’t write off education that qualifies you for a new career, but any license fees you pay are a valid deduction. You can also write off the license renewal fee and any continuing education required to maintain your license (including tuition, books, fees, and research). This deduction also applies to federal, state, and local licensing.
  5. Salaries and benefits: Any salaries, wages, commissions, or bonuses you pay your employees are typically tax-deductible expenses. This includes sick leave, vacation pay, education expenses, reimbursements, and loans to employees. You can also write off Federal Unemployment Taxes (FUTA), State Unemployment Taxes (SUTA), payroll processing, and payroll taxes for employees, including Social Security, Medicare taxes, and unemployment taxes.
  6. Work Opportunity Tax Credit: If you employ people from certain groups (ex-felons, veterans, SSI recipients, the underemployed, summer youth employees), apply for a Work Opportunity Tax Credit. File Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit with your state workforce agency within 28 days of the eligible employee beginning work. If you’re approved, you can receive tax credits between 25% and 40% of the first $6,000 in wages paid to those employees.
  7. Office supplies and expenses: If you have receipts, the IRS allows small-business owners to deduct 100% of office supplies. It’s important to note that office supplies and expenses are not the same. Office expenses are things like computers and tablets, phone systems and employee cellphones, and internet fees. Office supplies are short-term items that are replaced or refilled regularly (pens, pencils, paper, business cards, etc.). For more information on how to deduct (or depreciate) office expenses on your small business tax return, go here.
  8. Client and employee entertainment: This small business deduction changed because of the aforementioned Tax Cuts and Jobs Act of 2017. In terms of entertainment, only meals and beverages are deductible. Entertainment expenses like taking a customer to a sporting event, resort, or for a few rounds of golf are no longer deductible.
  9. Freelancers/independent contractor labor: Deduct wages paid to independent contractors from your taxable income. Typically, you provide your contractor with IRS form 1099-MISC and send the IRS form 1096, which shows how much you paid the contractor.
  10. Furniture and equipment: Small business owners can deduct up to $1 million worth of furniture and equipment purchases under Section 179 (material goods). Deductible material goods include office furniture, machines, equipment, and vehicles like SUVs, pickups, and vans weighing more than 6,000 pounds.
  11. Permits and fees: Any fees associated with business bank accounts and small business loans are deductible—including monthly service fees, ATM fees, overdraft fees, deposit fees, wire transfer fees, annual fees, late payment fees, set-up costs for loans, and leasing fees for equipment and interest. Resale permits and permits required by government agencies are also deductible.
  12. Computer software: Deduct the cost of software used to run your business (like Neat) and any other business apps that have a monthly subscription.
  13. Rent on your business location: If you rent a business location, deduct the rental payments as a business expense, even if you use a monthly co-working space.
  14. Startup and organizational expenses: The IRS allows business owners to deduct $5,000 in business startup costs and $5,000 in organizational costs if total startup costs are $50,000 or less. If your startup costs in either area exceed $50,000, your allowable deduction is reduced by the overage (the amount by which these costs exceed $50,000).
  15. Utilities: Deduct utility bills like heat, electricity, water, internet, and telephone.
  16. Parking and tolls: Write off business-related tolls and parking fees. The same tax provision allows you to deduct shipping of baggage and sample or display material between your regular and temporary work locations. It also lets you write off dry cleaning and laundry and any tips you pay for services related to any of these expenses.
  17. Taxes: Some taxes can be written off, including regulatory fees, taxes on real estate and personal property, and your employer taxes (including the employer share of FICA, FUTA, and state unemployment taxes).
  18. Commissions: Commissions paid to salespeople and third-party commissions are tax deductible.
  19. Machinery and equipment rental: This is an alternative to depreciation and buying machinery and equipment that allows businesses to deduct rental costs in the year they are incurred.
  20. Inventory for service-based businesses: Get a tax break for the cost of purchasing building materials or for inventory you later resell for a profit. Only the inventory you actually sell during the year is deductible, however. Purchasing inventory isn’t a tax deduction until you sell the inventory items or they’re deemed “worthless” and removed from your inventory.
  21. Bad debts: If someone owes you money you can’t collect, it could be deductible if it fits the IRS’s definition of bad business debt. Examples of bad business debts include loans to clients, suppliers, distributors, and employees, credit sales to customers, or business loan guarantees.
  22. Employee education and childcare assistance: Small business owners can claim between 10% to 25% of the cost of employees’ childcare expenses, or up to $150,000, each year.
  23. Tools: As a business owner, you can claim a deduction for inexpensive tools or tools that have a lifespan of one year or less, like hammers and handsaws.
  24. Disaster and theft losses: According to the Tax Cuts and Jobs Act, only losses directly related to a federally declared disaster are claimable and cannot exceed 10% of your annual gross income (AGI). Also, you cannot deduct losses covered by insurance.
  25. Carryovers from previous years: The IRS allows you to deduct $3,000 from your taxable income if your capital losses are greater than your capital gains.
  26. Lawn care expenses: You may write off lawn care expenses if your property is a rental or you have a home office. However, the state of your lawn has to have some relevance to the performance of your business. A lawn used as a play area for your daycare business is a good example.
  27. Home office renovations: If you’re already claiming a deduction for a home office, business expenses related to any renovations to that part of your home are also deductible.
  28. Education: Deduct the cost of newspapers and magazine subscriptions, seminars, continuing education, workshops, business conferences, classes, books, or anything else designed to improve your skills in your field.
  29. Advertising and marketing: All your advertising and marketing expenses are 100% deductible. Any tools/software used to manage your email or run your Facebook/Google Ads campaigns are deductible as well. Even the cost of providing meals, entertainment, or recreational facilities to the general public as a community promotion can be written off.
  30. Cleaning and janitorial expenses: This write-off is permissible if you’re cleaning work-related property. If your entire home is being cleaned, you can only write off expenses the percentage of square footage your home office accounts for.
  31. Moving expenses: Deduct the cost of moving business equipment, supplies, and inventory from one business location to another.
  32. Intangibles like licenses, trademarks, and other intellectual property: IRS Publication 535 Business Expenses offers guidance on which types of intangible assets you can deduct. Your tax professional can help you correctly handle items like these on your business tax return.
  33. Business meals: Small business owners can deduct 50% of client-related business meals when they meet certain requirements.
  34. Professional fees: Deduct professional service fees necessary to the functioning of your business. This includes legal, accounting, and bookkeeping services.
  35. Business association membership dues: Deduct membership dues for your chamber of commerce, trade associations, civic or public service organizations, professional organizations, or real estate boards. Typically, dues are non-deductible if the primary purpose of the organization is to provide entertainment or access to entertainment facilities.
  36. Conventions and trade shows: Deduct registration fees, airfare, hotel reservations, and other expenses associated with attending conferences, conventions, and trade shows.
  37. Cafeteria health-insurance plan (requires plan): A cafeteria plan is a separate written plan that’s maintained by an employer for employees, according to the requirements and regulations of Section 125 of the Internal Revenue Code that provides certain benefits on a pre-tax basis. If you offer this type of health plan, you can lower your FICA, FUTA, SUTA, and worker’s compensation costs.
  38. Charitable deductions made for a business purpose: Although it’s still possible to deduct some expenses related to charitable acts, the Tax Cuts and Job Act of 2017 made it more difficult to claim tax deductions for charitable giving. Now, you can only deduct cash gifts, gifts of property or equipment, and travel expenses you accrue when helping a charitable organization.
  39. Consulting fees: Any consulting fees you’ve paid out are fully deductible.
  40. Equipment repairs: The costs of repairing and maintaining your business equipment are deductible.
  41. Freight or shipping costs: Shipping costs you incur for business purposes are deductible, including stamps, UPS, and FedEx shipments.
  42. Gifts for customers or employees: Write off gifts for your customers or employees as long as you observe the $25 deduction limit for each gift. You can also deduct the cost of gift cards, prizes, discounts, and promotional items used in contests.
  43. Security and fire protection systems: Businesses can deduct the costs of new security and fire protection systems up to $1 million under Section 179.
  44. Guard dog: Speaking of security, if a guard dog protects your business property, you can deduct expenses such as vet bills, food, and even toys.
  45. On-site gym for employees: You can take a tax deduction if you provide an on-site gym your employees are encouraged to use.
  46. Insurance premiums: All business insurance plans (malpractice, liability, worker’s compensation, etc.) are deductible, as long as they are properly documented.
  47. Royalties: A royalty is a legally binding payment made for the use of an individual or company’s assets, like copyrighted works and franchises.
  48. Safe-deposit boxes and safes: Deduct the expense of renting a safe deposit box used to store stocks, bonds, or investment-related documents and any safes used for business purposes.
  49. Business travel: Deduct plane tickets, hotels, train tickets, rental cars, and taxis (that includes Uber!) used for business travel.
  50. Storage rental: Deduct storage rental fees as long as they’re business-related.
  51. Packaging: Companies that send products to customers and partners can deduct the cost of product packaging, including envelopes, boxes, tape, labels, markers, and printer ink.
  52. Retirement plans: If you’re self-employed, you can deduct contributions to your retirement plans. Deductible plans include the Simplified Employee Pension (SEP) IRA, Savings Incentive Match Plan for Employees (SIMPLE) IRA, and qualified defined-contribution or defined-benefit plans.
  53. Domain and web hosting: Domain and hosting costs are tax deductible, as well as purchased web design templates or stock images you use on your site.
  54. Personal protective equipment: Amounts paid for personal protective equipment (PPE) like masks, gloves, steel-toed boots, flame retardant clothing, or safety glasses qualify as expenses for medical care under the Internal Revenue Code.
  55. Expenses Paid With Forgiven PPP Loans: The COVID-related Tax Relief Act of 2020 provides for the full deductibility of business expenses paid with a forgiven or forgivable (Paycheck Protection Program) PPP loan.

It’s important to note that while many small businesses can take advantage of a majority of these tax deduction opportunities, not all businesses are eligible for the same write-offs.

Plus, changes in legislation that affect the tax code often occur, which also makes it difficult for small businesses to keep up with which business expenses are truly deductible.

Who should you consult to confirm what you can and cannot write off?

It’s important for small business owners to be careful where they get their advice. Each deduction has its own rules, and some write-offs may not be available to your small business.

Consult a professional accountant (CPA) or tax specialist before filing if you don’t employ one in-house.

Tax specialists have vast knowledge in both accounting and tax law, giving them a high level of expertise on the subject of tax deductions and more.

Tax consultants can help you maximize savings through deductions, and they can also minimize your tax liability, help you with planning, and offer professional guidance on any other complex tax needs you may have.

How Neat can help you claim your small business tax deductions

Even if you’re a tax deduction whiz, you still need clear financial records to take advantage of write-offs. Neat can help you organize your business expenses to take advantage of every tax deduction available to you. Our software helps small businesses do the following come tax season:

  • Simplify tax preparation: Neat helps you manage documents, categorize expenses, and quickly reconcile accounts for easy tax filing.
  • Streamline communication with tax specialists: It’s hard to stay organized and error-free when you’re sending attachments and coordinating with your accountant over long email chains. Instead, send documents to your accountant or tax specialist directly from Neat. You and your tax specialist can also comment on every item and folder in Neat, making collaboration a breeze as well.
  • Accurately export documents to filing software: While you can’t file taxes directly through Neat, we make it easy for you to send your expense reports to your tax filing software of choice. Export tax categories, expenses, and document images to eliminate manual data entry.

Start a free trial to see just how easy tax prep can be with Neat.

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