Published: Apr 01 2022
Last updated: May 26 2023
Taxes can be a significant expense for small businesses. But there are ways to ease the pain, mainly in the form of tax deductions.
You might know the more common tax deductions, such as vehicle expenses, employee wages, and utilities. Still, many small business owners end up paying more tax than they need to by not knowing some of the less common deductions.
Understanding what expenses you can offset against the taxes your small business owes can make a huge difference. If you’re concerned about your small business tax bill, here are five key tax deductions that you might not have considered.
In addition to helping with your 2021 taxes, keep these deductions in the back of your mind throughout 2022. Tax-planning throughout the year is an invaluable way of saving money come tax time.
5 key small business tax deductions
1. Marketing, Advertising, and Promotions
When looking at your marketing costs, consider everything you’ve spent on promoting your small business, from online ads to putting on community events. Marketing and advertising costs have to be ‘ordinary’ (common in your industry) and ‘necessary’ (helpful in gaining or keeping customers) to be allowed as tax deductions.
2. Moving Expenses
If your business moves, whether to a new premises or a completely different state, you can deduct any costs relating to the move. It’s important to note that this relates only to businesses and business moving expenses for tax years from 2018 to 2025. The only individual taxpayers who are entitled to moving expenses tax deductions are military personnel.
3. Per Diem Expenses
As a result of lockdowns and pandemic-related changes to the tax code, many are asking “are per diems tax deductible in 2021?” Thanks to the Consolidated Appropriations Act update to the CARES Act, the meal portion of a per diem allowance (food or beverages bought from a restaurant) is now 100% tax deductible in tax years 2021 and 2022. Previously it was limited to 50%.
4. Professional Training and Development
Whether it’s for you or your employees, any education, training, or any type of professional development is deductible—as long as it relates to furthering or improving the business, of course. For your small business, it pays to learn–in more ways than one.
5. Client Gifts
If you thank your clients, customers, or contractors with a physical gift, the cost is tax deductible, with a limit of $25 per person, per year. That’s not to say you can’t spend more than that on a gift, but only $25 of it is deductible.
Did you Defer Tax Payments in 2020?
The change to per diem expenses wasn’t the only update to the Consolidated Appropriations Act that might be relevant to you.Employers and self-employed individuals could defer paying half of eligible deferred amounts until December 31, 2021 without penalty, and now the remainder of business have until December 31 2022.
If you did defer your small business taxes and/or payroll taxes, be sure to include the payments in your company budget this year.
Even if you don’t have a regular accountant, hiring accounting support around tax time can save you time and money, because they’re the experts. A tax professional such as a CPA will advise you of the best combination of tax deductions and other strategies for your small business, meaning tax season comes with less stress.
Business Credit cards and Tax Deductions
While business credit card debt in itself is not tax deductible, the business-related expenses are deductible. A business credit card that helps you easily track expenses can make your business tax filing process much faster.
Furthermore, business credit card fees are permitted business expenses, and therefore tax deductible. This includes annual fees and balance transfer fees. Since this only relates to business, not personal, cards, having a dedicated business credit card is crucial.
Find out more about the Capital on Tap Business Credit Card and how it can help you track expenses throughout the year, and make tax time a breeze.
Note: Capital on Tap are not tax professionals, merchants should consult their tax advisor