Small Business Tax Deductions Checklist for 2023 (Plus Credits)

Over the next two weeks, business owners need to determine if their business is eligible or may be eligible for new and existing deductions. Use this curated small business tax deductions checklist to jumpstart tax planning.

If you are unsure whether your business is eligible for one of the many deductions listed, gather the “maybes” and bring them to your tax professional. Let’s get into the checklist.

Review the following deductions for opportunities.

Let’s look at the essential deductions, along with expenses and fees related to each deduction. If you take on the expenses and fees listed below, your business likely qualifies.

• Mileage Deductions: For business-related travel expenses, leverage the Internal Revenue Service (IRS) standard mileage rate of 65.5 cents per mile.
• Insurance, Legal, and Professional Fees: Business insurance premiums and legal or professional services are generally tax deductible.
• Business Interest and Bank Fees: Interest paid on business loans and overdraft fees from a business bank account can reduce your tax bill,¹ but only if you maintain a clear separation from personal expenses.
• Health Insurance Premiums: Business owners subject to self-employment taxes (sole proprietors, single-member LLCs, members of partnerships, and multi-member LLCs taxed as partnerships) can lower taxable income through health insurance premium deductions.²
• Office Supplies and Equipment: Deduct the cost of essential office supplies and equipment used in business operations.
• Business Meals and Travel: Partial deductions are available for business meals and travel expenses. For up-to-date information, see my article on business meal deductions.
• Depreciation of Assets: Heavy equipment, tools, real estate, electronics, furniture, vehicles, and even intellectual property like patents and copyrights depreciate, albeit over different time scales. Get the details in my article on depreciable assets and associated tax deductions and a focused look at depreciation for real estate holdings.
• Home Office Deductions: If you’re a business owner working from home in a remote work capacity, this tax deduction is a no-brainer.
• Education and Training Expenses: Expenses related to education and training for employees and owners are generally tax-deductible. Think of workshops, courses, and webinars related to your business.

Familiarize yourself with different types of deductible business expenses and adhere to IRS rules for deductions. You need to understand the limitations on deductions for business interest expenses, known as the “section 163(j) limitation.”³

Explore special tax credits for new business opportunities.

Tailoring your deductions to your specific business scenario is key. Here’s a list of some of the special deductions:

• Work Opportunity Tax Credit (WOTC): Hiring from certain demographic groups comes with tax benefits, and diverse perspectives are a value in and of themselves.
• Employer-Provided Childcare Credit: Offering childcare for your employees? There’s a tax credit for that.⁴
• Opportunity Zone Investments: Investing in designated distressed neighborhoods can lead to tax deferment⁵ on eligible gains.
• Clean Vehicle Credits: EV or FCV purchases under the Inflation Reduction Act of 2022 provide tax savings for companies that use an electric vehicle for business purposes.
• Energy Efficient Commercial Buildings Deduction: Boost your building’s energy efficiency by at least 25% to qualify for deductions.
• Credit for Energy-Efficient Home Builders: Construct energy-efficient homes and claim up to $5,000 in credits per home.⁶
• Advanced Energy Project Credit: Qualifying investments⁷ in advanced energy projects can yield tax credits.
• Research Credit: Investing in research and development? This credit might be for you. See my article on R&D tax credits for more information.

Here’s how to ensure your business expenses are tax-deductible.

Here’s how to stay on the right side of the tax code:

• Don’t Get Involved In Improper Tax Sheltering or Avoidance. Stay alert against tax shelters designated as “abusive” by the IRS.
• Maintain Comprehensive Records. Keep meticulous records of every business expense, including interest payments and research costs.
• Review Expenses Regularly. Periodically check your records to ensure they align with IRS guidelines.⁸
• Consult a Tax Professional. Engage with a tax expert like me to navigate complex tax situations and ensure the accuracy of your deductions.

Let’s turn tax planning into a revenue-generating activity.

Effective tax planning and growing of your business. I’m here to make it happen. Schedule a consultation today for help.

Talk soon,
Jeremy A. Johnson, CPA

References

1. “Publication 535 (2022), Business Expenses | Internal Revenue Service,” Feb. 13, 2023. https://www.irs.gov/publications/p535#en_US_2022_publink10007487 (accessed Jan. 13, 2024).
2. “Publication 535 (2022), Business Expenses | Internal Revenue Service,” Feb. 13, 2023. https://www.irs.gov/publications/p535#en_US_2022_publink1000208843 (accessed Jan. 13, 2024).
3. “Instructions for Form 8990 (12/2022) | Internal Revenue Service.” https://www.irs.gov/instructions/i8990 (accessed Jan. 12, 2024)
4. “Employer-provided childcare credit | Internal Revenue Service,” Nov. 30, 2023. https://www.irs.gov/businesses/small-businesses-self-employed/employer-provided-childcare-credit (accessed Jan. 11, 2024).
5. “Invest in a qualified opportunity Fund | Internal Revenue Service,” Mar. 01, 2023. https://www.irs.gov/credits-deductions/businesses/invest-in-a-qualified-opportunity-fund (accessed Jan. 12, 2024).
6. “Credit for builders of energy-efficient homes | Internal Revenue Service,” Dec. 18, 2023. https://www.irs.gov/credits-deductions/credit-for-builders-of-energy-efficient-homes (accessed Jan. 13, 2024).
7. “Advanced Energy Project Credit | Internal Revenue Service,” IRS.gov, Nov. 03, 2023. https://www.irs.gov/credits-deductions/businesses/advanced-energy-project-credit (accessed Jan. 12, 2024).
8. “Publication 535 (2022), Business Expenses | Internal Revenue Service,” IRS.gov, Feb. 13, 2023. https://www.irs.gov/publications/p535#en_US_2022_publink1000209177 (accessed Jan. 14, 2024).