You have so much going on running your business that it’s easy to not think about taxes. But, your tax deductions can lead to significant savings and more money in your pocket. Tax deductions are so important.

Here are some overlooked tax deductions for small business owners, independent contractors and freelancers.

Get MileIQ to start tracking your miles »

Why Tax Deductions Are Important: Limiting Your Taxable Income

The more deductions you take, the lower your taxable income will be. That means you can pay less in taxes than you would and have more money to grow your business. Or, you can spend that money on whatever you want. We don’t judge.

Remember, tax fraud and tax evasion are illegal and you should always avoid this. You can face stiff penalties for this, including jail time. Minimizing your tax liability by following existing rules is perfectly legal, though. Taking the deductions you’re entitled to is a great way to help your small business succeed in the long run.

5 Overlooked Tax Deductions For Small Business Owners

It’s easy to complain about taxes. There are definitely elements of it that are burdensome. With that said, there are many who argue that the tax system is geared for entrepreneurs and small business owners.

Here are some of the most interesting tax deductions that small businesses can’t afford to ignore.

Get MileIQ to start tracking your miles »

What Are The Expenses In A Business? Business Expense Deduction

Virtually every single business expense is deductible. That’s right, everything you spend for your business can lead to tax savings. As long as these expenses are:

  • Ordinary and necessary
  • Directly related to your business
  • For a reasonable amount.

This includes nearly everything: advertising costs, depreciation of business assets, software costs, banking fees and more.

The IRS isn’t just going to take your word for it, though. So, be sure to track your business expenses diligently and provide accurate record keeping.

Also, don’t forget you can write off all the startup costs it took to create your business. There are generally considered capital expenses. So, you can’t deduct them as you would normal operational business expenses.

Get MileIQ to start tracking your miles »

Net Operating Loss

This can be a big one. Many businesses don’t generate a profit in its first couple years. While it’s not fun to lose money, a net operating loss can provide tax benefits. You can use this to reduce your tax liability for your past and future years.

You can find detailed instructions on how to determine the amount of your net operating loss here. You can then carry that loss back by filing an application for a refund or amend returns for previous years.

Many small business owners are better served carrying that loss forward, though. Generally, a successful business may have losses in the first couple years. But, after gaining a strong customer base, they’re (hopefully) profitable moving forward. You can use that net operating loss forward to reduce your taxable income during those profitable years.

Health Insurance Costs

You already know how costly health insurance can be. Thankfully, you can still deduct some of those costs for yourself, your spouse and your dependents. Remember, you can only use the self-employed health insurance deduction if your business earns a profit. If the company doesn’t earn money or has a loss, you can’t get this deduction.

You can also deduct health insurance costs as a business expense if your business pays them for employees. This doesn’t apply if you’re an employee of your business and providing yourself health insurance but there is a workaround this limitation.

Get MileIQ to start tracking your miles »

Self-Employment Taxes

If you worked for a company, that business would foot 50 percent of your Social Security and Medicare taxes. But as a self-employed small business owner, you have to pay your own Social Security and Medicare taxes—commonly known as the self-employment tax. The good news is that you can deduct 50 percent of your self-employment taxes on your annual return.

Mileage Deduction

Driving or business miles is a tax deduction for small business owners that you shouldn’t overlook. You probably drive a lot. Make sure you’re getting the most out of those miles with a mileage deduction.

Every business mile is potentially worth 54 cents in terms of a deduction. You can’t deduct your commute (unless you have a qualifying home office) but just think about how quickly those business miles can add up. Every single trip to pick up supplies, visit clients, between offices or locations or drives to the bank can result in you paying less in taxes.

Just be sure you have a proper mileage log to back up your mileage claims. The last thing your small business wants is for the IRS to audit your claim, not allow your deduction and charge penalties.

Get MileIQ to start tracking your miles »

Marin Perez

Marin Perez

Marin is part of the marketing team at MileIQ. He's excited to see how entrepreneurs are using tools like MileIQ and Spend to be more successful. When not working, he's thinking about his next trip.
Marin Perez

Latest posts by Marin Perez (see all)