Small business tax deductions in 2023

Deductible business expenses

This chapter covers the general rules for deducting business expenses. Business expenses are the costs of carrying on a trade or business, and they are usually deductible if the business is operated to make a profit. Business tax deductions work by lowering your taxable income, thereby lowering the amount of tax you owe to the government as part of your tax return. To find out how to claim the most deductions possible, it’s a good idea to consult a professional, like a CPA. It’s the job of an accountant to know what tax deductions are available and how they can apply to your small business. As we mentioned above, business owners can get a tax deduction for contributing to retirement plans on behalf of their employees (which often includes them as the owner).

In the earlier example under More than 50% business use requirement, you had a car with a cost (for purposes of the section 179 deduction) of $14,700. If you use actual expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. You can’t deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. You can’t deduct commuting expenses no matter how far your home is from your regular place of work. You can’t deduct commuting expenses even if you work during the commuting trip.

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You leave your terminal and return to it later the same day. You get an hour off at your turnaround point to eat. Because you aren’t off to get necessary sleep and the brief time off isn’t an adequate rest period, you aren’t traveling away from home.

Or, you can go to to place an order and have them mailed to you within 10 business days. The following IRS YouTube channels provide short, informative videos on various tax-related topics in English, Spanish, and ASL. Know what you’re looking for and want to find it fast? Select business topics using our A–Z listing, or by business type such as sole proprietor, corporation, etc. We also provide links to major business subjects, such as Business Expenses, which provide a gateway to all related information on those subjects.

Deductible business expenses

On August 16, 2021, you leased a car with a fair market value of $64,500 for 3 years. You used the car exclusively in your data processing business. On November 5, 2022, you closed your business and went to work for a company where you aren’t required to use a car for business. Using Appendix A-4, you figured your inclusion amount for 2021 and 2022 as shown in the following table and reduced your deductions for lease payments by those amounts. If the depreciation deductions for your car are reduced under the passenger automobile limits (discussed earlier), you will have unrecovered basis in your car at the end of the recovery period. If you continue to use your car for business, you can deduct that unrecovered basis (subject to depreciation limits) after the recovery period ends.

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If you elect the section 179 deduction, you must reduce your depreciable basis in the car by the amount of the section 179 deduction. However, if you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). You can’t deduct the part of the interest expense that represents your personal use of the car. A salesperson owns three cars and two vans that they alternate using for calling on their customers. They can use the standard mileage rate for the business mileage of the three cars and the two vans because they don’t use them at the same time.

  • If you take a job that requires you to move, with the understanding that you will keep the job if your work is satisfactory during a probationary period, the job is indefinite.
  • You can deduct up to $2,000 per year of your expenses of attending conventions, seminars, or similar meetings held on cruise ships.
  • States with community property laws include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
  • Report the exchange of like-kind property on Form 8824, Like-Kind Exchanges.

When someone owes your business money and you can’t collect it, this is business bad debt (as opposed to nonbusiness bad debt). Business bad debt can happen if you sell a good or service to a customer with the understanding that they’ll pay you later (in other words, on credit), and it becomes clear they aren’t going to pay you. Let’s say your taxable income for the year was $50,000, but you spent $10,000 on qualified deductible expenses. Essentially, your taxable income then drops to $40,000. Taking time away from the day-to-day management of your business to investigate every possible tax tip isn’t realistic.

That said, it’s always cheaper to spend only the money you already have and not incur any interest expenses. A tax deduction only gives you back some of your money, not all of it, so try to avoid borrowing money if possible. You can also deduct premiums you paid to provide coverage for your spouse, your dependents, and your children younger than 27 at year’s end, even if they aren’t dependents on your taxes.

Publication 334 ( , Tax Guide for Small Business

However, if you have a home office and use a landline, the cost of the first landline is not deductible, but subsequent landlines are. Most small business tax deductions are more complicated than this brief overview describes—it is the U.S. Tax Code, after all—but now you have a good introduction to the basics. Contribution limits vary by plan type, and the IRS adjusts the maximums annually.

During the year, you traded in two of your old trucks for two newer ones. You can use the standard mileage rate for the business mileage of all six of the trucks you owned during the year. The following examples illustrate the rules for when you can and can’t use the standard mileage rate for five or more cars.

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Rent is not unreasonable just because it is figured as a percentage of gross receipts. If the fees include payments for work of a personal nature (such as making a will), you can take a business deduction only for the part of the fee related to your business. In general, you do not depreciate the costs of repairs or maintenance if they do not improve your property.

Cash Float Accounts

If part of the tax is for maintenance, repairs, or interest, you must be able to show how much of the tax is for these expenses to claim a deduction for that part of the tax. A taxing jurisdiction can require the use of a date for accruing taxes that is earlier than the date it originally required. However, if you use an accrual method, and can deduct the tax before you pay it, use the original accrual date for the year of change and all future years to determine when you can deduct the tax. Under the cash method, you can generally deduct only the interest you actually paid during the tax year. You cannot deduct a promissory note you gave as payment because it is a promise to pay and not an actual payment.

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You also keep up your community contacts in Boston. When you complete your training, you are transferred to Los Angeles. You will find examples of deductible travel expenses in Table 1-1. An expense doesn’t have to be required to be considered necessary.

There are two methods to claim a business bad debt. If you loan money to a client, supplier, employee, or distributor for a business reason and you’re unable to collect the loan after attempting to do so, you have a business bad debt. If you liquidate your business and some of the accounts receivable that you retain become worthless, they’re treated as business bad debts. If you qualify, you can use the nonaccrual-experience method of accounting, discussed later. Under this method, you don’t have to accrue income that, based on your experience, you don’t expect to collect.

For more information, see the Instructions for Form 2290. However, you must pay the 2.9% Medicare part of the SE tax on all your net earnings. For 2022, you received one credit, up to a maximum of four credits, for each $1,510 ($1,640 for 2023) of income subject to social security taxes. Therefore, for 2022, if you Deductible business expenses had income (self-employment and wages) of $6,040 that was subject to social security taxes, you receive four credits ($6,040 ÷ $1,510). This public-private partnership, between the IRS and tax software providers, makes approximately a dozen brand-name commercial software products and e-file available for free.

Office supplies and expenses

If you file electronically using tax preparation software or a tax professional, you will sign your return using the Self-Select PIN (personal identification number) Method for IRS e-file. If you are married filing jointly, you and your spouse will each need to create a PIN and enter these PINs as your electronic signatures. For 2022, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use from January 1, 2022, to June 30, 2022, is 58.5 cents per mile. The business standard mileage rate from July 1, 2022, to December 31, 2022, is 62.5 cents per mile.For more information, see Car and Truck Expenses in chapter 8.

Deductible business expenses

This publication has information on business income, expenses, and tax credits that may help you, as a small business owner, file your income tax return. You can’t deduct the cost of using your car in a nonprofit car pool. Don’t include payments you receive from the passengers in your income. These payments are considered reimbursements of your expenses. However, if you operate a car pool for a profit, you must include payments from passengers in your income. You can then deduct your car expenses (using the rules in this publication).

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