Top Tax Write-Offs for Small Businesses And Self-Employed Workers In 2024

Tax write-offs, also known as tax deductions, offer significant advantages for small businesses and independent contractors.

While you usually need to pay upfront for equipment, employee salaries, and other business expenses, the ability to write off these costs on your federal tax return reduces the amount of income tax you owe. This often results in a smaller tax bill, which allows you to reinvest more funds into your business.

What Are Tax Write-Offs?

Tax write-offs are expenses that businesses can deduct from their total income, lowering their net profit and, consequently, reducing their tax liability. The IRS provides tax deductions to incentivize specific behaviors, such as retirement savings or charitable contributions. For self-employed individuals and business owners, who are taxed on profits rather than gross income, tax write-offs promote business reinvestment and growth.

Why Maximizing Deductions Is Crucial

For entrepreneurs and self-employed workers, deductions are a key tool for offsetting business expenses and reducing taxable income.

“Most small business owners are taxed on net profit,” explains Greg Hudgins, a CPA. “Tracking and reporting business expenses is essential, as they are subtracted from your revenue to determine your net profit, which affects your tax liability.”

Nearly all costs involved in running a business, from marketing to employee salaries and office supplies, may be eligible for tax deductions.

Common Myths About Tax Write-Offs

Some believe that tax write-offs allow business owners to deduct personal expenses. However, there are strict guidelines. For example, while a business owner can hire their children and write off their wages, the children must perform appropriate duties for the business.

“It’s not a free pass to deduct everything,” cautions Caitlynn Eldridge, a CPA.

Key Tax Write-Offs for Small Businesses

Home Office Deduction
If you use part of your home “regularly and exclusively” for business, you can deduct a portion of your home expenses. This includes mortgage, rent, utilities, and more. The IRS offers a simplified method where you can multiply the square footage of your business space by $5, up to a $1,500 deduction for up to 300 square feet.

Vehicle Expenses
If you use your car for business, certain expenses, like insurance and fuel, are deductible. You can either track individual costs or use the IRS standard mileage rate, which is 67 cents per mile for 2024. Careful mileage tracking is essential if the car is used both personally and professionally.

Business Travel
Traveling for business is deductible, including flights, hotel stays, and rental cars, as long as the primary purpose of the trip is business. Personal trips with a side business meeting are not deductible.

Meals and Entertainment
While entertainment is generally not deductible, business meals are, provided they aren’t extravagant. Up to 50% of business meal costs, including taxes and tips, can be deducted.

Depreciation of Property
Assets like equipment, furniture, and machinery can be depreciated over time, allowing businesses to recover some of their costs through deductions. Depreciation rules can be complex, so it’s important to consult a tax professional.

Tax Write-Offs for Self-Employed Individuals

Health Insurance Premiums
Self-employed individuals can deduct up to 100% of their health insurance premiums, provided they report a profit for the year.

Retirement Contributions
Self-employed workers can contribute to retirement accounts like SEP IRAs or Solo 401(k)s, with deductions based on a percentage of their earnings, up to $69,000 in 2024.

Self-Employment Tax
Self-employed workers are responsible for paying both the employer and employee portions of Social Security and Medicare taxes. However, they can deduct half of these taxes on their annual tax return, lowering their adjusted gross income.

Education and Training
Self-employed individuals may deduct the costs of continuing education, courses, or certifications necessary to maintain or improve job skills.

Additional Business Expense Write-Offs

Office Supplies and Equipment
Purchases for office supplies and equipment are deductible, including items like computers, printers, software, office furniture, and employee uniforms. The maximum deduction for 2024 is $1.22 million, subject to certain limits.

Rent and Utilities
Rent and utility costs for business premises are fully deductible, whether you rent a traditional office space or a coworking facility.

Advertising and Marketing
Expenses related to marketing your business—such as digital ads, business cards, or billboards—can be deducted.

Professional Services
Fees paid to accountants, consultants, or lawyers for business services are deductible, except for legal fees tied to business asset acquisitions.

Lesser-Known Tax Write-Offs

Business Insurance
Various types of business insurance, such as property, liability, and workers’ compensation insurance, are deductible.

Bad Debts
If your business includes uncollectible amounts in its income, you may be able to deduct them as bad debts.

Startup Costs
The IRS allows a deduction of up to $5,000 for business startup costs, which can include market research, employee training, and executive salaries. If your startup expenses exceed $5,000, you can amortize the remaining amount over the next 15 years.

How to Maximize Your Deductions

To avoid rejection of deductions, proper documentation is essential.

“Keep business expenses separate from personal finances—don’t mix them in the same bank account or credit card,” advises Greg Hudgins. Retain receipts, invoices, and account statements to support your deductions.

When in doubt, it’s always best to consult a tax professional to ensure you’re maximizing your deductions and minimizing your tax burden.

 

Source: Business Insider