How Small Businesses Can Maximize Tax Deductions

Running a small business can be financially challenging, but knowing how to take full advantage of tax deductions is one way to lower your tax burden. There are several deductions that many small business owners overlook, which could save you thousands of dollars annually. Here are some key deductions that every small business should know about, along with updated regulations and technical details on how to apply them effectively.

1. Home Office Space Deduction

If you're using part of your home exclusively for business purposes, you may qualify for the home office deduction. This deduction can be calculated in two ways:

• Simplified Method: Deduct the current allowable dollar amount per square foot of your home used for business, up to a maximum square footage level.
• Regular Method: Calculate the percentage of your home’s total space that is used for business. You can then deduct a corresponding portion of your household expenses, such as rent, utilities, and maintenance. Ensure that the area is exclusively used for business to meet the IRS requirements.

Recent IRS adjustments have made it easier to calculate this deduction, but it's critical to maintain detailed records and photos of the workspace in case of an audit .

2. Vehicle and Transportation Expenses

If you're using your personal vehicle for business purposes, you can deduct a range of expenses related to its use. You can choose between:

• Actual Expense Method: Deduct the exact cost of gas, repairs, insurance, and depreciation directly related to business use. Keep meticulous records of each expense to avoid IRS penalties.
• Standard Mileage Rate: For 2024, the IRS allows a deduction of $0.67 cents per mile driven for business purposes.

Also, don’t forget to include related costs such as tolls, parking fees, and even lease payments if the vehicle is used exclusively for business.

3. Startup Costs

Launching a new business incurs expenses, and many of these can be deducted up to a limit. Currently, the IRS allows you to deduct a portion of startup costs in your first year of business, with the rest amortized over several years. Eligible startup costs include:

• Market research
• Advertising campaigns
• Legal fees
• Initial business consultations 
  

To maximize the benefits, plan your startup budget carefully and track all expenses.

4. Healthcare Premiums

For business owners who purchase health insurance individually or for their employees, premiums are generally tax deductible. You can claim 100% of your healthcare premiums as a self-employed individual, provided they are paid out of pocket. These deductions can apply to medical, dental, and long-term care insurance premiums for yourself, your spouse, and dependents . It's also important to understand how out-of-pocket expenses (such as co-pays and prescriptions) may be deductible if they exceed a portion of your adjusted gross income (AGI).

5. Business Travel

Traveling for business can also result in substantial deductions. The IRS allows you to deduct:

• Transportation: Flights, car rentals, and other transportation used for business trips.
• Lodging: Hotel or Airbnb stays are deductible as long as the trip is primarily for business.
• Meals: 50% of meal expenses while traveling for business can be deducted, though these rules have become stricter, so it's important to keep itemized receipts .

However, the IRS is particular about distinguishing between business and personal travel. For example, if part of your trip is for vacation purposes, only the business-related portion is deductible.

How Baker CFO Advisory Can Help

Growing your small business can be overwhelming. At Baker CFO Advisory, we specialize in helping business owners like you implement the right financial strategies to support your growth, keep operations running efficiently, and make informed decisions. Our focus is on the long-term financial stability of your business, giving you the tools to thrive. Contact  us today to schedule a consultation and learn how we can help you optimize your processes for success.