Building Your Business Business Taxes 9 Business Tax Deductions to Take with Caution By Jean Murray Jean Murray Facebook Twitter Jean Murray, MBA, Ph.D., is an experienced business writer and teacher who has been writing for The Balance on U.S. business law and taxes since 2008. She has taught accounting, business law, and business finance at business and professional schools for over 35 years, has authored several books on saving money and simplifying your business, and was the owner of startup-focused company Emence Enterprises, LLC. learn about our editorial policies Updated on September 13, 2022 Fact checked by Sarah Fisher Fact checked by Sarah Fisher Sarah Fisher is an associate editor at The Balance with two years of personal finance and business writing experience. She has written about personal finance for SmartAsset, and has held internships at the Consumer Financial Protection Bureau and Senator Kirsten Gillibrand's office. learn about our editorial policies In This Article View All In This Article Business Driving Expenses Home Business Space Deduction Gifts, Bonuses, and Awards Dues to Clubs and Organizations Business Travel Expenses Meal Expenses Depreciation of Business Assets Donations to Charities Buying a Computer Frequently Asked Questions (FAQ) Photo: mapodile / Getty Images As a business owner, you may take all legitimate business expenses as tax deductions, to reduce your business tax. But some business tax deductions are easier to take out than others. The deduction might be limited, can be an audit trigger, or is complicated to calculate. You’ll want to know what to look for if you decide to take one of these deductions as a write-off on your business tax return. Key Takeaways You'll want to make sure you keep contemporaneous records of your business expenses. You may be able to take a deduction for business expenses while on a personal trip.You should make sure the deductions you're taking will stand up to an audit. You may want to consult with a tax professional. Business Driving Expenses Deducting business driving expenses for use of your car or a company car for business driving can be complicated and a red flag for auditors. The standard mileage rate changes at least once a year, based on driving costs. You can include these expenses in one of two ways: Using the Internal Revenue Service (IRS) standard mileage rate, or actual expenses. To deduct actual expenses for business use of your car, you must separate out personal and business use. You must be able to show excellent at-the-time records to prove the business purpose for all business driving expenses, whether you take the standard mileage expenses or actual expenses. Warning The cost of driving or taking public transport from your home to your work location is considered commuting, and it’s not deductible because it’s a personal expense. The only exception is for driving between your home based business and business locations, like a customer’s home or office. Home Business Space Deduction The IRS looks carefully at attempts to claim a deduction for a home business space and wants to be sure this space is being used only for business purposes. You’ll only want to take this deduction if the space is used regularly and exclusively for running your business. You must also be able to show that your home is your principal place of business, and it is where you usually work on your most important business activities. If you have a small home office, you might want to claim the deduction for a small space. If the space is under 300 square feet, you can use a simplified deduction without having to itemize costs. Just multiply the exact space times $5 a square foot to get the deduction amount for your business tax form. Gifts, Bonuses, and Awards Rewarding employees is certainly an allowable business expense, and gifts to customers or clients are a part of doing business. But there are limits on some of these deductions. You can’t deduct more than $25 for business gifts to any one person a year. This limit applies to both employees and individuals outside your business, like a customer, vendor, or advisor. Warning When taking business tax deductions, make sure you take consider indirect gifts. For example, if you give a gift to a member of a client’s family, that counts as an indirect gift and counts as part of the $25 limit for that client. Gifts, bonuses, and awards to employees may also come with tax implications for your employees. You must include bonuses as part of an employee’s regular pay and add them to their taxable income if the bonuses are for their work. If you distribute small gifts or awards to employees in the form of merchandise or small benefits, like a gift of flowers for an employee illness, you don’t have to include these in the employee’s taxable compensation. But cash or credit/debit cards must always be included in the employee’s compensation. Dues to Clubs and Organizations Business owners and their employees might join clubs or organizations to network with other professionals. But not all club dues are deductible. For example, your dues to the golf club can’t be deducted,even if you do business while you're on the course. You can’t deduct membership costs for business, pleasure, recreation or social clubs. You can deduct dues to professional and trade organizations, chambers of commerce, and civic or public service organizations. Business Travel Expenses Like expenses for business driving, business travel expenses are both limited in amount and restricted. The IRS defines business travel as travel away from your tax home for business purposes. If you are traveling with a spouse, family member, or other person on a business trip, you can’t deduct their travel expenses unless they are an employee, have a true business purpose for their travel, or could otherwise deduct their travel expenses. If you are on a personal trip, like a vacation, the cost of the trip is a personal expense, but you can deduct business-related expenses while at your destination. Cruises and resort vacations aren’t considered business trips, even if there are incidental business activities, like a lecture or video presentation as part of the vacation. Meal Expenses Beginning with the 2018 tax year, business entertainment expenses are no longer deductible. That means no sporting events, concerts, or resorts. Meal expenses are still deductible, and you are still limited to 50% of allowable expenses in most cases. Entertainment for promotional purposes is still deductible. For example, a business can deduct the cost of a community or promotional event. You may also deduct the cost of food and beverages you provide during an entertainment event, if these costs are separate. Depreciation of Business Assets Depreciation is the process of taking deductions for capital assets as you use the property over a number of years. It’s arguably the most complicated business tax deduction. There are some cases when you can speed up the deduction into the first year you own and use the asset. For example, you may be able to take a part of the cost of some property in the first year you own the property using what’s called a section 179 deduction. Tip The laws keep changing and limits and restrictions on accelerated depreciation change frequently. If you are thinking about buying big-ticket items for your business, check with a licensed tax professional about how to maximize your deductions. Donations to Charities Corporations can deduct donations to charities if the donation is to “a qualified organization” under section 170(c) of the Internal Revenue Code. Other charitable donations are only deductible through your personal tax return and you must be able to itemize deductions to write off more than a few hundred dollars. Buying a Computer Computers for business owners and employees are legitimate business purchases but the type of computer and where it is used affects how you can deduct these costs. Computers owned by your business and used exclusively at your business location don’t have to be treated as listed property (used for both business and personal purposes), but laptop computers that can be used at home are still in this category. As listed property, a laptop computer must be used more than 50% for qualified business purposes. Frequently Asked Questions (FAQ) What deductions can I claim without receipts? Actual receipts or canceled checks along with bills or invoices are the best ways to show you are entitled to a deduction. But the IRS may accept other records like an account book, diary, log, statement of expenses, or something similar. Your documents must include the locations, dates, and itemized charges. Be sure you can show a business purpose for all deductible expenses and that your records separate out business from personal expenses. What can you write off as a business expense? You can write off most business-related expenses by claiming the deductions on your business tax form. You should only deduct ordinary or necessary expenses. Ordinary expenses are common and accepted for your business type, like a sales tax app for an online seller. Necessary expenses. helpful and appropriate for your business, like a car for a plumber or electrician. The IRS warns that expenses must not be “lavish or extravagant,” and must be reasonable based on the circumstances. What is the 20% business deduction? Since 2018, small business owners (not corporations) can get an additional 20% deduction, called a Qualified Business Income (QBI) deduction. The deduction is calculated on what the IRS calls “qualified” business income, and it’s included on your personal tax return. Owners of sole proprietorships, limited liability companies, partnerships, and S corporations may be eligible. If you can, speak to a tax advisor before taking the deduction. The deduction can be complicated, and is subject to income limits. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. IRS. "Publication 463 Travel Gift and Car Expenses." Page 13. IRS. "Publication 15-B Employer's Tax Guide to Fringe Benefits." 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