Small business owners are always looking for ways to save money, and a great way to do this is with a small business tax deduction. Generally, a tax deduction is an amount, usually an expense, subtracted from your gross income, reducing your taxable income, so you ultimately pay less in taxes.
That said, a tax deduction for a small business is usually a business expense, such as employee salaries, vehicle costs, or business travel. Tax deductions are crucial for small businesses because they can increase profitability. If your tax burden is lower, you have more money to put towards things like new opportunities or improving normal operations.
Standard vs. Itemized Deductions: Which Should I Choose?
There are two ways to report your small business tax deduction: standard and itemized.
- The standard deduction is a flat rate that can be deducted from your taxes based on filing status and age. Some individuals and businesses may choose to go with the standard deduction simply because it's easier than itemizing every single expense throughout the year, especially if you think your itemized expenses won't exceed the standard amount.
- You can also itemize your expenses, which will take much more diligent recordkeeping on your part. Itemized deductions will take into account every business expense you had throughout the tax year, as well as any losses due to disaster, interest, and more. Some small businesses may choose the itemized deduction if it will add up to be a larger deduction than the standard one.
If you're not sure whether you should itemize or not, consult the IRS guide and speak with a tax professional before you get started.
Major categories for small business tax deduction
There are many things that small businesses can write off on their taxes, and claiming them can make a big difference to your bottom line. The following is a small business tax deduction checklist of the top categories you should review when tax time comes around.
Startup Costs
Unfortunately, new companies are not qualified to use the standard tax deduction during their first year of operation. However, new companies instead qualify for a small business startup costs tax deduction that allows you to deduct 100% of your business expenses up to a limit of $5000 from your taxes. These business expenses can include, but are not limited to:
- Building an online presence (website, social media, etc.)
- Working with business consultants
- Attending training events
Small businesses can also take advantage of amortization, or gradually writing off the initial cost of the business. Small businesses can recover additional costs that are nondeductible in the first year (anything over the $5000 limit) over the next 15 years (180 months) in the amount of up to $50,000. The criteria for these recoverable costs is set by the IRS—for example, taxes and research expenses don't qualify, but defined intangibles (patents, trademarks, etc.), it usually will.
Business Travel
Somewhat related to vehicle expenses, it's likely that you or your employees will need to travel for business at some point. When this happens, the cost of transport will be tax deductible. You can write off, for example, plane and train tickets, the cost of rideshares or taxis, and the cost of rental cars.
If the location of the business trip is within driving distance, a business rental car is a flexible option that requires no long-term commitment. And when you become a corporate client with SIXT, you'll also enjoy up to 15% off rentals and personal support throughout the process.
During business trips, the cost of accommodation is also tax-deductible, along with the cost of meals and attendance to any work-related event, such as a training, conference, or workshop.
Employee salaries
Another small business tax deduction applies if you employ people other than yourself: employee salaries. All employee salaries and payments made to temporary contractors are fully tax deductible for your small business, including bonuses, sick pay, and vacation pay.
Claiming these deductions will require you to maintain an accurate payroll log and collect any completed W-2 forms from your employees and W-9 forms from contractors. You will also need to issue 1099 forms to your contractors.
As the business owner, though, you cannot deduct your own salary.
Office supplies
Any business needs office supplies and equipment, and you can deduct the costs of these on your taxes. Perhaps the biggest one of these will be the rent you pay for your office space along with the utility costs. This can include electricity, internet, and more.
Other deductible office supplies include:
- Computer software (subscriptions, for example)
- Pens, markers, and stationery
- Printer paper
Section 179 also applies here; for example, if you buy computers for your employees, you can deduct the purchasing cost of the computers during the year you bought them.
Other small business tax deduction categories
We've gone into detail on the main deduction categories, but the following are also worth a mention:
- Home office deductions for remote workers
- Insurance
- Professional services (tax advisors, consultants, etc.)
- Marketing and advertising
- Depreciation
- Business meals
Vehicle Expenses
Next up on the small business tax deduction list is transportation. Almost all small businesses will have vehicle expenses in one way or another, and you can usually deduct these from your taxes.
Small business owners have several options when it comes to vehicle transport. Your first option is to buy a car for your business. In this case, Section 179 of the tax code applies, meaning you can get a small business tax deduction for the vehicle purchase in the year that you buy it. However, company vehicles cost a lot to maintain and require insurance and detailed recordkeeping for tax deductions.
A more flexible option is a car subscription like those available through SIXT. These customizable subscriptions can be paused when you're not using them, so you're sure to pay only for what you need and when you need it.
Another stellar option is a business car rental through SIXT. This cost-effective and flexible option allows you to get long-term rentals or rentals just for the week depending on your needs. There are also tax advantages to renting a car for business—for example, rental expenses are fully tax deductible, and you don't need to calculate depreciation costs like you would with an owned company car.
Small Business Car Tax Deductions: In-depth Guide
Whether you own a business vehicle or decide to rent a car for business, you'll need to calculate your business mileage for your small business mileage tax deduction. Keep in mind that this should include only mileage driven for business, not personal mileage.
You can do this using the standard mileage rate method or the actual expense method. The mileage rate method involves using a flat rate per mile that the IRS sets and multiplying that rate by your mileage. For 2026, the standard mileage rate is set at 72.5 cents per mile.
The actual expense method requires meticulous recordkeeping about the vehicle's costs overall. This includes not only the miles driven but also what you paid for gas, maintenance and repairs, insurance, registration fees, etc. When using this method, keep track of the money spent, the payment method, dates, and descriptions of everything you do with the car.
It's important to note that you cannot deduct any expenses related to using these vehicles for personal reasons. Your normal commute, for example, does not go towards your business mileage.
The Importance of Recordkeeping
Especially if you've chosen to itemize your expenses, the importance of diligent recordkeeping can't be overstated. You'll need to keep accurate logs of every expense you have, whether that be payroll for employee salaries, rent payments, or vehicle expenses.
And to avoid any complex depreciation calculations, we recommend renting a car for business use with programs like the one available with SIXT. This cost-effective, flexible, and sustainable travel method is not only fully tax deductible, but it'll also enhance your ability to do business.
FAQs
Renting a vehicle is perhaps the most flexible option for people who do a lot of business travel. The cost of a business rental car is 100% tax deductible, and it minimizes the records you'll need to keep in order to claim deductions.
The cost of rental cars, employee salaries, utilities, rent, marketing, and supplies are 100% tax deductible.
The first step is to keep a detailed record of your business expenses and then make sure you explore all the possible tax deductions you may qualify for. If your startup costs exceed $5,000, you can generally amortize (spread out) the remaining costs over 15 years. Always consult a tax professional with any specific questions about tax deductions.