6 Tax Credits and Deductions Small Business Owners Can Claim

These tax moves could save you a lot of money.

Tax season can be a stressful time, especially for small business owners who may not be familiar with the tax savings opportunities available to them. From deductions to credits, there are a variety of options that can help small business owners reduce their tax burden. Here are six tax credits and deductions that small business owners should consider claiming this tax season.

1. Home office deduction

This deduction allows small business owners who use part of their home or apartment exclusively for business purposes to deduct certain expenses from their taxes. This deduction applies to both self-employed individuals and employees who work remotely and have been provided an allowance for home office expenses by their employer.

The home office deduction is for both renters and homeowners. You can deduct items such as mortgage interest, insurance, utilities, repairs, maintenance, depreciation, and rent payments. If you want to simplify things, you can take a standard deduction of $5 per square foot of home used for business (maximum 300 square feet).

2. Mileage deduction

Small business owners who use their vehicles for work-related purposes, such as traveling to client meetings or making deliveries, can deduct up to $0.655 per mile driven. This is up $0.095 from tax year 2021. You can also deduct $0.14 per mile for charitable organizations. This deduction applies only if you are using your own vehicle and not one provided by your employer.

3. Self-employment health insurance deduction

Self-employed individuals who pay for health insurance premiums out of pocket can deduct up to 100% of those premiums on their income tax return, thus reducing their taxable income and saving money on taxes owed. This deduction is only available if you have business income. You can only deduct as much as your net income. So if your business loses money or earns nothing, then you can't claim the deduction. Given that health insurance costs have gone up, this deduction can potentially save you money.

4. Retirement plan contributions

Small business owners have the option of setting up a retirement plan such as a SEP IRA or Solo 401(k), so they can contribute pre-tax dollars to save money on taxes while also preparing for retirement at the same time. While contributions made to these plans are still subject to ordinary income taxes upon withdrawal during retirement, they offer significant savings in the present moment by providing a "break" on your current year's taxes. You may contribute as much as 25% of your net business income earnings, up to $66,000 for 2023 and $61,000 for 2022.

5. Child Care Tax Credit

If you employ someone to help care for your children while you work, you may be eligible for the Child Care Tax Credit. The maximum credit is up to 35% of qualifying childcare expenses (up to $3,000 per child under age 13 and $6,000 for two or more). The percentage goes down based on how much you earn. If your adjusted gross income (AGI) is over $43,000, the credit caps at 20%.

6. Business expenses

There are also plenty of other deductions available for small business owners. You can deduct the portion of any expense that is related to your business. Accounting software can help you track your deductible expenses. Here are some common business expenses you can take:

• Marketing: Any money you spend on digital or traditional marketing, your website, conferences you attend, business cards you make, and other expenses that make people more aware of your business can be deductible.
• Business insurance: Any liability and business life insurance, worker's compensation, errors and omissions, etc., can be deductible.
• Professional services: Hiring a marketing professional, a business attorney, an accountant, and more can be deductible.
• Meals, lodging, and travel expenses: Any travel or business meals related to your business can be deductible, so keep track of all your receipts and expenses.
• Office supplies, phone and internet expenses, business interest, and bank fees: As long as these expenses are for your business, you can deduct them.

As you can see, there are many different tax credits and deductions that small business owners should consider. Taking advantage of these during tax season can help you save money on taxes while also ensuring you remain compliant with all applicable laws and regulations. It is important that small businesses take full advantage of all available savings opportunities so they can keep more of their money at tax time.