Popular Tax Deductions and Tax Breaks for 2024

Utilizing tax deductions and breaks is crucial for business owners to maximize their profits and minimize their tax liability. Tax deductions are expenses that can be subtracted from your taxable income, reducing the taxes you owe.

On the other hand, tax breaks are incentives the government provides to encourage certain behaviors or activities that benefit the economy.

However, most entrepreneurs are oblivious to many tax loopholes for businesses and leave money on the table. So, we’ve compiled this comprehensive guide highlighting the top 22 tax deductions and breaks every business owner should take advantage of in 2024.

From office expenses to employee benefits, we’ll help you easily navigate the complex world of taxes. Read on to ensure you get the most out of your tax return this year!

22 Popular Tax Deductions and Tax Breaks for 2024

💰 1. Business Expenses

The first and most common type of tax deduction for remote workers, freelancers, and businesses is business expenses. These include any costs related to running your business, such as rent, utilities, office supplies, marketing, travel, and employee salaries.

It is important to keep detailed records of these expenses to claim them accurately on your taxes.

However, it’s important to note that not all business expenses are eligible for deduction. In some cases, they can only claim deductions for specific expenses as per the limits and eligibility requirements, so consult with a tax professional before claiming them. 

💰 2. Home Office Deduction 

You may be eligible for a tax deduction for your home office that allows you to deduct a portion of your home’s operating expenses (such as mortgage interest or rent). Based on the percentage of space used for business purposes, you can calculate your deductible expenses by multiplying the square footage of your designated workspace by $5 (up to 300 square feet).

For example, if your home office is 200 square feet, your deduction would be $1,000 ($5 x 200).

To qualify for this deduction, you must use the designated area in your home only for business purposes. It cannot double as a personal space, such as a guest or family room.

However, this does not mean that the space has to be a separate room—it can also be a specific section of an existing room.

💰 3. Health Insurance Premiums 

Under the Affordable Care Act (ACA), businesses with fewer than 25 full-time employees and average annual wages of less than $50,000 may be eligible for a tax credit of up to 50% of their contributions towards employee health insurance premiums.

This credit is available for two consecutive years and can save small businesses thousands of dollars in taxes.

In addition to the tax credit, businesses can deduct their contributions towards employee health insurance premiums as a business expense. This means that these payments are not subject to federal income tax, lowering the overall taxable income for the business.

However, it’s important to note that this deduction is only available if the business offers health insurance coverage to all full-time employees.

There is also a potential tax deduction available for self-employed individuals or sole proprietors who pay their own health insurance premiums. These individuals can deduct their health insurance premiums to adjust their gross income on their tax return.

However, it’s always best to consult a tax professional or accountant when determining eligibility since certain limitations and restrictions apply to these deductions and credits.

💰 4. Retirement Contributions 

Businesses can offer several types of retirement plans, each with its unique tax benefits. The most common ones include 401(k) plans, where employees contribute a portion of their salary towards their retirement savings, and employers can match a percentage of those contributions.

The contributions made by employees and employers are tax deductible up to certain limits set by the IRS.

Another popular option is SEP IRAs, which allow employers to make contributions on behalf of their employees without requiring them to make any contributions themselves.

The amount employers can contribute is capped at the lesser of 25% of eligible employee compensation or $58,000 per employee in total for the year 2021. These employer contributions are fully tax-deductible for businesses.

SIMPLE IRA plans combine features from traditional IRAs and 401(k)s. Employees under age 50 may defer up to $13,500 in annual salary, while those over 50 may contribute up to $16,500.

Employers must match employee contributions dollar-for-dollar up to 3% of their salary or make a 2% fixed contribution for each eligible employee. Both employer matching contributions and employee contributions are tax deductible.

💰 5. Depreciation Expenses

Business assets such as equipment lose value over time due to wear and tear; this decrease in value is known as depreciation. The benefit of using depreciation expenses as a tax deduction is that they can reduce taxable income.

Businesses can lower their taxable income and pay less taxes by deducting a portion of the asset’s cost each year.

They can spread out an asset’s cost evenly over its useful life or claim larger deductions in earlier years and smaller ones later.

An asset must meet specific criteria set by the Internal Revenue Service (IRS) to be eligible for depreciation. First, it must be used in your trade or business—meaning it cannot be a personal expense.

Second, it must have a determinable useful life—meaning there is a limited period of time that the asset will provide economic benefits to your business. Finally, it must have a wear and tear factor—meaning its value decreases over time due to usage or obsolescence.

💰 6. Hiring Veterans

The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire individuals from certain target groups, including qualified veterans. This can result in substantial savings for businesses seeking veteran employees.

In addition to WOTC, there are also state-specific programs that offer tax incentives for hiring veterans. 

For example, in California, the New Employment Credit (NEC) offers up to 35% of qualified wages as a credit for businesses that hire eligible veterans.

These programs vary by state and entity type, so it’s best to consult with a tax professional to ensure you follow all the necessary guidelines. The IRS has specific guidelines on what qualifies as a deductible expense based on your type of business entity, like pass-through tax benefits for LLCs. 

💰 7. Research and Development Credit

This tax credit is available for businesses that invest in research and development activities, making it easier for them to innovate and grow. To be eligible, a business must incur qualifying expenses related to research activities carried out within its operations.

These include wages paid to employees directly involved in R&D work or supplies consumed during research experiments. The amount of credit you can claim varies from state to state but typically ranges between 10% and 20% of qualifying expenditures.

💰 8. Section 179 Deduction

Section 179 deduction is a tax break designed for businesses to encourage investment in equipment and other capital assets. This deduction allows businesses to deduct the total purchase price of qualifying assets from their taxable income rather than depreciating the cost over several years.

To be eligible for the Section 179 deduction, the asset must be tangible personal property, such as landscaping machinery and supplies, to claim deductions for lawncare business expenses.

Real estate, land improvements, and intangible assets like patents and copyrights do not qualify for this deduction. This deduction may also have other limits and eligibility requirements, so consult with a tax professional before claiming it.

💰 9. Charitable Donations

Charitable donations are monetary or in-kind contributions made by a business to a qualified nonprofit organization. These organizations can include charities, schools, religious institutions, and others approved by the IRS.

However, the type of charitable donations may impact the amount they can deduct. For example, cash donations are generally fully deductible, while non-cash contributions may have limitations depending on the type of item donated and its value.

Businesses can deduct up to 10% of their taxable income for charitable contributions made throughout the year. This means that if a business has $100,000 in taxable income, it can deduct up to $10,000 for charitable donations on its taxes.

In addition to traditional monetary donations, businesses can donate goods and services like free consultations or products directly related to their business operations or contribute merchandise such as clothing or furniture. 

💰 10. Bad Debt Deduction

IRS allows businesses to deduct bad debt as an expense on their tax returns.

There are two methods for claiming bad debt deductions: the direct write-off method and the allowance method. The direct write-off method allows businesses to deduct specific amounts of uncollectible debts in the year they become worthless. 

On the other hand, larger businesses and those who want more accurate reporting may use the allowance method.

This method sets up a reserve account where estimated losses from bad debts are recorded annually. Any amount remaining in this account at year-end can then be claimed as a deduction.

💰 11. Advertising and Marketing Expenses

Under the IRS guidelines, any ordinary and necessary expenses incurred for promoting your business can be deducted from your taxable income.

This includes traditional forms of advertising, such as print ads, television commercials, and radio spots, as well as digital marketing efforts like social media ads and pay-per-click campaigns. 

One type of advertising expense that is fully deductible is the cost of creating and maintaining a website. You can also claim deductions for expenses like public relations or event sponsorships that promote your business or increase sales. Another commonly overlooked deduction is the cost of promotional items such as branded merchandise or giveaways. 

However, the deductibility of these expenses depends on their nature and how they relate to your business operations.

Therefore, it’s best to consult a tax professional or refer to IRS guidelines for more details.

💰 12. Education and Training Expenses

The IRS allows businesses to deduct education and training expenses that are necessary and ordinary for their trade or business. This means that the education or training must be directly related to the employee’s job duties or required by law to be eligible for a tax deduction.

However, if the training leads to obtaining a new skill set that is not directly related to the current job duties, it may not be considered deductible.

💰 13. Legal and Professional Fees

Businesses can deduct reasonable and necessary expenses related to their trade or business, including legal and professional fees. Any fee paid for services rendered by an attorney, accountant, consultant, or other professional can be deducted as a business expense.

You may also claim deductions of indirect costs related to lawsuits, such as travel expenses or lost wages.

Similarly, professional fees paid for services such as accounting and bookkeeping can also be deducted as ordinary and necessary expenses for your business operations.

This includes payments made towards tax preparation services or hiring a certified public accountant (CPA) for financial advice.

💰 14. Interest on Business Loans

One of the biggest expenses that owners often encounter when running a business is the cost of borrowing money. However, businesses can use tax deductions to help offset the interest cost on loans.

The critical factor in determining whether interest is deductible is if it was incurred solely for business purposes. This includes traditional bank loans, lines of credit, equipment financing, and credit card debt used for business purposes.

For sole proprietors who report their income and expenses on Schedule C of their personal tax return, interest on business loans can be deducted as an ordinary expense against income from the same year.

Furthermore, incorporated businesses may also be able to deduct interest on loans used to acquire or improve fixed assets such as buildings or equipment under business interest expense limitation.

💰 15. Meals and Entertainment Expenses

Businesses can deduct 50% of qualified meals and entertainment expenses incurred for business purposes.

This means there must be a clear business purpose behind the expense, such as discussing work-related matters with clients or attending a conference where networking opportunities exist.

However, the IRS requires that these expenses be incurred while traveling for business purposes or directly related to your trade or business.

For instance, taking a client out for dinner during a work trip or hosting an annual company holiday party would qualify as deductible meal and entertainment expenses.

💰 16. Self-employment Taxes

One of the most significant costs for self-employed individuals is the self-employment tax, which includes Social Security and Medicare taxes. However, certain deductions and breaks are available that can help you write off your taxes to reduce your financial burden and help offset any additional taxes owed.

Firstly, you can deduct 50% of your self-employment tax from your taxable income as a self-employed individual. This deduction is the “employer-equivalent portion” equivalent to what an employer would pay for their employee’s Social Security and Medicare taxes.

Additionally, if you pay both the employer and employee portions of the self-employment tax (double taxation), you can claim a credit on your tax return for one-half of these payments. 

💰 17. State and Local Taxes

State and local income taxes can be deducted from your federal taxable income.

Additionally, many states have special incentives to encourage economic growth within their borders. These could include reduced rates or credits to attract new businesses or expand existing ones.

For small businesses, there are often exemptions or deductions available for these various types of state and local taxes. For example, most states offer deductions for certain types of property used exclusively for business purposes, such as office space or equipment.

💰 18. Start-up Costs Deduction

One of the biggest deductions available to small businesses is the start-up costs deduction.

This allows businesses to deduct a portion of their start-up expenses in the first year of operation, reducing their taxable income and lowering their tax bill. In their first year of operation, they can deduct up to $5,000 in start-up costs (e.g., legal fees, market research).

So, what exactly qualifies as a start-up cost? Generally, it includes any expense incurred before your business officially opens its doors.

For example, any expenses related to purchasing property or equipment would not qualify as they would instead fall under depreciation or capitalization rules. Additionally, pre-opening inventory costs can only be deducted once they are sold.

💰 19. Disabled Access Credit

The Disabled Access Credit can help small businesses offset the costs of making their premises or services more accessible to people with disabilities.

This credit falls under the IRS Code Section 44 and applies to businesses with total gross receipts of $1 million or less in the previous taxable year or had 30 or fewer full-time employees during that year.

To qualify for this credit, businesses must incur expenses related to providing access to persons with disabilities, such as physically modifying existing buildings or vehicles, providing auxiliary aids and services, or offering interpreters or readers.

These expenses can be claimed up to a maximum of $10,000 per taxable year and are eligible for a non-refundable credit of 50% of the total cost incurred.

💰 20. Empowerment Zone Employment Credit (EZEC)

EZEC is a powerful tax incentive encouraging businesses to invest in economically distressed areas known as empowerment zones. It provides eligible employers with credit for wages paid to employees who live and work within an Empowerment Zone.

Businesses can claim this credit on their annual tax return, resulting in significant tax savings. The maximum amount of credit that can be claimed per employee is $3,000 annually, making it a valuable opportunity for businesses looking to reduce their tax liability.

Businesses must meet certain criteria to qualify for this credit. First, at least 40% of their total workforce must consist of zone residents or individuals who were unemployed for at least six months before being hired by the business.

Furthermore, the wages paid to these eligible employees must meet specific requirements, generally between $8 and $10 per hour.

💰 21. New Markets Tax Credit (NMTC)

NMTC allows businesses to receive a credit worth up to 39% of their qualified investment in community development entities certified by the Community Development Financial Institutions Fund (CDFI Fund).

These entities use the investments to provide loans and other financial services to businesses operating in low-income communities. The CDFI Fund publishes a list of certified CDEs on their website, making it easy for businesses to find potential partners for their investment.

One of the key benefits of the NMTC is its flexibility. Businesses can use this credit for various purposes, like equipment purchases and working capital. Furthermore, unlike other tax credits with limited availability or set expiration dates, the NMTC is an ongoing program with annual allocations.

This means businesses can plan and take advantage of this credit year after year.

💰 22. Fuel Tax Credits

Businesses engaged in specific activities such as farming or construction may be eligible for fuel tax credits for fuel used in off-highway business activities. Businesses must demonstrate that they have used taxable fuels in their operations to be eligible for fuel tax credits.

These include gasoline, diesel, kerosene, and other petroleum-based products. However, alternative fuels such as ethanol and biodiesel are also eligible for tax credits.

The Fuel Tax Credit Scheme or the Business Activity Statement (BAS) are two main methods of claiming fuel tax credits. The Fuel Tax Credit Scheme allows eligible businesses to claim a credit on each liter of taxable fuel used in their activities.

On the other hand, the BAS method allows businesses with an ABN (Australian Business Number) to claim a credit on their BAS for any taxable fuels used. 

Get Your Finances in Order With doola

Business expenses can quickly add up. So, whether you’re a small business owner or a self-employed professional, tax breaks and deductions can help reduce your tax liability and ultimately save you money.

By staying organized and keeping track of all your financial transactions throughout the year, you can identify areas where you may qualify for potential deductions or credits before filing taxes.

When it comes to streamlining taxes and keeping an organized record of your finances, doola is your go-to solution. At doola, we understand how time-consuming and confusing it can be.

So, if you’re looking for a business-in-a-box solution to your bookkeeping needs, check out our easy-to-use bookkeeping software. Don’t let tax deductibles and legal know-how stop you from running a thriving business.

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