Top 8 Tax Deductions for Small Businesses and Consultants in 2024

One of the great things about owning an independent small business is that you can deduct a lot of things that were not deductible when you were an employee. 

Here are eight often overlooked tax breaks for consultants, solopreneurs, and other small-business owners.

1. Startup Costs
   Did you start a business in 2023? All ordinary and necessary first-year expenses incurred to launch your new small business can be deducted—as much as $5,000. If you spent more than $5,000, those costs can be spread out over 15 years, potentially giving you deductions in future years as well.
   
   
2. Health Insurance Premiums
   Did you pay for your health insurance? This deduction is one of the big ones. If you bought medical insurance, you may be able to deduct the cost to cover you and your family. And, if you’re older, you can deduct the cost of Medicare and supplemental Medicare insurance.
   
   
3. Education and Training
   The cost of classes, books, webinars, subscriptions, and the like can be fully deductible if the expense is related to business education or training.
   
   
4. Retirement Plans
   

   Retirement plans often can amount to significant tax deductions. In essence, the government is trying to prompt and reward you for taking steps to plan for your retirement by not taxing you on your contributions (that is, until you eventually withdraw them). 

   Some things to consider:

   • If you’ve set up a 401(k) plan for your business, or more likely either a SEP IRA or a traditional IRA, the money you put in and any costs associated with managing those accounts are tax deductible. 
   • For 2024 taxes, the 401(k) contribution limit is $23,000, or $30,500 if you’re over 50. 
   • The limit for a SEP IRA is $66,000 for 2023 and $69,000 for 2024. (link)
   • And the 2024 limit for a traditional IRA is $7,000, or $8,000 if you’re over 50. 
     
     

   A bonus on both SEP traditional IRAs is that you can make a 2023 tax-deductible donation until your unextended tax filing deadline in 2024. 

   Read about the rules and limits for retirement deductions, including SIMPLE IRAs and qualified plans here or talk to your tax advisor.

    

5. Interest Payments
   Interest paid for business expenses, such as on credit cards or loans, can be tax deductible. Keep track of these expenses. Interest on personal expenses is not deductible.
   
   
6. Vehicle Costs
   

   Many small business owners forget about this one, but it can really add up.

   Keep track of all the driving you do for business—these miles can go toward your business auto-expense deduction.

   In 2023, the rate for mileage deduction was 65.5 cents per mile; in 2024 it is 67 cents per mile. Of course, miles driven for personal use are not deductible.
   
   

7. Self-Employment Taxes
   Being self-employed means you are both employer and employee, so you can deduct 50% of Social Security and Medicare taxes on your personal IRS Form 1040. Read more about this deduction here. 
   
   

8. Home Office Deduction
   There are a lot of tricky catches to this deduction, which is probably why only about a third of all self-employed individuals claim it. There are two main criteria that the IRS looks for:
   
   

   • A dedicated space in your home must be used as your primary place of business, AND
   • This space must be used regularly and exclusively for the business

   
   If these two criteria are met, you can deduct the portion of expenses like mortgage interest, rent, homeowner’s insurance and utility fees related to the space. You can read more about home office deductions here. 

   Let’s face it, doing your taxes may never be fun, but at least there are tricks to make it a little more rewarding.
   
   

For more tips on starting and running your small business, visit the Index by Pinger Small Business Resource Center.