First Year Small Business Tax Deductions for Success in Year Two

Reading Time: 4 minutes

Starting a business is an exciting and overwhelming experience. Understanding what tax deductions are available in your first year will help you avoid tax headaches and penalties, and set you up for success in year two.

Good practices in your first year is a great idea to ensure you are taking care of every aspect of your business. 

In addition to your routine budgeting, tax deductions are often ignored. It offers a great opportunity to save your money and invest in the things that matter the most.

You can write off certain startup-related costs, however, the regulations are more complicated than those that apply to operational costs.

You need to be aware of which costs are deductible and how to claim them during tax season to comprehend how business beginning deductions function.

This article follows up with a detailed overview giving you ideas about the major tax deductions that you can cater in your first-year small business.

Moreover, these details will help you understand how you are supposed to set your business up for success in a couple of years.

What Are Tax Deductions And How Can You Claim These Deductions?

Tax deductions are expenses that self-employed business owners can write off from their taxable income. This is a highly likable way that could let you save money as it lowers the amount of tax that you must pay.

You can deduct a variety of items from your taxable income, such as business expenses, charitable contributions, and home office deductions.

10 Major First Year Small Business Tax Deductions

10 Major First Year Small Business Tax Deductions

It can be very motivating to start a new business.

Despite the enthusiasm that surrounds a startup, there are some expenses related to starting a new firm. Based on these expenses, you might be able to lower the amount of tax you pay.

The Internal Revenue Service (IRS) permits certain tax deductions for three distinct types of startup costs for businesses.

In the coming section of the article, we have mentioned some of the expenses that you may be able to deduct from your taxable income.

1 – Expenses for Business Creation

Business creation expenses include feasibility studies, market and product analyses, competition research, labor supply analysis, travel for site selection, and other expenses related to starting a new business.

These expenses are related to researching the formation of an active trade or business. You may able to deduct these expenses while filing your tax form.

2. Business Launch

This includes all expenses incurred to get your business up and running, such as those related to finding suppliers, hiring staff, training them, advertising, and professional fees.

Since equipment acquisitions are depreciated in accordance with standard business deduction laws, the associated costs are not included.

3. Business Insurance

The premiums you pay for a company insurance policy that is regular and necessary may be fully deducted from your income.

Other insurance products, such as life and disability insurance, are also maybe eligible for this deduction.

4. Business Organization Cost

These are the expenses related to forming your company as a corporation, limited liability company (LLC), or partnership, among other legal entities.

These expenses would include director fees, accounting fees, legal and state fees, as well as costs associated with holding any organizational meetings.

5. Equipment Used For Business

The entire cost of qualified new or used equipment may be written off from your gross income under IRS Section 179.

Short-term and long-term assets, as well as commercial software, are all eligible for this deduction if they are used exclusively for business purposes.

6. Office Supplies

If you buy printer ink, paper, or post-it notes for your company, you may deduct those costs from your revenue as an office expense.

This exclusion extends to the price of the used furnishings and equipment that are used in the office.

7. Health Allowances

First-year small businesses might be able to deduct some of the health insurance premiums paid by their employees from their earnings.

Monthly premium payments, tax-advantaged funds, donations to a health savings account (HSA), and other expenses may be eligible for these deductions.

Self-employed taxpayers may also be able to write off the premiums they spent on health, dental, and long-term care insurance for themselves and their families.

8. Entertainment Expenses

The expense of those meals and activities can be deducted from your business income if you entertain clients or potential customers to increase sales.

These credits are restricted to 50% of the cost and are only available if the entertainment was routine and required for conducting business.

9. Expenses for Business Travel

If it is regular, required, and takes place outside of the taxpayer’s home state, business travel tax deductions for work are fully deductible.

Plane tickets, parking and toll taxes, Uber, and hotel prices are a few examples of travel expenses.

10 – Business Education Costs

First-year small businesses that offer educational benefits to their workforce can deduct any related expenses.

The condition stands if it improves the abilities of their employees or adds value to the company.

Anything from continuing education to books about your field to courses meant to gain professional licenses can be deducted as a business expense for education.

5 First Year Small Business Expenses That Are a Must

For your business, you might incur some reasonable expenses. Unfortunately, not all of them are considered write-offs under the tax code.

This is the list of first-year small business expenses that are still not fully or partially deductible.

1. Government-Based Fines

No matter how much they are, governmental fines and penalties are typically not deductible.

2. Research Costs

You cannot deduct the money you spend analyzing potential company ventures. However, expenses that are considered start-up costs can, up to a certain point, be written off as company expenses during the first year of business.

3. Interest on Significant Payments

Owners of pass-through corporations and sole proprietorships may not be permitted to deduct interest on tax underpayments. Even though the interest relates to commercial income, it is still considered personal interest.

4. Employees’ Commuting Costs

Moving fee reimbursements and commuting cost reimbursements (such as free parking and monthly transit passes) may not tax deductible.

5. Personal Commute Expenses

You may not be able to deduct the cost of transportation, regardless of how time-consuming, expensive, or tough it is for you to go between your place of business and home.


It is much more difficult to write off starting costs than it is to deduct business expenses. This is especially true once your company has started operating.

It is always critical to speak with a tax counselor who specializes in small business taxation, even if you think you understand the process well enough to get by on your own.

Getting professional help can assist you in overcoming any challenges so that you file your taxes correctly.

Sign Up For Our Weekly Newsletter
Based on 107 reviews
powered by Google
Annie Phillips
Annie Phillips
12:35 10 Oct 21
Turn around time was amazing on the project I needed done. When you don’t understand all the different forms... communication is key and you will get that here. They are there to explain what and why you need more
Meru Kapadia
Meru Kapadia
23:33 01 Oct 21
I usually don't write reviews much as everyone has different experiences, but definitely wanted to share the positive... experience I have had here and why I would recommend them to all my family, friends and co-workers.I got a referral for here from a friend, so thought of giving them a try over my old CPA firm. I have been going here for a couple years now and have to say they are top notch. They are always responsive and willing to work with me even when I am delayed. I generally like to ask a lot of questions and not once did I feel like they were annoyed by it and would very thoroughly and positively answer all my concerns with detail explanations. Even during the pandemic, they worked with me 100% virtual and it was seamless. Overall, I am very happy with this firm and will continue with them for the foreseeable more
Kevan Shah
Kevan Shah
21:45 01 Oct 21
I’ve been going to them for 3 years now for multiple of my businesses. I changed to them after I had problems with my... previous CPA firm and I’m so glad I did! Best decision I ever made for my businesses. They have saved me thousands of dollars over the years as well as deal with my immensely complicated tax filling issues. No matter when I call, they always help answer all my questions (and trust me I have a lot) and put my mind at ease on all my concerns. I feel as if I am family the way they take care of me. The quality of their work has not changed; very consistent and professional. It is an understatement when I say I highly recommend more
Maunil Shah
Maunil Shah
16:19 01 Oct 21
AKIF CPA is the best place for your tax needs! Saim has been easily available for my all my questions and concerns. ... Couldn’t ask for a better firm that provides excellent service and a familiarity with their clients. I always recommend family and friends to AKIF CPA!!read more
Shah Hussain
Shah Hussain
03:58 01 Oct 21
Hello AKIF CPA,I wanted to share my experience with you, your team and whomever may be reading this message. My most... humble thanks to you and your team for a being such great part of my success.You have done a fabulous job for us this year, and since you took over our books (during our most devastating times) you have literally taken weight off of our shoulders.Thanks for bringing everything up to date and also providing us with numbers or as you call it consultations, ahead of time so we could seal the holes.Great work!!!Shah more
Sumit Dalwadi
Sumit Dalwadi
04:57 30 Sep 21
The professionals at Akif have been absolutely amazing! Quick to answer all the questions I had and always available... to offer their more
Calvin R
Calvin R
20:21 29 Sep 21
I recommend these guys! I will be going back next year. They made everything simple and we understood what was... happening. There we issues with our taxes due to our previous accountant and these guys fixed everything. They answered our questions and service was always with a more
Ammoria Daniels
Ammoria Daniels
02:11 16 Sep 21
We contacted Akif with an urgent matter regarding corporate taxes. Akif immediately understood what was needed and... within days had everything ready to sign. The level of service we received was amazing and unmatched. Waqar expertise in trucking industry made our situation seamless. His communication was outstanding; I heard from him daily and could have been completed sooner if I was as fast as he was 😃 Highly recommended!read more
Joe Paneitz
Joe Paneitz
18:30 18 Aug 21
What an absolute pleasure to work with this CPA firm. My business is already seeing such a positive impact and growth.... I cannot believe I didn't connect with them sooner. This firm is helping in so many ways! 5 stars is an understatement! Thank you so much for your help AKIF CPAread more
Helptest ARCpoint Labs
Helptest ARCpoint Labs
15:02 18 Aug 21
The firm is quick, responsive, and has the latest technological software. Thus far, I have been with them for 3+ years... and will continue to work with them even after relocating. They make it easy even when I'm miles away. Would highly recommend more
Luz Tipaz
Luz Tipaz
16:06 13 Jul 21
Saim and his team are the best CPAs in town. I have been their client for years. All started when I needed help with... company structure with multiple companies and then accounting and Taxes. I have been very happy ever since. Thank you AKIF more
Maria perez
Maria perez
18:31 08 Jun 21
Me and my husband have been getting all of our personal Taxes, business Taxes, monthly bookkeeping, accounting and... payroll done with AKIF CPA. Recently, we had more stuff come up and had detailed analysis done on capital gains, single family rentals (SFR) and business disposition. You will only know how great this CPA company is until you have worked with them and given them a chance. Words can’t describe our experience. AKIF CPA gets the job done every time - very reliable, professional and more
Afnaan Amin
Afnaan Amin
22:14 02 Jun 21
Very good experience, we had unique situation in regards to cross border income as Canadians currently residing in the... US. Income on both sides of the border through completely different channels. Everything was very easy and completed timely, I also had lots of random questions and Mohammad provided top notch service along the way and even after we finished our taxes!! Highly more
Ryan Paton
Ryan Paton
10:56 08 May 21
I moved to the USA from Canada late 2018 as part of a promotion/relocation for work. For my 2019 returns, I used an... accounting firm recommended by the local Canadian social club in my city, which was a terrible experience. They were slow to respond to inquiries and would follow up in piecemeal requests which dragged out my return process over several months, often asking for information I had already provided.For the price I paid, I vowed to find better service. I found Mohammad online and decided to reach out. Mohammad was extremely responsive, took care of my US and Canadian returns as well as my wife's business returns in a timely manner. Overall, it was a very positive experience and I would recommend him to another in my more
Tuan Vo
Tuan Vo
01:59 20 Apr 21
I relocated to Texas from Alberta, Canada and needed a CPA to help me with my cross-border taxes as I was not happy... with the CPA that I used previously. During my interviewing process to find another CPA, I had good feedback from Mohammad as he was able to answer my questions regarding my unique tax situation with expertise, and importantly to me, in a timely manner. I decided to use his services for the current tax year and I have nothing but compliments for the work Mohammad provided. If you are in need of a professional cross-border CPA, I highly recommend reaching out to Mohammad more
See All Reviews

Crypto Tax & Accounting Newsletter Signup


Cross-Border Tax Newsletter Signup