What Is a Tax Deduction?
A tax deduction is a business expense that reduces the amount of income you’re taxed on. If your business earns $100,000 and you have $30,000 in deductible expenses, you’re only taxed on $70,000. That’s why tracking deductions properly can save you a significant amount of money.
Important: A deduction reduces your taxable income, not your tax bill dollar for dollar. The actual savings depend on your tax rate.
Common Deductible Expenses
While tax rules vary by country and jurisdiction, these expenses are commonly deductible for small businesses:
Office & Workspace
- Rent for your office or co-working space
- Home office expenses — a portion of rent, utilities, and internet if you work from home
- Office furniture and equipment — desks, chairs, monitors
Technology
- Computers and devices used for business
- Software subscriptions — accounting, project management, design tools
- Website hosting and domains
Professional Services
- Accountant and bookkeeper fees
- Legal fees for business-related matters
- Business consulting
Marketing & Sales
- Advertising costs — online ads, print materials, signage
- Business cards and promotional materials
- Website development and maintenance
Travel & Transportation
- Business travel — flights, hotels, car rental
- Mileage — driving to client meetings, site visits (keep a log)
- Parking and tolls for business trips
Insurance
- Business insurance — liability, professional indemnity, property
- Health insurance — in some jurisdictions, if provided through your business
Education & Development
- Training courses related to your business
- Professional certifications
- Books and subscriptions for professional development
Financial Costs
- Bank fees on your business account
- Interest on business loans
- Payment processing fees (credit card transaction fees)
How to Document Deductions Properly
Claiming a deduction without proper documentation is risky. If you’re audited, you’ll need to prove the expense was real and business-related.
The Three-Part Test
For each deduction, you should be able to answer:
- What was it? — A clear description of the expense
- Why was it for business? — The business purpose
- How much was it? — The exact amount with a receipt
Best Practices
- Keep every receipt. Digital is fine — snap a photo or save the email receipt.
- Record the business purpose. For meals and entertainment, note who you were with and what you discussed.
- Don’t inflate or guess. Estimate only when the rules explicitly allow it (like standard mileage rates). Otherwise, use actual figures.
- Separate mixed-use items. If you use your phone 70% for business, you can typically deduct 70% of the cost. Document how you determined the split.
Working With Your Accountant
Your accountant is your best ally when it comes to maximising deductions while staying compliant. Here’s how to make the relationship work:
- Keep your books up to date. The cleaner your records, the more your accountant can help — and the less they’ll charge you.
- Ask proactive questions. “Am I missing any deductions?” is a great question to ask before year-end.
- Plan ahead. Some deductions require action before the tax year ends. Your accountant can advise on timing purchases or payments.
- Don’t hide anything. Full transparency helps your accountant protect you. Surprises during tax time are never fun.
Fastbooks keeps your expenses categorised and receipt-attached throughout the year, so when it’s time to work with your accountant, everything is already organised and ready to review.