How to Make the Most of Small Business Tax Deductions

While taxes may be one of life’s hard-and-fast certainties, that doesn’t mean they don’t come  with a bit of wiggle room in the form of tax deductions. 

Uncovering those deductions and knowing which ones you can apply to your returns can be highly complex and time-consuming. We recommend working with a tax professional when determining what you may owe in taxes and what you can do to lower that number. 

However, this article provides an overview of several small business tax deductions to help you get started.

What Qualifies as Small Business Tax Deductions?

When it comes to small business tax deductions, it can be tough to know what can and can’t be claimed.

In general, the IRS considers a business expense¹ to be ordinary and necessary to run your small business.

• Ordinary means the expense is common and standard to your business type or trade.
• Necessary means the expense is helpful, and again, common to your business type or trade.

For example, if you’re a general contractor and you buy a small car as a business expense, the IRS might raise an eyebrow, as a small car is not typically considered ordinary or necessary within your industry. If, however, you purchased a truck or a work van, you’re more likely to be able to claim it as a small business tax deduction.

Common Small Business Tax Write-Offs

1. Start-up expenses

If you launched a new business in the latest tax year, you may be able to deduct as much as $5,000 in start-up expenses² and up to $5,000 or organizational costs.

Start-up expenses include business costs you incur before you actually begin business operations, such as:

• Advertising
• Travel
• Surveys
• Training

Organizational costs are the legal and administrative expenses involved in forming the business entity itself, including:

• State incorporation or filing fees
• Legal fees for drafting documents such as the corporate charter, bylaws, or partnership agreements
• Necessary accounting fees for setting up the company’s books

Please note that organizational costs generally won’t apply to businesses that are sole proprietorships. 

There are some restrictions. If your start-up or organizational costs exceed $50,000, the amount of your deduction is reduced by the amount over $50,000. 

For example:

• If you have startup costs of $45,000: You can deduct the full $5,000 in the first year since your total costs are below the $50,000 phase-out threshold.
• If you have startup costs of $53,000: Your first-year deduction is reduced by $3,000 ($53,000 – $50,000). The amount you can deduct is $2,000.
• If you have startup costs of $56,000: You cannot claim any first-year deduction. The entire amount must be amortized.

2. Home office

Do you run your business tucked away in a home office? Good news. You may be able to write off the business part of your home.³

Other work-from-home tax deductions may include mortgage interest, insurance, utilities, repairs, maintenance, and depreciation.

A quick tip: Speak with an accountant or tax professional and do careful research on this deduction first.⁴ There are a number of requirements in order to claim a home office as a deduction, so you’ll want to make sure you apply this deduction properly in the event of an audit.

3. Vehicles and mileage

If you use your vehicle for work-related purposes, you can generally write off most, if not all, costs⁵ associated with operating and maintaining it, such as gas, parking, mileage, tolls, and repairs. If you used your vehicle partly for work and partly for personal reasons, you can deduct costs that are related to the business usage only.

You can claim the mileage you use for business either by deducting the actual miles or by using the standard mileage deduction⁶ rate of 70 cents per mile. This standard mileage deduction is typically updated in December each year.

4. Travel and meals

If you attend trade shows or conferences, your travel expenses⁷ may be considered for a small business tax deduction. This can include airfare, lodging, and meals. If you’re shipping trade show materials, you also may be able to deduct those expenses.

5. Office supplies and materials

Printer ink. Paper. Envelopes. Basically, anytime you head to your local office supply store, file away that receipt. You may be able to deduct these expenses,⁸ as long as they’re used solely for your business.

As with other business expenses, office supplies and materials should be “ordinary and necessary” for your type of business. Also, if the useful life of an item is significantly greater than one year (mobile phone, laptop, etc.), it should be depreciated over several years. Your accountant or tax professional can provide more guidance for your specific business, particularly in light of changes made in the One, Big, Beautiful Bill Act signed in July 2025.

6. Computer hardware and software

The Section 179 deduction⁹ covers the cost of computers, business equipment and machinery, and office furniture. There’s an annual limit that’s often adjusted each year, so it’s a good idea to check with the IRS or a tax professional to learn if this could apply to your business.

7. Tools

The IRS distinguishes tools from equipment. Tools are generally less expensive and include anything from hammers to paint supplies to mixers to baking pans.

The general rule¹⁰ is small tools with a useful life of less than one year can be considered small business tax deductions. Other equipment and tools with a useful life of more than one year must be depreciated and are therefore not considered for a small business tax deduction. Remember to track and keep receipts as you purchase any work tools.

8. Advertising, marketing, and promotions

To attract new customers, most businesses do some type of advertising and marketing. Track your expenses related to website hosting, business cards, flyers, billboards, and sponsorships. They may be deductible.¹¹ Again, these must be “ordinary and necessary” for your type of business, and they must be directly related to generating business income, not for personal use.

9. Loan interest

If you’ve taken out a loan to begin your business, you may be able to deduct the interest¹² you pay on that loan. 

To deduct the interest, you generally need to prove you’re legally liable for the debt, have proof of repayment, and demonstrate a true debtor-creditor relationship with the lender. 

In addition, you need to spend the money on something for your business — not just keep it in a bank account. There are other rules as well, including that you cannot deduct the full loan amount on your annual tax return if you paid only a partial amount of the business debt.

10. Employee wages and benefits

If you have employees, you can deduct their wages and salaries¹³ as business tax write-offs. If you’re fortunate enough to offer your employees stellar benefits, such as employee health insurance, childcare, and education assistance, you typically can write off these expenses as well.

11. Business insurance premiums

For a small business, most insurance premiums¹⁴ are tax-deductible as “ordinary and necessary” business expenses, but there are important exceptions. How you deduct premiums depends on your business structure and the type of insurance you have.

Typically tax-deductible:

• General liability insurance
• Professional liability (E&O)
• Commercial property insurance
• Commercial auto insurance
• Business interruption insurance
• Workers’ compensation insurance
• Employee health insurance
• Cyber insurance

Typically NOT tax-deductible:

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• Disability insurance
• Life insurance
• Loan protection insurance

12. Charitable deductions

If generosity is part of your company mission, there’s good news. You also can deduct a percentage of your charitable donations.¹⁵ There are limits, and these donations need to have monetary value, as the IRS doesn’t allow deductions for donating your time.

13. Employee and client gifts

If you run a successful business, you may want to reward the employees who help you run it and the customers who keep it running. While there may not be any limits to your generosity, there are limits¹⁶ regarding what gifts can be deducted.

What’s New for 2025?

The One, Big, Beautiful Bill Act (OBBBA) that was signed into law in July 2025 has a significant effect on federal taxes, credits, and deductions for small businesses.

1. Qualified Business Income (QBI) Deduction is Permanent

The 20% QBI deduction¹⁷ was a temporary measure from the 2017 Tax Cuts and Jobs Act (TCJA) and was set to expire. The OBBBA has now made this deduction permanent.

The QBI allows eligible self-employed individuals and small business owners to deduct up to 20% of their qualified business income.

2. Increased Section 179 Deduction Limits

The Section 179 deduction¹⁸ allows businesses to expense the full cost of eligible property and equipment in the year of purchase, rather than depreciating it over several years.

A new law has increased the deduction cap from $1.25 million to $2.5 million, providing a major incentive for small businesses to invest in machinery, vehicles, and technology.

To qualify for the Section 179 deduction, property must be purchased and placed into service during the tax year and used for business more than 50% of the time. Both new and used equipment are eligible, provided it is “new to you.”

3. New Temporary Deductions and Credits

The OBBBA also introduced several temporary deductions¹⁹ that will be available for 2025 through 2028:

1. A new deduction for qualified tips up to $25,000 for self-employed individuals in customarily tipped occupations.
2. A new deduction for qualified overtime pay up to $12,500.
3. A new deduction for car loan interest up to $10,000 for a personal-use vehicle. While this is not a business deduction, it is a significant tax change for many individuals.

4. Updated Standard Deductions and Tax Brackets

The OBBBA made many of the individual tax provisions from the 2017 Tax Cuts and Jobs Act (TCJA) permanent.²⁰ These changes were set to expire on December 31, 2025. 

The standard deduction has been adjusted for inflation. For 2025, it’s $15,750 for single filers, and $31,500 for married couples filing jointly. This can affect a small business owner’s decision to itemize or take the standard deduction.

Federal tax brackets from the Tax Cuts and Jobs Act (TCJA) of 2017 are also now permanent, impacting the tax rates for many small business owners who file as pass-through entities. 

For tax year 2025, the top tax rate remains 37% for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly). The other rates are:

• 35% for incomes over $250,525 ($501,050 for married couples filing jointly)
• 32% for incomes over $197,300 ($394,600 for married couples filing jointly)
• 24% for incomes over $103,350 ($206,700 for married couples filing jointly)
• 22% for incomes over $48,475 ($96,950 for married couples filing jointly)
• 12% for incomes over $11,925 ($23,850 for married couples filing jointly)
• 10% for incomes $11,925 or less ($23,850 or less for married couples filing jointly)

Which Small Business Tax Deductions Could Trigger an Audit?

It’s tough to identify which exact signals could trigger an IRS audit, as they tend to keep that fairly secretive. However, there is enough data out there that might hint at which deductions could increase the likelihood of getting that dreaded audit notification from the IRS. Here are some of the deductions, errors, and other signals that could trigger an IRS audit:²¹

1. Home office

If you claim a home office,²² your odds of getting audited by the IRS are likely to go up. That’s because it actually can be fairly complicated to calculate how much of your home office expenses should be deducted from your taxes, and many people tend to make mistakes on this one.

If you want to claim a home office, it’s recommended that you reach out to a financial professional for help. The IRS also has information about this deduction here.²³ 

2. Excessive meal expenses

Claiming a lot of meal expenses²⁴ can increase the likelihood of showing up on the IRS’s radar. If you take clients or customers out to dinner, track those expenses carefully and keep those receipts.

3. Suspiciously high donations

If your small business makes $100K per year but you claim $30K in charitable deductions, the IRS may want to take another look at your tax return. Make sure your deductions are in line with your business expenses²⁵ to avoid running the risk of an audit.

4. Claiming a business loss

While it’s completely normal for businesses to have losses, especially when they’re just starting, reporting very large or ongoing losses can sometimes catch the IRS’s attention.²⁶ If your business shows significant losses year after year, the IRS might think you’re trying to lower your taxable income more than you’re allowed. They also watch out for large losses that come from a hobby rather than a real business, because hobby losses are not tax-deductible.

Don’t Miss Out on Your Small Business Tax Deductions

This is by no means a comprehensive list of small business tax deductions — it’s just a few tips to help you learn what to track. When in doubt, keep your receipts, invoices, and other records. File them all away on your computer and in a locked filing cabinet. It can be good information to have if you’re audited, but it’s also just good business practice.

As with all things related to taxes, we recommend consulting with an accountant or tax professional to make sure you’re filing appropriately.

Looking for more information regarding taxes or small business in general? Check out the wealth of helpful guides, tools, and templates in our online Resource Center.

The information provided in this article is for informational purposes only. It does not, and is not intended to, constitute legal or tax advice. Readers should consult with qualified tax and/or legal professionals to obtain advice specific to their situation. Further, the information in this article may not reflect the most current legal or tax developments, and it is not guaranteed to be correct, complete, or up-to-date. The application of laws and regulations can vary widely based on the specific facts and circumstances involved.

References:

1. https://itap1.for.irs.gov/owda/0/resource/Commentary_Files_Redirect_ITA/en-US/help/ordnec.html ↩︎
2. https://www.irs.gov/publications/p583#en_US_202501_publink1000253143 ↩︎
3. https://www.irs.gov/newsroom/how-small-business-owners-can-deduct-their-home-office-from-their-taxes ↩︎
4. https://www.irs.gov/taxtopics/tc509 ↩︎
5. https://www.irs.gov/taxtopics/tc510 ↩︎
6. https://www.irs.gov/publications/p463 ↩︎
7. https://www.irs.gov/publications/p334#en_US_2021_publink1000313566 ↩︎
8. https://www.irs.gov/pub/irs-news/fs-06-28.pdf ↩︎
9. https://www.irs.gov/instructions/i4562 ↩︎
10. https://www.hrblock.com/tax-center/filing/adjustments-and-deductions/are-work-clothes-and-tools-tax-deductible/ ↩︎
11. https://www.nolo.com/legal-encyclopedia/deducting-advertising-expenses.html ↩︎
12. https://www.irs.gov/taxtopics/tc505 ↩︎
13. https://www.irs.gov/publications/p334#en_US_2024_publink1000313530 ↩︎
14. https://www.business.com/insurance/expenses/ ↩︎
15. https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions#:~:text=A%20corporation%20may%20deduct%20qualified,to%20the%20next%20tax%20year. ↩︎
16. https://www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses-8 ↩︎
17. https://tax.thomsonreuters.com/en/glossary/qualified-business-income-deduction#:~:text=Qualified%20business%20income%20(QBI)%20deduction,to%20full%20Tax%20&%20Accounting%20glossary ↩︎
18. https://www.irs.gov/publications/p946 ↩︎
19. https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors ↩︎
20. https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025 ↩︎
21. https://www.hrblock.com/tax-center/irs/audits-and-tax-notices/irs-audit-triggers/ ↩︎
22. https://www.kiplinger.com/taxes/irs-audit-red-flags-for-self-employed#:~:text=1.,income%20reported%20on%20Schedule%20C. ↩︎
23. https://www.irs.gov/publications/p587 ↩︎
24. https://www.kiplinger.com/taxes/irs-audit-red-flags-for-self-employed#:~:text=1.,income%20reported%20on%20Schedule%20C. ↩︎
25. ↩︎
26. https://www.kiplinger.com/taxes/irs-audit-red-flags-for-self-employed#:~:text=Not%20every%20business%20ends%20up,each%20taxpayer’s%20facts%20and%20circumstances. ↩︎