Small Business Tax Deductions You're Probably Missing

You're Probably Overpaying Your Taxes

Most small business owners pay more in taxes than they actually owe. Not because they're doing anything wrong, but because they're not aware of deductions they qualify for.

The IRS allows business deductions for ordinary and necessary business expenses. The key word is "ordinary and necessary" - meaning it's common in your industry and required to run your business.

But many business owners either don't know what qualifies or they don't bother documenting it properly. So they leave thousands of dollars in deductions unclaimed every year.

Here's what you need to know about the deductions you're probably missing.

Common Deductions Most Business Owners Miss

Home Office Deduction

If you use part of your home exclusively for business, you can deduct that portion of your rent, mortgage interest, utilities, insurance, and maintenance.

Two methods:

Simplified method: $5 per square foot (up to 300 sq ft = $1,500 max). Easy to calculate, no records needed. (In 2024, but subject to change)

Regular method: Calculate the percentage of your home used for business. If 10% of your home is your office, deduct 10% of all home expenses. This usually generates a larger deduction but requires documentation.

Who qualifies: Sole proprietors, freelancers, consultants working from home. Not applicable if you have a separate commercial space.

Common mistake: Using your home office part-time (desk area that's also used for personal things). The office must be used exclusively for business.

Vehicle and Mileage Expenses

You can deduct business vehicle expenses using one of two methods:

Mileage method: Track business miles and deduct the IRS mileage rate (currently 67 cents/mile for 2024, but changes annually). This is simpler and often generates a solid deduction.

Actual expense method: Deduct actual costs (fuel, maintenance, repairs, insurance, depreciation) based on the percentage of business use.

Who qualifies: Anyone using a personal vehicle for business travel. Contractors driving between job sites, service businesses making client visits, consultants traveling to client locations.

Common mistake: Not tracking mileage at all, or only recording it sporadically. If audited and you don't have documentation, the IRS disallows the entire deduction.

Better approach: Use a mileage app (MileIQ, Stride, TripLog) that tracks automatically. Costs $5-10/month and eliminates the guesswork.

Equipment and Tools

Business equipment and tools are deductible. Depending on cost, they're either immediately deducted or depreciated over time.

Under $2,500: Usually deducted immediately in the year purchased.

$2,500-$5,000: Can typically use bonus depreciation or Section 179 deductions (both allow immediate write-off).

Over $5,000: Depending on the circumstance, can be depreciated over several years or immediately.

Who qualifies: Service businesses, contractors, trades. Anyone who uses equipment to generate business revenue.

Examples: Laptops, software, tools, machinery, work vehicles, medical equipment, salon equipment.

Common mistake: Not tracking small equipment purchases throughout the year. Many business owners buy $500 here, $800 there, and either forget to deduct any of it, or forget to depreciate it.

Better approach: Create a simple spreadsheet of all equipment purchases over $100. Total it up at year-end and discuss Section 179 elections with your tax preparer.

Professional Services and Consulting

Fees paid to accountants, lawyers, consultants, bookkeepers, and other professional advisors are deductible business expenses.

Who qualifies: Every business type. This includes legal advice, tax prep, bookkeeping, business consulting, HR services, marketing consulting.

Examples: Tax prep & bookkeeper services (like ours), attorney fees, business consultant retainers, payroll processing services.

Common mistake: Business owners sometimes think they can only deduct one or some of the fees. All are deductible.

What's not deductible: Personal legal services (divorce, estate planning) aren't deductible even if paid to a lawyer. Must be business-related.

Health Insurance and Self-Employment Tax Deduction

If you're self-employed (sole proprietor, partnership, S-corp owner), you can deduct 100% of health insurance premiums paid for yourself and your family.

You also get a deduction for half of your self-employment taxes.

Who qualifies: Self-employed business owners. W-2 employees don't qualify (their employer deducts it).

Examples: Health insurance, dental, vision, long-term care insurance.

Amount: Can be substantial. Family health insurance might run $1,000-2,000/month = $12,000-24,000/year in deductions.

Common mistake: Not taking this deduction because they think it's already accounted for elsewhere. It's not, make sure your tax preparer includes it.

Business Insurance

Insurance premiums for business liability, property, workers comp, and professional liability are deductible.

Who qualifies: All business owners.

Examples: General liability insurance, workers compensation, professional liability, property insurance for business equipment.

Amount: Varies widely but can be $2,000-10,000+ annually depending on business size and type.

Common mistake: Mixing personal and business insurance. Only the business portion is deductible.

Meals and Entertainment (Partially)

Meal expenses when conducting business are 50% deductible (100% during 2021-2022, back to 50% now).

Who qualifies: Anyone with business meals - client lunches, working lunches, meals during business travel.

What qualifies: Restaurant meals, catering, coffee/snacks during business meetings.

What doesn't qualify: Grocery shopping for personal use, even if you work from home.

Common mistake: Claiming personal meals as business meals. If you eat lunch while working from home, that's personal, not deductible.

Better approach: Only deduct meals where you're with a client, employee, or business contact. Keep the receipt with a note about who attended and the business purpose.

Office Supplies and Software Subscriptions

Routine office supplies and software subscriptions are fully deductible.

Who qualifies: All businesses.

Examples: Paper, pens, staplers, printer ink, internet service, software subscriptions (accounting software, design tools, project management, CRM, etc.), phone service.

Amount: Often adds up to $2,000-10,000+ annually.

Common mistake: Not tracking smaller purchases. Many business owners buy supplies at office stores without receipts or records. Keep documentation.

Better approach: Use a business credit card for all supplies. The credit card statement becomes a part of documentation.

Repairs vs. Improvements (Know the Difference)

Repairs to business equipment are deductible. Improvements (which extend the life or add new functionality) must be depreciated.

Repair (deductible immediately): Fix a broken tool, patch a roof, replace a part.

Improvement (depreciated): Replace an entire roof, upgrade equipment to newer model, add a new room to your office.

Who qualifies: Business owners with equipment or property.

Common mistake: Calling an improvement a repair to get an immediate deduction. The IRS knows the difference and will disallow it if audited. Be very careful here. We routinely offer guidance and answer questions for our clients for this. If in doubt, ask you tax preparer.

Industry-Specific Deductions

Different business types have additional deductions worth knowing about:

Contractors and Trades

Subcontractor payments (fully deductible)
Job materials and supplies (deductible)
Job site equipment rental (deductible)
Uniforms and work clothing (if specialized for your trade)
Continuing education and certifications

Service Businesses (Plumbing, HVAC, Electrical)

Vehicle maintenance and fuel beyond mileage deduction
Employee uniforms and branded apparel
Client-specific tools and equipment
Training and certification renewals
Service vehicle insurance

Franchisees

Royalty payments (deductible)
Marketing fund contributions (deductible)
Franchise support fees (deductible)
Approved vendor purchases (deductible)
Training and certification (deductible)

Professional Services and Consulting

Home office (if applicable)
Professional development and courses (This is a big one!)
Industry memberships and conferences
Client entertainment and meals
Business travel

Healthcare Providers (Doctors, Dentists, Veterinarian, Therapists, etc...)

Medical equipment and supplies
Continuing medical education
Malpractice insurance
Staff training
Patient management software

Documentation Is The Key To Deductions That Stick

Having a deduction and proving you have a deduction are two different things.

The IRS requires documentation to support every deduction. If audited, you need to prove the expense was business-related and the amount is accurate.

What documentation you need:

Receipts: Keep receipts for everything over $75. Digital photos of receipts work fine.

Invoices and bills: For professional services, subscriptions, and regular bills.

Bank and credit card statements: These support your documentation.

Mileage logs: Track business mileage with dates, destinations, and business purpose.

Records for mixed expenses: If an expense is partially personal and partially business, document the business percentage.

Contemporaneous written acknowledgment: For charitable contributions and certain business expenses.

Storage and Organization

You don't need fancy systems, but you need consistency:

Receipts folder (digital or physical)
Monthly expense spreadsheet
Mileage log (app or spreadsheet)
Invoices folder for professional services

Many business owners use:

Receipt scanning apps: Take a photo of receipts, app organizes them
Expense tracking software: Automate receipt capture and categorization
Accounting software: QuickBooks, Xero automatically organize expenses by category

Maximizing Deductions with Tax Planning

Knowing what's deductible is step one. Using deductions strategically is step two.

Timing Considerations

December decisions: In December of each year, you might choose to:

Accelerate equipment purchases if you're in a higher tax bracket
Delay major purchases if you expect higher income next year
Pay professional service invoices before year-end vs. in January

Quarterly estimated taxes: If you're underpaying quarterly estimates, larger deductions might reduce what you owe.

Section 179 and Bonus Depreciation

These are powerful deductions for equipment purchases:

Section 179: Allows you to immediately deduct qualified equipment purchases (up to limits) instead of depreciating them over years.

Bonus depreciation: Allows 100% deduction of qualified property placed in service during the tax year.

These can generate substantial deductions in years when you purchase significant equipment.

Business Structure Impact

Your business structure (sole proprietor, LLC, S-corp, C-corp) affects which deductions you can take and how much you benefit from them.

For example:

S-corp owners might benefit differently from certain deductions
Self-employed deductions work differently for LLC vs. sole proprietor
C-corp structure affects depreciation and equipment deductions differently

This is where working with an experienced tax preparer pays off - we can advise on deduction strategy based on your specific structure.

Common Deduction Mistakes to Avoid

Mixing Personal and Business Expenses

If you claim 100% of your home internet as a business deduction but you use it 50% personally, you're overstating your deduction. The IRS catches this.

Document the actual business percentage and only deduct that portion.

Not Maintaining Records

Without receipts and documentation, you can't prove your deduction if audited. The IRS doesn't take your word for it.

Don't deduct expenses you can't document.

Claiming Too Many Deductions Without Context

If your deductions are extremely high relative to your income, or if you're claiming deductions that don't match your business type, audits become more likely.

Deductions should be reasonable for your business size and type.

Deducting Personal Expenses

You cannot deduct personal expenses, even if they occur while you're working. Your home grocery shopping, personal vehicle maintenance (if not business-related), personal phone service - these aren't deductible.

The line between business and personal needs to be clear.

Not Updating Deductions Annually

Tax laws change. Deduction amounts change (like mileage rates). Don't assume what was deductible last year is the same this year.

Review deductions annually with your CPA or tax preparer.

Getting Your Deductions Right

The difference between claiming deductions you qualify for versus missing them can be $5,000-15,000+ per year for many small businesses.

Over a decade, that's $50,000-150,000 in tax overpayment.

The work is simple: track expenses with receipts, organize them by category, and discuss them with your CPA or tax preparer. But most business owners don't do this systematically.

Action steps:

This month:

Create a simple expense tracking system (spreadsheet, app, or software)
Go back 3 months and categorize all business expenses
List any recurring expenses (software, insurance, services)
Identify any categories where you're probably missing deductions

This quarter:

Implement consistent expense tracking going forward
Set up mileage tracking if applicable
Organize all receipts and documentation
Meet with your CPA or tax preparer to discuss deductions you might be missing

This year:

Track all expenses consistently
Take photos of receipts
Document business purpose for any mixed-use expenses
Plan major equipment purchases strategically
Review deductions before tax season

Work With Someone Who Knows Your Industry

Different business types have very different deduction opportunities. A contractor's deductions look nothing like a consultant's deductions. A franchisee's deductions differ from an independent business owner's.

Working with a CPA or tax advisor who understands your specific business type helps you maximize deductions you might otherwise miss.

For small businesses in northeast Texas, we work with contractors, service businesses, franchisees, healthcare providers, and other business owners. We know the specific deductions relevant to each type and help ensure you're capturing every deduction you qualify for.

Ready to stop leaving money on the table? Contact us here to discuss your business's specific deduction opportunities and tax planning strategy.