For most people, the term “tax season” doesn’t evoke the same heartwarming feelings that phrases like “holiday season” or even “football season” do.

But tax season comes every year, ready or not. 

You may be able to turn dread into anticipation by focusing on what you stand to benefit from. For many entrepreneurs, the upside of tax season is tax deductions. Working with your accountant or using accounting software, you may be able to write off expenses that can lower the amount of income taxes you must pay. 

The more deductions you can take, the lower your taxable income.

The more deductions you take, the lower your taxable income. And ultimately that can mean a smaller tax bill or a bigger refund. Win win! 

Many legitimate tax deductions go unclaimed year after year, perhaps because taxpayers are unclear if they are eligible for them or simply because they are unaware that they exist. 

Tax Breaks: Tax Deductions vs Tax Credits

To make sure we’re on the same page here, a tax deduction is an expense you can subtract from your business income to reduce your tax liability. 

The IRS explains that deductible business expenses are “…both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business.”

Tax deductions lower your taxable income, essentially reducing the amount of income subject to tax. For example, if you’re in the 25% tax bracket, a $1,000 deduction saves you $250 in taxes.

Tax credits can also save you money on taxes, but they aren’t the same. 

Tax credits, on the other hand, directly reduce your tax bill dollar-for-dollar. A $1,000 tax credit cuts your tax bill by exactly $1,000, making credits generally more valuable than deductions. 

While we’re focused in this article on tax deductions, don’t forget to explore tax credits for your small business. Two examples: the Small Business Health Care Tax Credit if you provide health insurance to employees, or the Work Opportunity Tax Credit when hiring from certain targeted groups. The Earned Income Tax Credit may also apply if your business income falls within certain thresholds. 

Top Small Business Tax Deductions

Here are the top deductions you’ll want to look into:

1. Startup costs. It’s important to record business expenses from the very beginning of your venture, because certain startup costs may be deductible. There are limits, though, and you’ll need to make sure you keep meticulous records of these expenses, such as business-related equipment, marketing expenses and more. If you qualify, you may be able to deduct up to $5000 in startup expenses and up to $5000 in organizational expenses to set up your business entity. 

2. Home office expenses.  You may qualify for a home office deduction if you have a true designated space in your dwelling that is used exclusively as your principal place of business. If it’s your dream to work from home but you don’t have a home office, you might want to consider reinvesting funds from your next tax refund to set up a home office space. Paying this expense now could save you money in the long run, and could make you eligible for a home-based business deduction in the future. (Learn more about this deduction below, in the FAQs.)

3. Business use of a vehicle. There are two ways to claim vehicle expenses: the actual expense method and the standard mileage rate method. For 2024, the standard business mileage rate is 67 cents per mile and rises to 70 cents per mile in 2025. If you use your vehicle for business purposes at all, record every trip you take by logging the date, miles traveled and business purpose. In addition you may be able to deduct actual expenses for parking and tolls as long as they are not classified as commuting expenses. Keep good records of those too. 

4. Phone and internet expenses. You may be able to deduct some or all of the cost of your cell phone bill depending on whether you use it exclusively for business. And you may be able to depreciate the cost of your cell phone. Same goes for your internet service. Plus you may be able to deduct internet-related expenses like web hosting for your business website or your business email account. 

5. Business insurance. Businesses may pay for a variety of different types of insurance, ranging from general liability insurance to business property insurance to business interruption insurance. These expenses are likely tax deductible. Group medical insurance for employees and worker’s compensation insurance premiums are other examples of deductible insurance. Self-employed individuals may also be able to deduct insurance for medical and dental insurance and qualified long-term care insurance for themselves, their spouse, and their dependents.

6. Legal fees. Expenses related to forming a business entity (such as an LLC or S Corporation), having an attorney create or review contracts, and other legal fees may be tax deductible. 

7. Accounting expenses. If you use bookkeeping software or bookkeeping services, tax preparation software, or you hire a CPA or Enrolled Agent to prepare your business taxes, you can then write those costs off.  

8. Business meals. For 2021 and 2022 only, businesses were generally allowed to deduct the full cost of business-related food and beverages purchased from a restaurant. In 2023 this reverted to the usual limit of 50% of the cost of the meal. Otherwise, this deduction is generally limited to 50% of the cost of the meal. There are some additional restrictions (meals can’t be extravagant, for example), but a couple of examples for self-employed individuals and business owners include meals while traveling away from home on business (whether you eat alone or with others) or meals at a business convention.

9. Business interest. If you get a small business loan and use it to pay for business expenses, you will likely be able to deduct the interest. You must be legally liable for the debt and there must be a “true debtor-creditor relationship.” If you qualify you may be able to deduct the cost of that interest— including for business credit card debt. Business bank account fees are also often deductible.

10. Advertising and marketing. Whether you are using paid advertising or social media marketing to help bring customers to your business those expenses can be deducted from your business income. 

11. Contractor and consultant expenses. Have you hired freelancers or an agency to help with marketing, business development, creating your brand logo, or other services? If so you can deduct those expenses. Keep in mind you may need to file 1099 forms to report those payments to the IRS. 

12. Education expenses. Costs you incur to increase your business expertise including seminars and workshops, subscriptions, industry books and other similar expenses can be deducted. If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assistance program. 

While tax time will probably never be an occasion when you feel like breaking out your party decorations and confetti, it also doesn’t have to be a time of great stress. By taking advantage of the many deductions that may be available to you, tax season may end up feeling like a game you’re equipped to win.

Tax Implications of Different Filing Statuses

Your filing status significantly impacts your tax situation as a business owner. If you’re a married couple, filing jointly often provides better tax rates and higher deduction thresholds than filing separately. However, in specific situations—such as when one spouse has significant medical expenses or business losses—married filing separately might lower your overall tax burden.

For sole proprietors, your business income flows through to your personal tax return, making your personal filing status particularly important. Single filers face different tax brackets than heads of household, potentially affecting how much of your business profit goes to taxes. Review your filing status annually, especially after major life changes like marriage, divorce, or having children, as these events can open up new tax-saving opportunities for your business.

Capital Gains and Investment Considerations

Smart investment strategies can significantly reduce your tax burden as your business grows. When you sell business assets held longer than a year, you’ll pay long-term capital gains rates (0%, 15%, or 20% depending on your income level) rather than higher ordinary income tax rates. This makes strategic timing of asset sales crucial for tax planning.

For business owners who reinvest profits, understanding the tax implications of different investment vehicles matters. Some investments generate tax-exempt income, such as municipal bonds, while others might qualify for preferential tax treatment. If you’re considering selling your business in the future, you may qualify for the Small Business Stock Capital Gains Exclusion (Section 1202), which can exclude up to 100% of eligible gains from federal taxation if specific requirements are met.

State and Local Taxes for Small Business

When we think of taxes, most of us think of federal taxes and the IRS. But your business may also have to pay state tax and/or local taxes. 

These taxes can add up. The Tax Cuts & Jobs Act (TCJA) capped the State and Local Tax (SALT) deduction at $10,000 for those who take itemized deductions on their personal returns (rather than the standard deduction), potentially affecting business owners in high-tax states whose business income flows through to their personal returns.

Property taxes on business real estate remain fully deductible as a business expense if the property is used for business purposes. For home-based businesses, you can deduct the business portion of your property taxes as part of your home office deduction. Sales taxes paid on business purchases are generally deductible as business expenses as well.

Many states offer their own tax incentives for small businesses, including credits for job creation, research and development, or investing in specific geographic areas. These state-level incentives can sometimes provide more immediate benefits than federal programs, especially for locally-focused businesses. Research your state’s small business tax incentives or work with a local tax professional familiar with region-specific opportunities to ensure you’re not leaving money on the table.

Retirement Planning Tax Benefits for Business Owners

While it may be tempting to plow all your business income back into growing your business, or just increasing your personal income by taking a larger paycheck, don’t forget to overlook saving for retirement. 

Not only will you help secure your future, you may be able to take advantage of tax deductions that make retirement savings even more rewarding. 

The easiest way to contribute to a retirement account when you’re self-employed is often through an IRA. A traditional IRA contribution allows you to deduct that amount from your taxable income, lowering your tax bill for the tax year for which you make the contribution. For 2024 and 2025, you can contribute up to $7.000 ($8,000 if you’re 50 or older). There is a phase-out on deductions based on your income level, though. 

For business owners seeking to save more aggressively, a SEP IRA (Simplified Employee Pension) allows much higher contribution limits—up to 25% of your net self-employment income or $69,000 for 2024, whichever is less. These contributions are tax-deductible for your business, reducing both your income tax and self-employment tax liability. SEP IRAs are particularly attractive for their simplicity and minimal paperwork compared to other retirement plans.

The Solo 401(k), designed for business owners with no employees (except a spouse), offers even greater flexibility. This plan allows you to contribute both as an employer and employee, potentially enabling total contributions up to $66,000 in 2024 or $70,000 in 2025m with an additional $7,500 if you are 50 years of age or older. Those age 60 to 63 can contribute an additional $11,250 in 2025.

You also have the option of a Roth IRA or Roth Solo 401(k) instead. While contributions aren’t tax-deductible now, your withdrawals in retirement will be completely tax-free. This can be particularly strategic for growing businesses anticipating higher future income.

If you have a high-deductible health plan, a Health Savings Accounts (HSAs) offers another powerful tax benefit. HSA contributions are tax-deductible, grow tax-free, and withdrawals for qualified medical expenses are also tax-free—a rare triple tax advantage. In 2024, self-only coverage allows contributions up to $4,150, while family coverage permits up to $8300, with additional catch-up contributions of up to $1000 for those 55 and older.

Tax Deduction FAQs

As a small home based business, what is the best deduction for my taxes?

The home office deduction can be a terrific deduction for home-based business owners.

Whether you own or rent, if you use part of your home for business, you may be able to deduct expenses for the business use of your home.

There are two methods to determine this deduction. The regular method allows you to deduct actual expenses based on the percentage of your home used for business, while the simplified method allows you to base your deduction on the square footage of your home used for business purposes.

Taxpayers using the regular method, instead of the optional simplified method, must determine the actual expenses of their home office such as mortgage interest, insurance, utilities, repairs, and depreciation. The simplified method offers a standard deduction of $5 per square foot of home used for business (maximum 300 square feet).

Either way, you must meet two basic requirements in order to qualify for this deduction:
1. Regular and exclusive use.
2. Principal place of your business.

You must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction.

But if the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home.

If you’re considering taking this deduction talk to your tax professional and review IRS Publication 587, Business Use of Your Home.

How many deductions should I claim?

You may claim as many tax deductions as you qualify for. There are many tax deductions that may be available to you as a small business owner. (Here’s a list of 23 deductions work-from-home entrepreneurs may qualify for.) You can claim as many as you qualify for, and that you can substantiate. 

Tax write-offs for service based business owners

Service-based business owners may still qualify for a variety of tax deductions including:
Home-based business (if a portion of your home is your principal place of business).
Business use of your vehicle if you use it for qualified business purposes. A few are listed above. 

• Cell phone/internet used for business
• Business insurance
• Advertising and marketing
• Office supplies
• Interest on business loans and financing

See the lists in the article above. 

Are there any hidden business tax write-offs small business owners can take advantage of?

If you’re worried you may be missing out on tax deductions for your business, here’s the good news. The IRS publishes a lot of helpful information for small businesses to help them understand federal income tax filing requirements and potential deductions.

Most tax software includes questions and tax tips to help business owners (including independent contractors and sole proprietors) identify possible deductions. And if you work with a tax professional, they can also help you figure out what to deduct.

How do tax deductions work?

Tax deductions can reduce your taxable income. How you report these deductions (and which ones you can take) will depend in part on your business structure, whether you operate as a sole proprietorship, partnership, Limited Liability Company (LLC) or corporation.

Sole proprietors report income and expenses on Schedule C.

LLCs may use different forms depending on how many members they have and whether they elect to be taxed as a corporation. A single-member LLC that has not elected to be taxed as a corporation will usually file Schedule C or Schedule E with their personal tax return.

S Corporation shareholders usually file Form 1120-S and file a K-1 with their personal tax return.

Is there a standard deduction for small business?

Small businesses don’t have a “standard deduction” like individuals do on personal tax returns. Instead, businesses deduct their actual business expenses from their revenue to determine taxable profit.

The way these deductions work depends on your business structure:

For sole proprietors, single-member LLCs, and partnerships, your business income and expenses flow through to your personal tax return (usually reported on Schedule C). You’ll still qualify for your personal standard deduction (which is $29,200 if Married Filing Jointly or Qualifying Surviving Spouse) $21,900 Head of Household, or $14,600 – Single or Married Filing Separately. But this is separate from your business expenses.

Business expenses are deducted dollar-for-dollar from your business income before calculating your profit. These deductions include costs like:

• Office rent and utilities
• Business travel
• Employee salaries
• Marketing expenses
• Business insurance
• Professional services
• Office supplies

If you operate as an S-Corporation or C-Corporation, the business files its own tax return and deducts all ordinary and necessary business expenses directly. But with an S Corporation the income from the business still passes through to the owner’s personal tax return and affects their Adjusted Gross Income (AGI). 

The closest thing to a “standard” business deduction is the Qualified Business Income (QBI) deduction, introduced by the Tax Cuts and Jobs Act. This allows eligible small business owners to deduct up to 20% of their qualified business income on their personal returns. However, this isn’t automatic – specific income thresholds and business types apply.

Work with a tax professional to ensure you’re capturing all legitimate business expenses and maximizing your available deductions based on your specific business structure.