Small Business Tax Deductions: A Complete Guide

Overview

Legitimate, ordinary and necessary business expenses are deductible. Tracking them well reduces your taxable profit.

Deduction list

• Software subscriptions
• Office supplies & postage
• Advertising & marketing
• Website hosting & domains
• Professional fees (CPA, attorney)
• Education & training
• Insurance (general liability, E&O)
• Rent and utilities
• Home office (if eligible)
• Phone & internet (business portion)
• Equipment & furniture (179/bonus/dep.)
• Bank & payment processing fees
• Travel, meals (50%)
• Vehicle expenses
• Contractors (1099-NEC)
• Employee wages & payroll taxes
• Retirement plan contributions
• Health insurance premiums (owners/employees)
• Business licenses & permits
• State & local business taxes
• Charitable contributions (C‑Corp; limited for pass‑throughs)
• Bad debts (if using accrual)
• R&D and energy credits (if eligible)
• Depreciation & amortization
• Merchant chargebacks/fraud losses (case‑by‑case)

Recordkeeping & proof

Keep invoices, receipts, bank statements, and mileage logs. Note the business purpose for bigger items and meals.

Common pitfalls

• Mixing personal and business expenses.
• Not allocating the business-use portion for mixed expenses (phone, internet).
• No contemporaneous logs for mileage or travel.

Startup & organizational costs

Eligible startup and organizational costs can be expensed up to certain limits in the first year, with the remainder amortized over time.

Section 179 expensing

• Allows immediate expensing of qualifying tangible property up to annual limits.
• Limited by taxable income; cannot create or increase a loss.

Bonus depreciation

• Allows a large percentage write‑off for new and certain used property.
• Not limited by taxable income; may create a loss.

Choosing a method

Model cash flow and future income. Section 179 is flexible but capped by income; bonus applies broadly and can create losses—useful for growth phases.

Who qualifies

You must use a specific area of your home regularly and exclusively for business. A dedicated room or clearly defined space helps.

Methods: simplified vs. regular

• Simplified: Standard rate per square foot up to a cap.
• Regular: Actual expenses allocated by business‑use percentage (mortgage interest/rent, utilities, insurance, repairs).

Allocation & mixed expenses

Direct expenses (painting the office) are 100% deductible; indirect expenses (utilities) are allocated by business‑use percentage.

Documentation

• Floor plan with square‑footage calculation.
• Bills/receipts for utilities, rent, insurance.
• Photos show exclusive business use if ever questioned.

Choosing a method

The method that yields a larger deduction depends on annual miles, fuel/maintenance costs, and vehicle type. You generally choose a method the first year a vehicle is placed in service.

Standard mileage method

Multiply business miles by the IRS rate for the year. Add parking and tolls. Keep a log showing date, destination, purpose, and miles.

Actual‑expense method

Track fuel, insurance, repairs, lease or depreciation, and allocate by business‑use percentage. Keep all invoices and a mileage log to compute the percentage.

Mileage logs & substantiation

Maintain contemporaneous logs—apps, GPS, or paper—to support your deduction. Reconstructing after year‑end is risky.

Travel rules

Transportation, lodging, and incidental costs are deductible when the trip is primarily for business. Personal side trips are not deductible.

Meals: 50% vs. 100%

• Most business meals are 50% deductible.
• Certain employer‑provided meals or office events can be 100% deductible.

Entertainment rules

Entertainment is generally not deductible. However, business meals during entertainment events may be if separately stated and meeting ordinary and necessary tests.

Documentation & best practices

• Keep itemized receipts (who, where, business purpose).
• For travel, keep agendas or calendars to show business intent.
• Split personal vs. business charges on the same trip.