Filing your small business taxes doesn’t have to be scary. By understanding and taking advantage of all the deductions available, you can significantly reduce your taxable income and keep more of your hard-earned money. As a small business owner of a sole proprietorship, partnership, or LLC, you may be able to deduct many business-related expenses that you would not be able to deduct if you were just an employee. These deductions don’t stop at simply reducing your taxable income either. When you take small business deductions for taxes, you also reduce your income, which is subject to self-employment tax.
Self-employed health insurance deduction
If you have income from self-employment and buy your own health insurance, you may qualify to deduct your health insurance premiums as an adjustment to income. To qualify for the self-employed health insurance deduction, you must be ineligible for health insurance benefits through an employer, your own, or your spouse’s. The coverage can be for you, your spouse, and your dependents. This tax deduction cannot be more than your business’s net income.
Business startup costs
If you are just starting, the IRS offers some valuable tax breaks for new small business owners.
If your startup costs total $50k or less, you can claim the business startup deduction, which allows you to deduct up to $5,000 of business startup costs and $5,000 of organizational costs. If your startup costs exceed $50k, you can deduct a fixed amount of the expenses each year.
If you took out a business loan, you may deduct any loan fees or professional fees you had to pay to secure the loan.
If you paid to have some new business cards made, you can also deduct the cost for those.
Internet and other service fees
The monthly fees you pay for internet service can really add up. You may also be paying subscriptions for virus and malware control, professional references, and software subscriptions to keep your business activities running smoothly.
Internet and related service costs are all deductible for small businesses. When getting your paperwork together to get your taxes done, take the time to look for all internet, subscription, and other service fees you pay that may entitle you to a deduction this tax season.
Phone service tax deductions
If you have separate phones for business use, whether landlines or cell phones, you can deduct the lines you use for your business in full.
If you have a second line or cell phone that you use for both business and personal calls, you can deduct a percentage of the cost of your phone service. For example, if you use your cell phone for business purposes 75% of the time and personal calls for
Professional dues and subscriptions
You can deduct the cost of trade journals, magazine subscriptions related to your work, and dues to maintain your professional license. Professional dues and subscriptions add up, and they’re easy to miss as a deduction if you pay them automatically every year.
You can’t deduct dues to clubs the IRS considers to have more of a social or recreational aspect, such as dues to business, social, athletic, luncheon, sporting, airline, and hotel clubs.
Cost of Sales
If you sell products you make or buy in your business, the cost of those products can be a significant portion of your total business expenses. That’s why it’s essential to calculate the deductible amount of your cost of goods sold each year.
Materials and supplies you use to make products, whether or not they become part of the products, should be included in the cost of goods sold. An expense is considered inventory if it is used in the manufacture or mining of the goods you sell. For example, manufacturing labor is included in the cost of goods sold. Selling and administrative labor costs are not.
Bad debts
If someone owes you a debt that comes from operating your business, you can write off that debt on your business return.
If you make loans in the course of your business to suppliers, clients, employees, and so on, you can take a business deduction for the bad debts when these loans become uncollectible.
Car expenses and mileage
If you use your vehicle for business travel, your mileage and business car expenses can provide a valuable tax deduction. Track your business miles when visiting clients or making purchases to maximize deductions.
For 2025, you can choose between the standard mileage rate of 70 cents per mile or deduct actual vehicle expenses when driving your car for business use. The IRS requires tracking of business, commuting, and personal miles (and the business purpose of your miles), regardless of the method chosen. If opting for actual expenses, keep records of gas, maintenance, insurance, and registration fees.
Home office deduction
If you have an area in your home that you use as an office or for any other business purpose, you may be able to take a deduction for your home office expenses, but — you guessed it — there’s a catch.
There are specific rules for claiming the home office deduction. The office space must be solely devoted to your business and nothing else. You can deduct expenses based on the square footage that you use exclusively for business.
When you claim a home office, you deduct direct and indirect expenses
Direct expenses are those that apply only to your home office, such as painting or repairing just your office. You claim 100% of direct costs.
Indirect expenses include a percentage of the amount you pay for electricity, rent, and other household expenses. To find the percentage, divide the total square footage of your home by the number of square feet in your home office.
If finding all those utility bills and other receipts is a problem, the IRS has another option. You can use a simplified home office deduction, which allows you to take a flat $5 per square foot deduction for your home office, up to a maximum of 300 square feet.
Contract labor costs
If you hire any independent contractors or freelancers to do work for your business, you can also deduct any amounts paid from your taxable business income.
Self-employment tax
As a self-employed business owner, you pay the full Social Security and Medicare tax on your self-employment income. Your employer does not share in the cost. To help compensate for this, the IRS allows you to deduct one-half of your self-employment tax on your tax return.
If you would like a consultation about small business deductions, feel free to call us at (631) 585-9698