15 Big Tax Deductions Every Business Owner Should Know in 2025

Running a small business is tough enough. Every year during the tax season, do you find yourself thinking “I wish I had organized my expenses earlier…”? As a small business owner, it is easy to get caught up in the day-to-day operations of your business and put taxes on the back burner. But did you know that many business owners overlook expenses that should be deductible and pay more taxes than necessary every year? In fact, 90% of business owners overpay their taxes.

In this blog, I will walk you through the deductions that are often overlooked to avoid paying “extra taxes” next year!

What qualifies as a tax-deductible expense for a small business?

The tax law defines tax deductions as expenses that are ordinary and necessary in any trade or business. Such eligible expenses can be deducted from your business income when filing a tax return, thereby reducing the taxable income and taxes owed. However, there is no clear legal definition of what exactly constitutes ordinary and necessary expenses. Therefore, business owners must interpret how much of an expense is deductible, using the guidelines provided by the IRS.

Thanks to the broad definition of small business tax deductions, businesses can write off almost any expenses as long as they meet the criteria! Even so, many owners are missing out on potential deductions, which results in millions of dollars in excess taxes paid…

To help you keep more of your money, let’s dive into the top 15 small business deductions below and make sure you are not missing any of these.

The 15 Deductions:

1. Meals
2. Travels
3. Vehicle
4. Home Office deductions
5. 401k Contributions
6. Continuing Education
7. Legal and Professional Service Fees
8. Hiring Your Kids
9. Renting Your House (Under the Augusta Rule)
10. Interest Expenses and Utilities
11. Employee Salaries and Contract Labor
12. Advertising Expenses
13. Business Insurance
14. Repair and Maintenance Expenses
15. Tax Preparation Fees

 

1. Business Meals

If you have lunch or dinner with business contracts, you may deduct 50% of the total cost of the business meal. For example, if the meal costs $100, you can deduct $50.

It is Important that the meal meets the following criteria (IRS Reg. 1.274-12):

• Not lavish or extravagant under the circumstances
• You or an employee is present at the meal
• The food or beverages are provided to you or a business associate

However, you must maintain proper documentation for all business meals. You are required to save receipts and record the business contracts who attended the meal and the business purpose of the meal.

With proper documentation in place, this deduction could save your company a significant amount of money on its taxes.

2. Business Travels

If you are traveling for business purposes, you can deduct all direct business expenses such as flights, lodging, meals, and transportation. However, all deductible expenses must be related to the business purpose of the trip.

The business purpose of the trip includes attending board meetings, conferences, seminars, and meetings with business partners.

For example, suppose you travel to Los Angeles to attend a three-day business meeting and then stay in LA for two additional days for sightseeing purposes.

Since you are attending the conference for three days, you cannot deduct the expenses for the personal sightseeing portion. However, for the three days you attend the business meeting, you can deduct the following expenses:

• Airfare to and from LA
• Hotel expenses for three days during the meeting
• Meals and local transportation during the meeting

3. Business Vehicle

Vehicles used for business purposes (trucks, vans, cars, etc.) may be deductible if certain conditions are met. These conditions include:

• The vehicle must be used within the United States.
• The vehicle is not being used for rental purposes, such as a car rental service.
• The vehicle must be used at least 50% of the time for business purposes.
• The taxpayer claiming the tax deduction must be the owner of the vehicle.

The IRS also offers two ways to claim a tax deduction for your business vehicle:

1. Business Mileage: you can deduct each mile driven for business purposes based on the IRS standard mileage rate. (https://www.irs.gov/tax-professionals/standard-mileage-rates)
2. Vehicle Expenses: you can deduct a percentage of certain costs such as gasoline, repairs, insurance, lease payments, maintenance costs, and registration fees.

Whichever method you use, you will be required to keep records regarding the business use of the vehicle.

4. Home Office deductions

The home office deduction is a system that allows you to deduct a portion of your home expenses as business expenses.

If you work on your business from home, you may qualify for this deduction. The amount of the deduction is determined by the percentage of the home that is used exclusively and regularly for business.

The most accurate way to determine the business percentage of your home is by calculating the square footage of your home office as a percentage of your home’s total size. For example, if your office occupies 200 square feet, and the total size of your home is 2,000 square feet, the business percentage would be 10%.

If you are qualified, you can deduct some of the following home expenses:

• Property taxes
• Repair costs
• Mortgage interest
• HOA fees
• Utilities
• Insurance

So, if your annual home office expenses are $50,000 this year, and the business percentage of your house would be 10%, you can deduct $5,000 of your home expenses.

5. 401k Contributions

As a business owner, you can contribute to your retirement account as both an employee and an employer, allowing you to accumulate very large amounts of tax-deductible contributions.

• Up to $70,000 for the SEP IRA contribution limit for 2025 is 25% of an employee’s total compensation
• Up to $70,000 for those under 50, and $77,500 for those 50 and older for the Solo 401k
• Up to $7,000 for Traditional IRA

6. Continuing Education

If you are a business owner, you may be able to include educational expenses to maintain or improve skills related to your current job as a business expense.

For example, the following expenses are eligible:

• Continuing education courses and training
• Various courses including online
• Seminars and workshops
• Fees for renewing or obtaining certifications
• Fees for teaching and training materials
• Related supplies (such as textbooks, pens, lab supplies)
• Travel expenses, etc.

7. Legal and Professional Service Fees

Legal and professional fees are generally deductible as long as if they are ordinary and necessary expenses related to the operation of your business.

Fees that are deductible include:

• Legal services
• Bookkeeping services

Fees that are non-deductible include:

• Divorce or custody disputes
• Advice on buying a house
• Residential real estate transactions
• Personal tax preparation, etc.

8. Hiring Your Kids

Hiring your kids as an employee can be a good strategy to save your money! Not only does it give your kids valuable work experience, but it also provides significant tax benefits.

As a business owner, you can pay each kid you hire up to $15,000 in 2025 without them owing any federal income tax.

The IRS requires you the following the rules to properly hire your kids and deduct taxes.

• Keep clear records: Keep detailed work records and pay stubs, such as “April 15, 2 hours of work, packing, paid $11/hour, $22 total”.
• Let them do the actual work: For example, checking inventory in a store or labeling merchandise. Personal tasks such as cleaning the home or caring for pets are not covered.
• Assign age-appropriate tasks: It is realistic to expect a high school student to help with bag products, but it is unreasonable to expect a kid in kindergarten to handle customer service calls.
• Pay reasonable amounts: It is reasonable to pay $10-12 per hour for kids, but if you pay $50 for the same work, the IRS may question it.
• Obey labor laws: Keep timecard records, issue pay stubs, withhold taxes, etc. as you would a regular employee. Do not make exceptions.

9. Renting Your House (Under the Augusta Rule)

By utilizing the Augusta Rule, you can reduce your tax burden and generate tax-free income while effectively using your home as a business asset.

The Augusta Rule (Section 280A) allows business owners to rent their house to their business for up to 14 days per year, generating tax-free income.

At the same time, the business can reduce the rental expenses, reducing its taxable income.  To utilize this strategy legally, I will show you how to rent your house to your business using the Rule:

• Schedule business meetings at your house (no more than 14 days and avoid entertainment purposes) Some examples: a board meeting, company planning, client or investor events, and photo shoots.
• Keep detailed records by taking corporate minutes
• Research comparable venue rates to set fair rental prices
• Invoice your business and ensure it pays using proper documentation like checks and receipt
• Report the rental income on your personal tax return and deduct it as a business expense.

Proper planning and documentation are essential to qualify for this strategy. We will help you if this is something you are interested in!

10. Interest Expenses and Utilities

If you took out a loan or credit card to cover business expenses, the interest paid is deductible for tax purposes if you meet the following:

• You must be legally responsible for the debt (if your parents took out a mortgage for you and you are not legally responsible, you cannot deduct that interest)
• You and the lender intend for the debt to be repaid (A loan that does not need to be repaid is considered a gift)
• There must be a true debt/loan relationship between you and the lender

Additionally, if the loan has a business and personal portion, interest must be calculated separately according to their proportions.

Utility expenses paid for the business (Wi-Fi, electricity, gas, water, garbage, collection, etc.) are also deductible. It is important to make these payments from your business account and keep receipts.

11. Employee Salaries and Contract Labor

All money paid to employees and contractors is deductible for business tax purposes. However, it is important to properly record and document the amount.

For example, W-4 forms should be collected for employees and used to deduct W-2 payroll. You would also collect W-9 forms for contractors and issue a 1099 at the end of the year to deduct the cost of services to them.

If you paid more than $600 to the contractor during the tax year, you must send Form 1099-NEC by January 31 of the following year.

12. Advertising Expenses

All expenses incurred in advertising your business is deductible as business expenses. For example, the following expenses are eligible:

• Business cards and brochures
• Online advertising (Google, Social Media, etc.)
• Website development costs
• Event sponsorship costs
• Logo design costs

This will help you save taxes while growing your business! However, the expenses for lobbying and political activities are not deductible!

13. Business Insurance

All premiums for insurance necessary for business operations are deductible as an expense. The following types of insurance are eligible:

• Insurance for business property (furniture, equipment, building, etc.)
• General liability and professional, malpractice insurance
• Health, dental, and vision insurance for employees
• Automobile insurance for business vehicles, etc.

Life insurance for employees is deductible only if the company and manager are not beneficiary.

14. Repair and Maintenance Expenses

Repair and maintenance expenses for business buildings and equipment are deductible as expenses. Note, however, that “repairs” and “renovations” are treated differently for tax purposes.

Repair: Bring an asset back to normal condition. All amounts can be expensed. For example, cleaning and repairing floors.

Renovation: Increase the value of the asset. It can be expensed over multiple years as depreciation. For example, full replacement of flooring.

15. Tax Preparation Fees

Fees paid for tax professionals such as a CPA are fully deductible as a business expense. By hiring a professional, you have double benefits of

• Getting tax advice to help you find more tax savings
• The cost itself is also a tax deduction

Even if it costs a lot, the tax savings may be greater as a result. Letting a tax professional help you is one of the smartest investments you can make as a business owner!

Tax preparation is one of the most important risk management components of business operations. Tax rules are complex and often changed each year, which can be confusing. However, the right knowledge and a little preparation can make a big difference.

 

Make Your Business Smarter

Are you looking for professional support or need help with tax preparation?

Our experienced CPAs provide support from tax filing to tax planning. We are here to help you with any questions you may have, such as “I don’t know if I can deduct my expense,” or “How much can I deduct?”.  Please feel free to contact us with any questions!