25 Essential Small Business Tax Deductions You're Probably Missing

Many small business owners just accept their tax bill—but you don’t have to.

Chances are, you’re missing out on thousands of dollars in deductions simply because you're focused on running the business. Even better news: The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, has made some significant pro-business tax benefits permanent and expanded others, creating even more opportunities for savings.

Forget the 75,000 pages of tax code. Here’s what actually matters: Every dollar you deduct is a dollar you don’t pay taxes on. If you’re in the 25% bracket, a $1,000 deduction means $250 back in your pocket. That adds up—fast—once you know what to look for.

The Big Picture: Why These Deductions Matter

Sarah runs a $400,000 consulting business. She thought she was doing fine—claiming the basics like rent, insurance, and computer gear. But when she hired a tax pro, they uncovered $18,000 in missed deductions. With a 32% tax rate, that turned into $5,760 in real savings.

Here’s the part many business owners miss: the IRS allows you to deduct any expense that's "ordinary and necessary" for your business. That’s broader than it sounds—and it’s money you’re legally entitled to keep.

Vehicle and Travel Expenses

1. Business Mileage

For 2025, the IRS lets you deduct 70 cents per mile for business driving—that’s up from 67 cents in 2024. Drive 100 business miles a week? That’s $3,640 in annual deductions.

What counts: Client meetings, supply runs, bank trips, networking events, conferences — basically anything business-related that isn’t your regular commute.

The catch: You need a mileage log. Just record the date, destination, miles, and business purpose—apps like MileIQ or a simple spreadsheet work just fine.

Heads-up: Claiming commuting miles is a common audit trigger. Stick to clearly business-related trips to stay on the safe side.

2. Business Travel 

Traveling for work? You can deduct the full cost of flights, hotels, rental cars, and 50% of meals—as long as the primary purpose is business.

That means your trip to a conference, client site, or training event? It's all deductible—even if you tack on a personal day or two (just separate out personal expenses).

Pro tip: Save receipts and keep a brief note about the business reason for the trip.

3. Local Transportation

Rideshares, parking, tolls—if it gets you from one business activity to another, it’s deductible.

Whether it’s an Uber to a client meeting, bus to a co-working space, or train to a pitch, keep the receipts and record the purpose. It all counts.

Note: The cost of an employee’s daily commute is generally not deductible unless it’s included in their taxable wages. Commuting is considered a personal expense under IRS rules.

Home Office Deductions

4. Home Office Space

If you use part of your home regularly and exclusively for business, you can deduct a portion of your housing costs.

The simplified method gives you $5 per square foot, up to 300 square feet—maxing out at $1,500 with minimal record-keeping.

What's allowed: A dedicated desk area in your bedroom? Yes. Your kitchen table you sometimes work from? Not so much.

5. Home Office Utilities

If your home office takes up 10% of your home, you can deduct 10% of your electricity, internet, heating, and even water bills.

Bonus: The business portion of your cell phone is also deductible—just be reasonable and consistent in your allocation.

Equipment and Technology

6. Computer and Software

Laptops, monitors, design tools, accounting software—if it’s used for your business, it’s deductible.

Under Section 179, you can usually deduct the full cost in the year you buy it, instead of depreciating it over time. Thanks to the OBBBA, the maximum Section 179 deduction limit has significantly increased to $2.5 million for 2025, with the phase-out threshold beginning at $4 million in total purchases (these amounts will be adjusted for inflation in future years).

This makes it easier than ever to invest in the tools your business needs—without waiting years for a write-off.

7. Business Equipment

Tools, machinery, office furniture—if it helps you run your business, you can write it off.

And here’s the good news: OBBBA permanently reinstated 100% bonus depreciation for eligible property acquired and placed in service after January 19, 2025. That means you can deduct the full cost of eligible equipment in the year you place it in service—a significant boost as it was previously scheduled to phase down. No more phase-outs, no more waiting.

8. Office Supplies

It all adds up: pens, paper, printer ink, sticky notes, postage. If it’s an ordinary business purchase, it’s fully deductible in the year you buy it.

Professional Services and Education

9. Professional Development

Online courses, industry conferences, certifications, workshops—if it helps you run your business better, it’s deductible. That $2,000 marketing course? A legitimate business expense.Note that professional development expenses are only deductible if they maintain or improve skills for your current business—not for a new profession.

10. Professional Memberships

Dues for industry associations, chambers of commerce, and required professional licenses are deductible—as long as the membership is directly related to your business.

Heads-up: Fees for social clubs (like golf, athletic, or airline lounges) aren’t deductible, even if you network there. Stick to memberships that support your trade or profession.

11. Legal and Professional Fees

Accountants, attorneys, bookkeepers, consultants—if you pay for their expertise, it’s deductible. That includes help with:

• Tax prep

• Legal structure or contracts

• HR, payroll, or tech systems

Even one-off consulting fees count—just keep an invoice and note the business purpose.

Marketing and Advertising

12. Website Costs

Your website is your digital storefront—and it’s fully deductible. That includes domain registration, hosting fees, design, copywriting, and ongoing maintenance.

13. Advertising Expenses

Whether you’re running Google or Facebook ads, printing flyers, or making business cards—if it promotes your business, it’s deductible. Online or offline, brand awareness or lead gen—it all counts.

Attending business networking events, conferences, or promotional meetups? The ticket cost is deductible.

Heads-up on meals and entertainment:

• Meals are typically 50% deductible—but only if they’re billed separately and tied to a business discussion where you or an employee is present.

• Entertainment itself—like sports tickets, concerts, or golf outings—is not deductible, even if business is discussed.

Business Operations

15. Business Insurance

Premiums for general liability, professional liability, workers’ comp, and property insurance are fully deductible. If it protects your business, it likely qualifies.

16. Business Phone

Use your phone for work? You can deduct the business-use percentage of your bill.

For example, if you use your phone 60% for business, you can deduct 60% of your monthly cost—just be consistent with how you calculate it.

17. Bank Fees

Monthly fees, wire transfer charges, transaction fees, even check printing costs—if it’s tied to your business bank or credit accounts, it’s deductible.

18. Business Loans Interest

Interest paid on business loans, credit cards, or lines of credit is fully deductible—as long as the funds were used for business purposes.

Tip: Keep records showing how the borrowed money was used in case the IRS asks.

Employment-Related Deductions

19. Employee Wages and Benefits

Wages, bonuses, commissions, health insurance, and retirement plan contributions for your employees are fully deductible. That includes:

• Employer-paid health premiums

• Matching 401(k) contributions

• Paid family and medical leave (with a separate tax credit available—see below)

Note: If you're a sole proprietor, your own salary isn’t deductible, but your employee payroll expenses are.

2025 update: Under the OBBBA, the Paid Family and Medical Leave Credit is now permanent, and starting in tax years beginning after December 31, 2025, it can also apply to insurance premiums you provide, not just direct wages. This offers even more incentive to support your team—and write it off.

20. Independent Contractors

Payments to freelancers, consultants, or other non-employees are fully deductible if the work is business-related.

For now, you’ll need to issue a 1099-NEC for payments of $600 or more. But starting in 2026, that threshold rises to $2,000—a welcome simplification for small businesses.

Also worth noting: The IRS rolled back the 1099-K reporting threshold to $20,000 and 200 transactions, but if you’re hiring contractors, you’ll mostly deal with 1099-NEC or 1099-MISC.

Special Situations

21. Business Meals

Meals with clients or business associates are generally 50% deductible, as long as:

• You (or an employee) are present

• The meal isn’t lavish or excessive

• It’s directly related to business

Important: Entertainment expenses (like shows or sports events) aren’t deductible—even if business is discussed.

Also: Starting in 2026, everyday office snacks and meals provided on-site to employees will no longer be deductible under the new tax law.

Tip: Keep receipts and jot down who attended and why—it’s one of the most commonly scrutinized deductions.

22. Startup Costs

Launching a business in 2025? You can deduct up to $5,000 in startup costs in your first year. That includes:

• Market research

• Branding and advertising

• Legal or professional fees incurred before you officially open your doors

If your startup expenses exceed $50,000, the deduction phases out—so plan accordingly.

Bonus read: R&D Tax Credits for Startups: Complete 2025 Guide

23. Qualified Business Income (QBI) Deduction

If you're a sole proprietor, S corp shareholder, or partner, you may be eligible to deduct up to 20% of your qualified business income—even though it’s not a direct expense. Starting in 2025, OBBBA makes this deduction permanent and adds a new floor: for those who materially participate in the business and have at least $1,000 in qualified business income (QBI), a minimum QBI deduction of $400 is now guaranteed, indexed for inflation starting in 2026.

So if your business nets $100,000, this deduction could reduce your taxable income by as much as $20,000.

24. Research and Development Expenses

If your business works on new products, software, or processes, don’t skip this one.

Starting in 2025, the tax law once again allows you to fully deduct U.S.-based research and development (R&D) costs in the year you incur them. This includes expenses for product development, prototyping, and process improvement—especially relevant for software, manufacturing, and medical technology businesses.

You may also qualify for the federal R&D tax credit, which can offset income tax or payroll tax, depending on your situation. Many startups miss this entirely.

If you're doing anything innovative—even just improving existing systems—talk to a tax pro to make sure you're not leaving this one on the table.

25. Employer-Provided Childcare Credit

Supporting your employees’ childcare needs can also lead to a major tax break.

Under the OBBBA, the Employer-Provided Childcare Credit is now permanent—and significantly more generous for small businesses. If you offer onsite childcare, contract with third-party providers, or help employees find care through referral services, you may qualify.

Effective for amounts paid or incurred after December 31, 2025 (i.e., beginning in 2026):

• Eligible small businesses (generally, those with gross receipts of $25 million or less over the preceding 5 years) can claim a credit equal to 50% of qualified childcare expenses, up to $600,000 per year

• Other employers can claim 40%, with a cap of $500,000 per year

• The benefit must be made available to employees, not just owners

• Credit limits will be adjusted for inflation starting in 2027

This is a dollar-for-dollar credit, not just a deduction—making it one of the most powerful tax incentives available to employers investing in family-friendly benefits. Many businesses previously overlooked this credit due to lower caps; now, it's a game-changer.

What You Need to Do Next

Getting these deductions right takes more than saving receipts—it takes good systems and smart planning. Here’s your action plan:

This week: Review last year’s expenses. Categorize them. You’ll likely spot deductions you missed—or didn’t even know you could claim.

Going forward: Set up a way to track expenses consistently. Whether it’s QuickBooks, an app, or a simple spreadsheet—the best system is the one you’ll actually use.

Consider professional help: Tax laws change (hello, 2025), and what's deductible for one business may not apply to another. A tax pro who understands small business can often find savings that cover their fee—and then some.

At Town, we combine experienced CPAs with AI to help small businesses uncover every deduction they’re entitled to. We don’t just file your taxes—we help you plan smarter, all year long.

No surprises. No last-minute stress. Just more money staying in the business you built.

Important Disclaimers

Tax laws are complex and frequently change. This article is for general informational purposes only and is not personalized tax advice.

Every business is different. What qualifies as a deduction for one company might not apply to another. The IRS has specific rules for each type of expense, and claiming deductions you’re not entitled to can result in penalties or interest.

While we’ve made every effort to ensure accuracy, this guidance is based on federal tax law as of 2025. State and local rules may differ.

Bottom line: the goal isn’t to push the limits—it’s to claim every deduction you’re legally entitled to, with the right documentation in place. A qualified tax professional can help you do that with confidence.