Did you know that small businesses contribute 43.5% of America’s GDP and employ nearly half of the US workforce, according to the US Chamber of Commerce? Yet, many small business owners leave thousands of dollars on the table by not maximizing their tax deductions.
If you’re looking for tax-saving tips for small businesses and want to know how to claim business deductions, this guide is for you. In this article, learn the 2025 small business tax deductions you can take advantage of, helping you keep more of your hard-earned money.
What Are Small Business Tax Deductions and How Do They Work?
Small business tax deductions lower your tax liability by reducing the portion of business income subject to income tax. These deductions help you save money during the 2025 tax season by allowing you to write off business expenses that are necessary for your business and directly tied to your business activities.
What qualifies as a business expense?
To be tax-deductible, an expense must be:
- Ordinary – Common within your trade or business (e.g., office supplies, advertising, or equipment).
- Necessary – Helpful for business operations and contributing to business growth (e.g., marketing costs, accounting services, or software).
Examples of Tax Deductions Available for Small Business Owners:
- Business meals – Partially deductible when meeting clients.
- Business travel expenses – Flights, hotels, rental cars, and meals from a business trip.
- Business insurance – Coverage that protects your company (liability, property, workers’ compensation).
- Home office – If used exclusively for business, a portion of your home expenses can be deducted.
- Business vehicles – Standard mileage or actual business use expenses (fuel, maintenance).
- Tax preparation – The cost of hiring a small business CPA or tax software.
Not deductible: Personal expenses, commuting costs, and anything not directly related to your business.
What tax forms do small business owners need?
Your business structure determines the required tax forms:
- Sole proprietors & single-member LLCs use Schedule C (Form 1040) – Reports business income and expenses.
- Partnerships & multi-member LLCs use Form 1065 – Partners receive a Schedule K-1 for their share of earnings.
- Corporations use Form 1120 (C-Corp) or 1120-S (S-Corp) – Reports corporate earnings, tax credits, and deductions for small business owners.
Tip: If you’re self-employed, you’ll also need to pay self-employment tax on your earnings.
Further Reading: Discover essential insights for small business owners
Top 2025 Small Business Tax Deductions You Need to Claim
1. Can You Deduct Business Meals and Entertainment?
Yes, but you can’t deduct every meal. The IRS has strict rules on what qualifies as a business expense.
What qualifies as a deductible business meal?
- 50% deductible: Meals with clients or business partners when business purposes are discussed.
- 100% deductible: Office snacks, coffee, and team meals for employees.
Not deductible: Everyday meals, unless they are part of business travel expenses.
What records should you keep?
To claim small business tax deductions, the IRS requires:
- Receipts showing the meal’s cost.
- Names & business relationships of attendees.
- Date, location, and purpose of the meal.
Using an expense-tracking app can simplify tax preparation and help you lower your tax liability.
2. How Do You Claim a Home Office Deduction?
If you use a portion of your home exclusively for business, you may qualify for this deduction.
Who qualifies for a home office deduction?
Your workspace must be:
- Regularly and exclusively for business (not your dining table).
- Your primary place of business (where major business activities happen).
How do you calculate your home office deduction?
Two methods:
- Simplified method: Deduct $5 per square foot, up to 300 sq. ft.
- Actual expenses method: Deducts a portion of your home expenses, including:
- Rent or mortgage interest
- Utilities (electricity, internet, water)
- Repairs and maintenance
Example: If your home office is 10% of your home, you can deduct 10% of your home expenses.
Tip: Keep utility bills and receipts for substantial tax savings at tax time.
3. What Business Vehicle Expenses Are Tax-Deductible?
If you use a vehicle for business purposes, you can deduct business travel expenses.
Which vehicle expenses can you deduct?
- Fuel and standard mileage (IRS rate: $0.67 per mile in 2025).
- Repairs and maintenance.
- Insurance and registration fees.
- Lease payments (if leased for business).
Should you use standard mileage or actual expenses?
- Using the standard mileage rate is simpler, especially if you drive a lot for business.
- Actual expenses can provide bigger tax savings if you have high business use costs.
Example: If you drove 10,000 business miles, you’d deduct $6,700 using the standard mileage method.
Tip: Keep a mileage log to prove business use for the IRS.
4. Can You Deduct Business Insurance and Legal Fees?
Which types of business insurance are deductible?
The IRS allows you to deduct the cost of business insurance, including:
- General liability insurance – Protects against lawsuits.
- Professional liability insurance – Covers negligence claims.
- Workers' compensation – Required if your business pays employees.
- Commercial property insurance – Covers office space, inventory, and equipment.
Even if you work from home, a portion of your home insurance can be deductible if used for business.
Are legal and professional fees deductible?
Yes! You can deduct:
- Attorney fees for contracts, compliance, and lawsuits.
- Accounting and tax preparation services.
- Business loan or business credit consultation fees.
Not deductible: Personal legal fees (e.g., divorce, estate planning).
Further Reading: What are the risks of neglecting bookkeeping for small businesses?
How to Maximize Your Small Business Tax Deductions
How should you track your business expenses?
- Use accounting software (QuickBooks) to track tax deductions for small business.
- Keep all tax forms, invoices, and receipts organized.
- Open a business bank account to separate business income from personal funds.
What are the common mistakes small business owners make?
- Mixing personal and business expenses – The IRS may deny deductions.
- Forgetting small deductions – Office supplies, software, and subscriptions add up.
- Skipping tax planning – A tax expert or small business CPA can help optimize tax deductions to maximize savings.
The Tax Cuts and Jobs Act allows a qualified business income deduction, which could mean lower tax liability for pass-through businesses like sole proprietorships and LLCs.
Further Reading: Learn strategies to cut costs and uncover hidden tax write-offs
Key Takeaways
- Maximize Your Tax Write-Offs—In the 2025 tax year, reduce your tax bill by claiming every tax deduction and credit for small businesses.
- Know What Qualifies – Expenses like business meals, home office, and insurance can be tax write-offs—but only if used to run your business.
- Choose the Right Filing Method—To get the biggest tax return, decide between the standard deduction and itemized deductions.
- Stay IRS-Compliant – Keep receipts and track expenses to meet your tax obligations and take the deduction without issues.
- Plan for Tax Season – Work with a small business CPA to file correctly, maximize savings, and avoid surprises on your tax bill.
How can Taxfyle help?
Finding an accountant to manage your bookkeeping and file taxes is a big decision. Luckily, you don't have to handle the search on your own.
At Taxfyle, we connect small businesses with licensed, experienced CPAs or EAs in the US. We handle the hard part of finding the right tax professional by matching you with a Pro who has the right experience to meet your unique needs and will manage your bookkeeping and file taxes for you.
