Overlooked Tax Deductions for Small Businesses

Tax Deductions for Small Businesses

Small business owners often juggle multiple responsibilities, from managing clients to keeping cash flow steady. But one area that frequently gets ignored? Tax deductions. Missing eligible deductions can result in overpaying thousands of dollars in taxes. Here’s how to make sure you don’t leave money on the table.

IRC Sections and Forms to Know

• IRC §162 – Trade or business expenses must be ordinary and necessary to be deductible
• IRC §167 – Depreciation for tangible property
• IRC §199A – Qualified Business Income (QBI) deduction
• IRC §274 – Limits on entertainment and meals
• Form 4562 – Depreciation and amortization
• Schedule C (Form 1040) – Profit or loss from business (sole proprietorship)
• Form 8995 – QBI deduction

Commonly Overlooked Deductions

1. Home Office Deduction
   If you use a portion of your home exclusively and regularly for business, you may deduct:

• A portion of rent or mortgage interest
• Utilities and maintenance
• Internet and phone costs

2. Start-Up Costs
   You can deduct up to $5,000 of qualified startup expenses in the first year (IRC §195).
3. Vehicle Expenses
   Deduct mileage or actual car expenses (gas, repairs, insurance) for business use. Must maintain logs.
4. Business Subscriptions and Software
   Apps, SaaS tools, online publications used in business are deductible.
5. Meals (50% deduction)
   Business meals with clients or during business travel. Note: Entertainment is not deductible.
6. Professional Fees
   CPA, attorney, consultant, and even tax prep fees qualify under IRC §162.
7. Education and Training
   Courses that maintain or improve job skills can be deductible. This includes webinars, conferences, and certifications.
8. Bank and Payment Processing Fees
   Charges by PayPal, Stripe, or banks for business accounts are deductible.
9. Bad Debts
   You may deduct receivables you can no longer collect (if previously included in income).
10. QBI Deduction (IRC §199A)
    Up to 20% of qualified business income may be deducted for pass-through businesses.

Example: Freelancer Missing Deductions

Priya runs a freelance design business. In 2025, she earned $85,000 but forgot to deduct:

• $1,200 home office
• $2,000 software and subscriptions
• $3,000 in car mileage
• $1,800 in CPA fees

Total missed deductions = $8,000. At a 22% tax rate, she overpaid $1,760 in federal taxes.

Step-by-Step Guide to Maximize Deductions

1. Review Your Expenses Monthly
   Don’t wait until tax season. Use accounting tools to tag and track expenses.
2. Maintain Proper Documentation
   Receipts, mileage logs, invoices, and subscription proofs are essential.
3. Consult a CPA
   Many deductions require interpretation. A licensed tax professional ensures accuracy.
4. Use IRS Forms Correctly

• Use Schedule C for expenses
• Form 4562 for depreciation
• Form 8995 if eligible for QBI

5. Plan Ahead
   Some deductions (like Section 179 or bonus depreciation) require timely purchases or elections.

Conclusion

Tax deductions are one of the most effective ways to lower your tax liability. Small businesses must take a proactive approach to identifying and tracking deductions throughout the year. Every dollar saved in taxes is a dollar reinvested into growth.

Call to Action

Anshul Goyal, CPA EA FCA is a U.S.-licensed CPA, IRS-authorized Enrolled Agent, and cross-border tax strategist. He helps startups, freelancers, and global entrepreneurs minimize their tax burden with effective deduction strategies.

Disclaimer

This content is for educational purposes only and does not constitute financial advice. Always consult with a licensed tax professional for personalized guidance.

Top 5 FAQs

1. Can I deduct personal expenses used partially for business?
Yes, if you allocate and document the business-use portion.

2. Is the home office deduction a red flag?
No, if you qualify and document it properly, it’s a valid deduction.

3. What records should I keep for deductions?
Receipts, invoices, mileage logs, and digital records for all claimed items.

4. Are meals 100% deductible in 2025?
No, the temporary 100% rule expired; it’s back to 50% for business meals.

5. Do I need to itemize to claim business deductions?
No. Business deductions are claimed on Schedule C regardless of itemizing.

About Our CPA

Anshul Goyal, CPA EA FCA, is a licensed CPA in the U.S., Enrolled Agent, and Fellow Chartered Accountant. He brings over a decade of experience in business tax planning, IRS compliance, and financial strategy.