Small Business Tax Deductions: What You Can Write Off in 2025

Business Taxes · BUSINESS TAXES

From home offices to health insurance, small business owners have dozens of deductions available. Here's a practical guide to what you can write off — and what to watch out for.

Running a small business means tracking every dollar twice — once for your books and once for your taxes. The IRS allows deductions for ordinary and necessary business expenses, but knowing which expenses qualify, when to claim them, and how to document them properly is the difference between a refund and an audit flag. This guide covers the most valuable deductions available to small business owners in 2025.

The 'Ordinary and Necessary' Standard

Every business deduction must pass a two-part test: the expense must be ordinary (common and accepted in your industry) and necessary (helpful and appropriate for your business). You don't have to prove the expense was absolutely required — just that it made sense for your business. Keep records for everything. A $40 business lunch with no receipt and no note about who attended and what was discussed is a deduction waiting to fail an audit.

The Biggest Deductions for Small Business Owners

• Vehicle expenses — actual costs (gas, insurance, repairs, depreciation) or the IRS standard mileage rate (70 cents per mile in 2025). You must pick one method and keep a mileage log.
• Home office — if you use a portion of your home exclusively and regularly for business, you can deduct a proportional share of rent/mortgage interest, utilities, insurance, and repairs. The simplified method allows $5 per square foot (up to 300 sq ft).
• Health insurance premiums — self-employed individuals can deduct 100% of health insurance premiums paid for themselves, their spouse, and dependents.
• Retirement plan contributions — SEP-IRA contributions up to 25% of net self-employment income (max $70,000 for 2025); SIMPLE IRA or Solo 401(k) also available.
• Business equipment and software — fully deductible in year of purchase under Section 179 or 100% bonus depreciation (restored by OBBBA).
• Business meals — 50% deductible when discussing business with a client, customer, or prospect. Document who attended and what was discussed.

Start-Up Costs

If you started your business in 2025, you can deduct up to $5,000 in start-up costs in your first year, with the remainder amortized over 15 years. Start-up costs include market research, advertising before opening, training employees, and professional fees paid before you opened. Costs for buying an existing business are treated separately under §197.

What You Cannot Deduct

Personal expenses disguised as business expenses are the #1 audit risk for small businesses. The IRS knows the patterns: lavish meals, family vacations labeled as business travel, and personal vehicles 100% expensed when they're also driven personally. Mixed-use expenses must be allocated between personal and business use. Also non-deductible: federal income taxes, political contributions, fines and penalties, and life insurance premiums where your business is the beneficiary.

Audit-Proofing Your Deductions

Good recordkeeping is your best defense. For every deduction:
• Keep receipts and invoices
• Note the business purpose in writing at the time of the expense
• For vehicles, maintain a contemporaneous mileage log
• For meals, record who attended and what was discussed
• Keep bank statements that match your records
Digital receipt apps (Expensify, QuickBooks, etc.) make this much easier. The IRS requires records to be kept for at least three years from the filing date — longer if you've substantially underreported income.

Frequently Asked Questions

Can I deduct my cell phone as a business expense?

Yes, but only the business-use percentage. If you use your phone 70% for business and 30% personally, you can deduct 70% of the bill. Keep a log or estimate reasonably — the IRS expects mixed-use items to be allocated.

Do I need an LLC to deduct business expenses?

No. Sole proprietors filing Schedule C can claim all the same deductions as an LLC. Your business structure does not determine your deduction eligibility — your business activity does.

Can I deduct expenses for a business that hasn't made money yet?

Yes, as long as you are genuinely operating a business with a profit motive. If the IRS decides your activity is a hobby (no profit in 3 of 5 years is a red flag), deductions become limited. Intent and documentation matter.

Is Section 179 better than bonus depreciation?

It depends. Section 179 is limited to your business's taxable income (you can't create a loss), while bonus depreciation can create a net operating loss that carries forward. For most small businesses, they work together — Section 179 first, bonus depreciation for the remainder.

What's the standard mileage rate for 2025?

70 cents per mile for business miles driven in 2025. You must choose between the standard mileage rate and actual expenses at the start of the year (or when you place the vehicle in service). You cannot switch methods mid-year.