As a small business owner, you’re likely more focused on serving customers and growing your business than thinking about tax strategies. But here’s the truth: taking advantage of available tax deductions isn’t just smart financial planning—it’s money that stays in your pocket to reinvest in your business. For personalized recommendations to your specific business situation, please consult with a qualified tax professional.
Let’s explore seven ways you can reduce your tax burden in 2025 while keeping more of what you earn to fuel your business growth.
Vehicle Expenses
If you use your vehicle for business purposes (beyond commuting), you have two options for deducting these expenses:
Standard Mileage Rate:
- For 2025, deduct 70 cents per business mile
- Plus parking fees and tolls related to business trips
- Simple record-keeping: track business miles, dates, and purposes
Actual Expense Method:
- Track all costs: gas, maintenance, insurance, depreciation, etc.
- Calculate the percentage used for business
- Deduct that percentage of your total vehicle expenses
Pro tip: For new business owners, calculate your deduction both ways for the first year to see which provides the larger benefit. After choosing the actual expense method, you’ll generally need to stick with it for that vehicle.
A vehicle log is essential regardless of which method you choose. Consider a simple app that automatically tracks your drives.
Overlooked Business Expense Deductions
Beyond the major categories, don’t miss these frequently overlooked deductions:
Business Financing Costs:
- Interest on business loans and credit cards
- Merchant processing fees
- Finance charges on business purchases
Professional Services:
- Accounting and bookkeeping fees
- Legal expenses related to your business
- Business consulting services
Professional Development:
- Continuing education courses related to your current business
- Business books and subscriptions
- Professional conference registrations and related travel
Insurance Premiums:
- Business liability insurance
- Professional liability (errors and omissions) insurance
- Commercial property insurance
Business Subscriptions:
- Industry publications
- Software subscriptions and cloud services
- Professional membership dues
Marketing and Advertising:
- Website development and maintenance
- Business cards and promotional materials
- Digital advertising costs
Banking Fees:
- Monthly service charges on business accounts
- Check printing fees
- Safe deposit box fees (if used for business purposes)
Business Gifts:
- Up to $25 per recipient annually
- Must document the business purpose and recipient
Bad Debts:
- Uncollectible amounts from sales or services (accrual basis taxpayers only)
Remember: proper documentation is essential. Keep receipts and note the business purpose for each expense.
Home Office Deduction
If you regularly use part of your home exclusively for business, the home office deduction can offer significant tax savings. You have two calculation methods:
Simplified Method:
- $5 per square foot of home office space (up to 300 square feet)
- Maximum deduction: $1,500
- Minimal recordkeeping required
Regular Method:
- Calculate the percentage of your home used for business
- Apply that percentage to eligible home expenses
- May yield a larger deduction, especially for larger home offices or in areas with high housing costs
To qualify, your space must be:
- Used exclusively and regularly for business
- Your principal place of business OR where you regularly meet clients/customers
A dedicated room is ideal, but a clearly defined portion of a room can qualify if it’s used exclusively for business.
Immediate Write-Offs for Business Assets
Rather than gradually deducting the cost of business equipment over many years, you can potentially claim substantial immediate deductions:
Section 179 Deduction:
- Deduct up to $1,250,000 in qualifying equipment purchases for 2025
- Includes computers, office furniture, machinery, and certain improvements
- Dollar-for-dollar reduction in taxable income
Bonus Depreciation:
- For 2025, claim 60% bonus depreciation
- Applies to both new and used qualifying property
- Can be combined with Section 179 for maximum benefit
MACRS Depreciation:
- For assets where immediate expensing isn’t used
- Accelerated deduction schedule front-loads your tax benefits
These provisions make larger purchases more affordable when you factor in the tax savings. If you’ve been considering upgrading your equipment, these deductions might make it more financially feasible than you realized.
Qualified Business Income Deduction
One of the most significant tax benefits for small business owners is the Qualified Business Income (QBI) deduction, also known as the Section 199A deduction.
Who qualifies:
- Sole proprietorships
- Partnerships
- S corporations
- Limited Liability Companies (LLCs)
If your 2025 taxable income falls below $197,300 (single) or $394,600 (married filing jointly), you may be able to deduct up to 20% of your qualified business income—a substantial tax savings.
Example: If your qualified business income is $100,000, this deduction could reduce your taxable income by $20,000.
This deduction applies to “qualified business income,” which includes most ordinary business income, but excludes:
- Capital gains or losses
- Dividend income
- Interest income
- Income earned outside the U.S.
- Certain wages and guaranteed payments to partners and shareholders
Note: Higher-income business owners in specified service trades (like doctors, lawyers, or financial advisors) face additional limitations, but partial deductions may still be available.
Health Insurance Premiums
If you’re self-employed and pay for your own health insurance, you’re sitting on a significant tax advantage. Unlike employees who typically share premium costs with employers, you may be able to deduct 100% of your health insurance premiums—a substantial savings opportunity.
What qualifies:
- Medical, dental, vision, and long-term care insurance premiums
- Coverage for yourself, your spouse, and dependents under 26
- Medicare premiums for qualifying business owners
Key requirement: You can’t be eligible for coverage through your spouse’s employer plan. The deduction is also limited to your business’s net profit.
This adjustment directly reduces your adjusted gross income rather than being an itemized deduction, making it especially valuable.
Retirement Savings
Setting up a retirement plan delivers two powerful benefits: tax savings now and financial security later. As a small business owner, you have several attractive options:
Solo 401(k):
- Contribute up to $23,000 as an employee in 2025 (plus an additional $7,500 if you’re 50+)
- Add employer contributions up to 25% of compensation
- Total potential contribution: up to $69,000 for 2025 ($76,500 if 50+)
SEP IRA:
- Contribute up to 25% of your net self-employment income
- Maximum contribution: $69,000 for 2025
- Simple setup with minimal paperwork
SIMPLE IRA:
- Perfect for businesses with fewer than 100 employees
- Lower contribution limits but easier administration
- Allows employee participation with matching options
Don’t miss: You may also qualify for the Saver’s Credit worth up to $1,000 ($2,000 if married filing jointly) just for contributing to your retirement account.
Even modest monthly contributions can significantly reduce your taxable income while building your financial future.
Your Action Plan: Next Steps
- Start organizing now: Set up systems to track expenses consistently
- Schedule a mid-year tax review: Identify opportunities before year-end
- Learn about industry-specific deductions: Every business type has unique tax advantages
- Create a tax strategy calendar: Plan major purchases and year-end moves
- Consider accounting software: The right tools make compliance simpler
Remember, tax planning isn’t a once-a-year activity. Taking small steps throughout the year leads to significant savings at tax time and more resources to reinvest in your business’s growth.
For the most current information about business tax deductions, visit IRS.gov/businesses or consult with your trusted tax professional.
For advice tailored to your specific business situation, please consult with a qualified tax professional.
