Small Business Deductions
The Most Valuable Deductions
1. Home Office
If you use part of your home exclusively for business, you can deduct a percentage of rent, utilities, insurance, and repairs. The simplified method allows $5 per square foot, up to 300 square feet ($1,500 max).
2. Vehicle Expenses
Track every mile driven for business. The 2026 standard mileage rate is 70 cents per mile. Alternatively, deduct actual expenses (gas, maintenance, insurance, depreciation) proportional to business use.
3. Health Insurance
Self-employed individuals can deduct 100% of health insurance premiums for themselves, their spouse, and dependents. This is an above-the-line deduction, meaning you do not need to itemize.
4. Retirement Contributions
SEP-IRA contributions up to 25% of net self-employment income (max $69,000 for 2026) are deductible. Solo 401(k)s allow even higher contributions if you are over 50.
5. Professional Development
Courses, conferences, books, and certifications that improve your business skills are fully deductible. Subscriptions to industry publications and software also qualify.
Record-Keeping Rules
The IRS requires documentation for all deductions. For each expense, keep:
- Receipt or invoice
- Date of transaction
- Business purpose
- Amount
Use a dedicated business credit card and accounting software (QuickBooks, FreshBooks, or Wave) to automate record-keeping.
Frequently Asked Questions
Can I deduct my cell phone? Yes, proportional to business use. If 60% of your usage is business, deduct 60% of the bill.
Are meals deductible? Business meals are 50% deductible. Keep receipts and note the business purpose and attendees.
What about coffee and office snacks? 100% deductible if consumed at the office for employees. For solo operators, this is a gray area; consult your accountant.
The Bottom Line
The average small business owner overpays taxes by thousands of dollars annually due to missed deductions. Track every expense, categorize it properly, and hire a CPA if your situation is complex. The fee you pay them will be far less than the deductions they find.