Small Business Owner Guide: Common Tax Deductions to Take Advantage Of

by Ian C. Perry and Roman A. Basi – Basi, Basi & Associates | Published January 2025

 

 

Every year tax law changes. For business owners it is important to stay up to date with the latest rules and regulations in your industry. One of the biggest items that business owners rely on is tax deductions. These deductions can lower your taxable income and, therefore, reduce your tax liability. Some deductions have remained the same for ages while others have changed recently. We will discuss the most common tax deductions for business owners and the corresponding rules for the 2025 tax year.

Many small business owners are able to qualify for the Qualified Business Income (QBI) deduction. This allows eligible taxpayers to deduct up to 20 percent of their QBI, plus 20 percent  of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership income. QBI is the net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business, including income from partnerships, S corporations, sole proprietorships, and certain trusts. This generally includes the deductible part of self-employment tax, self-employed health insurance, and deductions or contributions to qualified retirement plans. A qualified trade or business is any section 162 trade or business, with the following three exceptions:

1. A trade or business conducted by a C corporation.

 

2. For taxpayers with taxable income that exceeds the threshold amount, specified services trades or businesses (SSTBs). An SSTB is a trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, financial services, investing and investment management, trading, dealing in certain assets, or any trade or business whose principal asset is the reputation or skill of one or more of its employees or owners.

 

For 2025, the threshold amount is $394,600 for a married couple filing a joint return, and $197,300 for all other taxpayers. The SSTB limitations don’t apply to taxpayers with taxable income at or below the threshold amount. Limitations are phased in for joint filers with taxable income between $394,600 and $494,600, and all other taxpayers with taxable income between $197,300 and $247,300. For later years, the threshold amounts and phase-in range will be adjusted for inflation.

 

3. Performing services as an employee.

Business meals are something that every business owner has run into. Whether it is taking a client out to eat or hosting a holiday party for the office, these business meals for employees and clients can be tax-deductible. There was a temporary 100 percent deduction for business meals in 2021 and 2022. Since 2023, the meal deduction has moved back to 50 percent for most situations. Some examples of meals and their deductions are as follows:

• Business meals with clients (50 percent)
• Office snacks and other food items (50 percent)
• The cost of meals while traveling for work (50 percent)
• Lunch out with less than half of the company employees (50 percent)
• Food for company holiday parties (100 percent)
• Food and beverages given out for free to the public (100 percent)
• Dinner for employees working late at the office (100 percent)

With a massive growth in working remotely, the home office deduction is being utilized now more than ever. Self-employed workers, contractors, freelancers, and telecommuters sometimes require a home office to conduct business duties. Business owners who use a home office for business may be able to deduct expenses tied to the creation and maintenance of the workplace. To qualify, the taxpayer must utilize part of the home “regularly and exclusively” for business. You can calculate the deduction two different ways: actual expenses or the simplified method. You may also deduct expenses that are indirect or direct. Indirect expenses must be deducted based on the portion of the home being used as a home office. Some examples of these include utility bills, general repairs, and homeowner’s insurance. Examples of direct expenses may include designated phone lines, paint, and long-distance calls.

For a vehicle that is used strictly for business purposes, any costs associated with that vehicle are tax-deductible under certain circumstances. You can deduct 100 percent of the costs of a business vehicle that is a car, SUV, pickup truck, or van. It is important to keep records, and if the vehicle happens to be used for both business and personal use, the costs must be split based upon actual mileage. Some examples of deductions can include insurance, maintenance/repair costs, registration fees, and toll/parking fees.

Finally, let’s take a look at advertising and marketing costs. In the eyes of the federal government, small business advertising and marketing efforts qualify as fully tax deductible. This is only applicable if the actual expenses are considered ordinary, reasonable, and necessary. One hundred percent of eligible costs are deductible. Some examples include influencer marketing, TV and newspaper advertising costs, and the cost of producing advertising materials such as business cards, flyers, etc.

Being a small business owner does not have to be complicated. The professionals at The Center have decades of experience in helping small business owners meet their goals. Feel free to reach out to us via email at info@taxplanning.com, call us at 618-997-3436, or visiting our website at taxplanning.com for more information.