Most small business owners know about the obvious deductions—office supplies, software subscriptions, professional services. But after reviewing hundreds of returns, I consistently see legitimate deductions missed. Here’s what to look for.
The Home Office Deduction
The home office deduction is simultaneously overused incorrectly and underused legitimately. Let’s clarify both.
What Qualifies
You can deduct home office expenses if you use a portion of your home:
- Regularly and exclusively for business
- As your principal place of business OR
- A place where you regularly meet clients
“Exclusively” is key. The dining table where you sometimes work doesn’t qualify. A dedicated room or defined space that’s only used for business does.
Calculation Methods
Simplified Method: $5 per square foot, up to 300 square feet. Maximum deduction: $1,500.
Regular Method: Calculate actual expenses (mortgage/rent, utilities, insurance, repairs) proportional to business square footage.
For a home office that’s 200 square feet in a 2,000 square foot home (10%):
| Expense | Annual Cost | Deductible (10%) |
|---|---|---|
| Rent | $24,000 | $2,400 |
| Utilities | $3,600 | $360 |
| Internet | $1,200 | $120 |
| Renters Insurance | $300 | $30 |
| Total | $2,910 |
The simplified method would yield $1,000 (200 × $5). Regular method wins here.
What Most People Miss
Repairs and maintenance: Proportional share of home repairs. New roof? New HVAC? Percentage is deductible.
Depreciation: If you own your home, you can depreciate the business-use portion. This is valuable but has recapture implications when you sell—consult a tax professional.
Indirect expenses: Alarm system, lawn care (if you meet clients at home), HOA fees—all partially deductible.
Vehicle Expenses
If you use your car for business, you have two options:
Standard Mileage Rate (2026: 70 cents/mile)
Track business miles, multiply by the rate. Simple. The IRS announces this rate annually—check for updates in January.
What counts as business miles:
- Driving to client sites
- Running business errands
- Travel between business locations
What doesn’t count:
- Commuting from home to your regular office
- Personal errands combined with business trips
Actual Expense Method
Track all vehicle costs and deduct the business-use percentage:
- Gas and oil
- Repairs and maintenance
- Insurance
- Registration fees
- Depreciation
- Lease payments
This method often yields higher deductions for expensive or newer vehicles but requires detailed record-keeping.
The Common Mistake
Most people dramatically undercount business miles. Every trip to the post office, office supply store, bank, client meeting—it adds up.
Use a mileage tracking app (MileIQ, Stride, Everlance). Manual logs are unreliable. At the current mileage rate, 10,000 business miles yields a $7,000 deduction—real money most people undercount.
Health Insurance (Self-Employed)
If you’re self-employed and pay for your own health insurance, the premiums are 100% deductible. This includes:
- Medical, dental, and vision premiums
- Coverage for yourself, spouse, and dependents
- Long-term care insurance (with age-based limits)
This is an above-the-line deduction—you get it even if you don’t itemize.
What’s Often Missed
Medicare premiums: Once you’re on Medicare, those premiums are deductible too.
Premiums paid for adult children: Under 27, covered under your plan? Those premiums are deductible.
HSA contributions: Not insurance, but often overlooked. If you have a high-deductible plan, max your HSA: $4,300 individual, $8,750 family for 2026. Triple tax advantage—deductible going in, grows tax-free, tax-free withdrawals for medical expenses.
Retirement Contributions
Retirement contributions are the highest-impact deduction for most profitable small businesses.
SEP-IRA
Contribute up to 25% of net self-employment income, maximum $70,000 for 2026.
Key advantage: Can be funded up to tax filing deadline (including extensions). You can wait until you know exact income, then contribute. This flexibility is unmatched by other retirement vehicles.
Solo 401(k)
More flexible than SEP-IRA:
- Employee contribution: Up to $23,500 (plus $7,500 catch-up if 50+)
- Employer contribution: Up to 25% of compensation
- Combined maximum: $70,000 (plus catch-up contributions)
If you can save more than 25% of income, Solo 401(k) beats SEP-IRA. Also allows Roth contributions, loans against your balance, and mega backdoor Roth strategies for high earners.
The Retirement Math
For a business owner with $150,000 net profit:
| Account Type | Max Contribution | Tax Savings (32% bracket) |
|---|---|---|
| SEP-IRA | $37,500 | $12,000 |
| Solo 401(k) | $70,000* | $22,400 |
*Assumes optimal split between employee/employer contributions and sufficient earned income.
These are real dollars saved while building wealth. At high income levels, retirement contributions provide better ROI than almost any other tax strategy. Don’t leave them on the table.
Business Education and Professional Development
Education that maintains or improves skills for your current business is deductible:
- Conferences and seminars
- Online courses and certifications
- Books and subscriptions
- Professional association dues
- Industry publications
The Nuance
Education for a new career isn’t deductible. A programmer taking tax courses to become a CPA? Not deductible. The same programmer taking advanced programming courses? Deductible.
What’s Commonly Missed
- Audiobooks and podcasts (business-related)
- Online subscriptions (LinkedIn Learning, Masterclass for relevant topics)
- Travel to conferences (including meals and lodging)
Startup Costs
Starting a new business? You can immediately deduct up to $5,000 of startup costs, with the remainder amortized over 15 years.
Startup costs include:
- Market research
- Advertising before opening
- Training employees before operations begin
- Consultant and professional fees
- Travel to establish suppliers or customers
If these were incurred before officially opening for business, they’re startup costs—and frequently forgotten.
Business Use of Personal Assets
Many business owners use personal property for business without tracking it:
- Cell phone: What percentage is business use? That portion of your monthly bill is deductible.
- Computer: Used for both? Pro-rate accordingly.
- Internet: Home internet supporting your home office is partially deductible.
Even for S-Corps where you’re an employee, you can potentially maintain an accountable plan for unreimbursed business expenses.
Business Meals
The rules changed with Tax Cuts and Jobs Act, but meals are still partially deductible:
- Business meals with clients: 50% deductible
- Employee meals for convenience: 50% deductible
- Food and beverages from restaurants (2021-2022): Was 100%, now back to 50%
Documentation required:
- Date and place
- Business purpose
- Names and relationships of attendees
- Amount spent
Keep receipts. Note the business purpose. This is audit-magnet territory without proper documentation.
The Tracking Imperative
Every deduction requires documentation. Without records, deductions evaporate in an audit.
Minimum documentation:
- Receipts for all business purchases
- Mileage log (app-based is best)
- Calendar showing client meetings and business activities
- Bank and credit card statements from dedicated business accounts
The best time to set up tracking systems was when you started your business. The second best time is now.
Working With Professionals
This article covers common deductions, but tax law is complex and situation-specific. Worth the investment:
- Annual tax planning meeting: Mid-year, before year-end, to optimize deductions
- Entity structure review: Are you in the right business structure?
- State-specific guidance: State rules vary significantly
A good CPA costs money but typically saves more than their fee. The deductions you’re missing probably exceed their bill.