Small Business Tax Deductions You Might Be Missing

Most Small Businesses Overpay Their Taxes

According to the National Small Business Association, the average small business spends over 80 hours and $15,000 per year on federal taxes. Yet many owners still miss legitimate deductions that could save them thousands. The problem is not dishonesty or laziness. It is that the tax code is vast, and business owners are busy running their businesses.

Here are 15 deductions that small business owners frequently overlook.

1. Startup Costs

If you launched a business in the past year, you can deduct up to $5,000 in startup costs and $5,000 in organizational costs in your first year. Startup costs include market research, advertising before opening, training employees, travel to scope out locations, and consultant fees. Amounts exceeding $5,000 are amortized over 15 years.

Many new business owners forget to track pre-launch expenses or assume they are not deductible until the business generates revenue. Start tracking from day one.

2. Business Insurance Premiums

All ordinary and necessary business insurance is deductible: general liability, professional liability (errors and omissions), product liability, commercial property, business interruption, cyber liability, and workers' compensation. If you operate from home, the business portion of your homeowners or renters insurance is also deductible through the home office deduction.

3. Retirement Plan Contributions and Credits

Contributions to employee retirement plans (SEP IRA, SIMPLE IRA, 401(k)) are deductible. But the overlooked benefit is the Retirement Plans Startup Costs Credit: small businesses with 50 or fewer employees can claim a credit of up to $5,000 per year for the first three years of a new retirement plan, plus an additional credit of $1,000 per employee (up to $5,000) for employer contributions.

This means setting up a retirement plan could generate up to $15,000 in credits over three years, on top of the deduction for contributions.

4. Vehicle Expenses Beyond Mileage

Most business owners know about the standard mileage deduction (70 cents per mile in 2025). But if you use the actual expense method, you can deduct gas, oil changes, tires, repairs, insurance, registration, depreciation, lease payments, and car washes proportional to business use. For expensive vehicles, the actual expense method often yields a larger deduction.

Also deductible: parking fees and tolls for business trips (on top of mileage deduction), and the cost of a vehicle wrap or signage advertising your business.

5. Professional Development and Education

Training courses, conferences, workshops, books, and professional certifications related to your current business are fully deductible. This includes online courses, industry conferences (plus travel), professional coaching, and subscriptions to trade publications. The key requirement: the education must maintain or improve skills required in your current business or be required by law to keep your professional status.

6. Bank and Payment Processing Fees

Monthly bank service charges, wire transfer fees, overdraft fees (for business accounts), credit card processing fees, PayPal or Stripe transaction fees, and the cost of business checks are all deductible. These small amounts add up to hundreds or thousands per year.

7. Bad Debts

If a client owes you money and you have exhausted reasonable collection efforts, you can deduct the unpaid amount as a bad debt. You must have previously included the amount in income (cash-basis taxpayers can only deduct amounts already recognized as income). Write off the debt in the year it becomes worthless and document your collection attempts.

8. Software and Digital Subscriptions

Every software subscription used for business is deductible: accounting software, project management tools, email marketing platforms, design software, cloud storage, website hosting, domain names, CRM systems, and AI tools like Taxation.ai. Do not forget to include the business portion of shared subscriptions (streaming music for a retail store, for example).

9. Business Gifts

You can deduct up to $25 per recipient per year for business gifts. This includes holiday gifts for clients, thank-you gifts for referral partners, and appreciation gifts for vendors. While the limit is low, it applies per person and can add up across many business relationships.

10. Taxes and Licenses

Deductible taxes include: state and local business taxes, employer's share of FICA, federal unemployment tax (FUTA), state unemployment tax, business license fees, permits, and regulatory fees. Property taxes on business-use assets are also deductible.

Self-employed individuals can deduct the employer-equivalent portion of self-employment tax (7.65% of net earnings) as an above-the-line deduction. See our self-employment tax guide for details.

11. Legal and Professional Services

Fees paid to accountants, tax preparers, lawyers, consultants, and other professionals for business purposes are deductible. This includes the cost of tax preparation for business returns, legal fees for contract review, consulting fees for business strategy, and bookkeeping services.

12. Moving Expenses for Business Equipment

If you relocate your business, the cost of moving equipment, inventory, and furnishings is deductible. This includes hiring movers, renting trucks, and packing supplies. While personal moving expenses are no longer deductible for most taxpayers, business moving costs remain fully deductible.

13. Health Insurance Premiums (Self-Employed)

Self-employed individuals can deduct 100% of health insurance premiums for themselves, their spouse, and their dependents. This is an above-the-line deduction, reducing your AGI. It covers medical, dental, vision, and long-term care insurance. You can also deduct Medicare premiums once you are enrolled.

This deduction is limited to your net self-employment income and is not available for months when you were eligible for employer-sponsored coverage (including through a spouse's employer).

14. Section 179 and Bonus Depreciation

Instead of depreciating equipment over several years, Section 179 lets you deduct the full cost of qualifying assets (up to $1,250,000 in 2025) in the year of purchase. This includes computers, office furniture, machinery, vehicles (with limitations), and software.

Bonus depreciation allows an additional 80% first-year deduction on qualifying new and used assets. Combined with Section 179, you can potentially deduct the entire cost of major purchases in year one. Use the salary tax calculator to model how a large equipment purchase affects your overall tax picture.

15. Qualified Business Income (QBI) Deduction

The QBI deduction allows owners of pass-through businesses (sole proprietorships, partnerships, S-corps) to deduct up to 20% of qualified business income. For 2025, the deduction phases out for service businesses above $191,950 (single) or $383,900 (married filing jointly).

Many small business owners either do not know about this deduction or assume they do not qualify. If your taxable income is below the threshold, you likely qualify for the full 20% deduction regardless of business type.

Building a Deduction Tracking System

The biggest reason deductions get missed is poor tracking. Implement these practices:

Use a dedicated business bank account and credit card. This separates business expenses from personal spending and creates an automatic paper trail.

Scan receipts immediately. Use your phone or an app to digitize receipts the day you receive them. Paper fades and gets lost.

Categorize weekly. Spend 15 minutes each week categorizing recent transactions. This is far easier than reconstructing a year's worth of expenses in March.

Review quarterly. Each quarter, review your expense categories against this list. Ask yourself: am I capturing everything?

Taxation.ai automates this entire process with AI-powered receipt scanning, automatic categorization, and real-time deduction tracking. Connect your business bank accounts and the platform identifies deductible expenses as they occur, ensuring nothing falls through the cracks. Read more in our business expense tracking guide.