Running your own small business requires smart tax planning. There are several deductions for small businesses in 2025, but rules change, so staying up-to-date is critical. 

 

What Does “Deductible” Mean in 2025?

A deductible business expense lowers your taxable income if it is ordinary (common in your trade) and necessary (helpful and appropriate for your business). Maintaining good records such as receipts, invoices, mileage logs is important to validate those deductions.

 

Key Deductible Categories for Small Businesses

• Operating Expenses: These are your day-to-day costs, like rent, utilities, office supplies, marketing, insurance, and professional services (bookkeepers, lawyers, etc.). These costs are generally fully deductible if they’re for business.
• Home Office: If you're using part of your home regularly and exclusively as your business base, you may qualify for a home-office deduction. You can choose between: Simplified method: $5 per square foot, up to 300 sq ft (maximum $1,500) and the Regular method: Deduct actual business-portion of expenses (mortgage interest, utilities, property taxes, etc.) Always keep documentation of how you calculated the business-use percentage.
• Vehicle & Mileage: For 2025, the IRS optional standard business mileage rate is 70 cents per mile for business driving. Alternatively, you can deduct actual vehicle expenses (fuel, maintenance, depreciation) proportionate to business use. It's important to note that if you use the standard mileage rate in the first year of a vehicle’s business use, you may be limited in future years if you switch to actual costs.
• Equipment & Depreciation: In 2025, Section 179 allows businesses to immediately expense up to $1,250,000 of qualifying property. The phase-out threshold begins at $3,130,000 of total qualifying property placed in service in that year. Bonus depreciation is currently at 100% for 2025, meaning you may be able to depreciate (i.e., deduct) the full cost of qualifying property in the first year, after Section 179, subject to rules. Business use must be more than 50% to qualify. 
• Payroll Expenses: Wages and salaries paid to employees, payroll taxes, and employer-paid benefits can generally be deducted. If you hire independent contractors, payments of $600 or more typically require issuing a Form 1099-NEC.
• Interest, Insurance & Professional Fees: Interest on business loans (for working capital, equipment, etc.) is generally deductible. Business insurance (liability, property, etc.) premiums are deductible. Fees paid to accountants, lawyers, consultants, and other professionals for business services can also be written off.
• Business Meals: Generally, 50% of business meal costs are deductible if they meet IRS rules: business purpose, who attended, and documentation. Make sure to note the business reason and keep receipts (and any relevant calendar or meeting notes).
• Retirement Plan Contributions: Setting up a retirement plan for yourself and employees not only helps save for the future, but contributions are often tax-deductible.
• Education & Training: Costs for business-related education, training, or continuing professional education (CPE) may be deductible if they maintain or improve skills required in your business.

 

Recordkeeping Tips

• Use accounting software (QuickBooks, Xero, etc.) to separate business vs. personal transactions.
• Keep digital or physical receipts and invoices, and link these to your accounting system.
• Maintain a mileage log (or use a mileage-tracking app) that records date, purpose, starting point, destination, and miles driven.
• Document business purpose for meals, travel, and large purchases.
• Review your financials with a tax advisor to ensure you are capturing all possible deductions.

 

Pitfalls & Common Mistakes to Avoid

• Mixing personal and business expenses: using separate bank accounts and credit cards is more than good practice, it’s essential.
• Failing to document business use: no matter how obvious an expense seems, if it’s not documented, it may not pass IRS scrutiny.
• Misclassifying workers: incorrectly labeling an employee as an independent contractor can lead to back payroll taxes and penalties.
• Overestimating deductions: not every “business-like” expense is deductible; it must be ordinary and necessary.

 

Year-End Strategies to Maximize Deductions

• Consider prepaying deductible expenses (insurance, subscriptions, rent) if doing so makes sense for your cash flow.
• Evaluate major capital purchases now. Run the numbers for Section 179 vs. bonus depreciation to see which gives you the biggest after-tax benefit.
• Make retirement plan contributions before year-end to lower taxable income.
• If you have a new or existing vehicle, revisit whether you should use the standard mileage rate or actual-expenses method based on your 2025 mileage and cost estimates.

 

How Walters Financial Wellness Can Help You

• 2025 Tax Deduction Assessment: Review current expenses and identify all possible deduction categories
• Recordkeeping System Setup

 

**Sources

• IRS Notice 2025-5 — Standard mileage rates for 2025
• IRS mileage rate increase announcement. 
• IRS: Section 179 and bonus depreciation limits for 2025. 
• U.S. Bank guide on Section 179 + bonus depreciation.