Small Business Tax Deductions You May Be Missing
Small business owners often pay more tax than they should because they are unaware of legitimate deductions available to them. The self-employment tax burden is significant — 15.3% on the first $168,600 of net self-employment income in 2026, in addition to income tax — making every legitimate deduction valuable. Here are the most commonly overlooked.
Home Office Deduction
If you use part of your home regularly and exclusively for business, you can deduct a proportional share of home expenses — mortgage interest or rent, utilities, insurance, repairs, and depreciation. The simplified method allows $5 per square foot up to 300 square feet ($1,500 maximum), avoiding complex calculations. The regular method is more powerful: divide the business area by total home square footage and apply that percentage to actual home expenses.
The "exclusive use" requirement is strict — a spare bedroom with a desk, a TV, and occasional guest use does not qualify. The space must be used only for business, but it does not need to be a separate room.
Vehicle Business Use
Business mileage is deductible either at the IRS standard mileage rate (67 cents per mile in 2024, updated annually) or actual vehicle costs. The standard mileage method is simpler; the actual method may yield a higher deduction for expensive vehicles or high-fuel-cost situations. You must maintain a contemporaneous mileage log recording date, destination, business purpose, and miles for each trip. Apps like MileIQ automate this. Commuting from home to your regular workplace is not deductible — business trips from home directly to a client or other business location are.
Health Insurance Premiums
Self-employed individuals can deduct 100% of health insurance premiums paid for themselves, their spouse, and dependents as an above-the-line deduction — meaning it reduces your adjusted gross income without needing to itemize. This deduction is not available in months when you were eligible for employer-sponsored health insurance through another employer or a spouse's employer.
Retirement Plan Contributions
Self-employed retirement plans offer powerful tax deductions. A SEP-IRA allows contributions up to 25% of net self-employment income, maximum $69,000 in 2024. A Solo 401(k) allows both employee contributions ($23,000 in 2024, plus $7,500 catch-up if age 50+) and employer contributions (up to 25% of compensation), potentially allowing larger total contributions than a SEP-IRA for the same income level. Contributions reduce current-year taxable income dollar-for-dollar.
Explore our tax services to learn how we can identify deductions specific to your business, or read our other articles for more tax strategy guidance.