Small Business Tax Deductions Guide 2026

Most Commonly Missed Business Deductions

• Home Office: If you use part of your home regularly and exclusively for business, you can deduct a proportional share of rent or mortgage, utilities, insurance, and repairs
• Business Vehicle: Miles driven for business purposes — visiting clients, job sites, suppliers — are deductible using the IRS standard mileage rate or actual expenses
• Business Meals: 50% of meals with clients, employees, or business partners for a clear business purpose — date, location, attendees, and business purpose must be documented
• Professional Development: Courses, books, industry publications, webinars, and professional memberships related to your business
• Phone & Internet: The percentage of your phone and internet bills used for business — typically 50–80% for most self-employed individuals
• Bank Fees & Merchant Processing: Business bank account fees, wire transfer fees, and payment processing charges (Square, Stripe, PayPal fees)
• Software & Subscriptions: QuickBooks, Microsoft 365, Adobe, scheduling apps, and other business software
• Retirement Plan Contributions: SEP-IRA (up to 25% of net self-employment income), Solo 401(k), and SIMPLE IRA contributions reduce taxable income dollar-for-dollar
• Self-Employed Health Insurance: 100% of health, dental, and vision insurance premiums paid for yourself and your family if you are self-employed
• Business Insurance Premiums: General liability, professional liability, and other business insurance premiums are fully deductible

Home Office Deduction: Two Methods

The workspace must be used regularly and exclusively for business. Two calculation methods:

• Simplified Method: $5 per square foot, up to 300 sq ft — maximum $1,500 deduction. Simple, no depreciation recapture on sale.
• Regular Method: Calculate business-use percentage (office sq ft ÷ total home sq ft), then apply to actual expenses (mortgage interest/rent, utilities, insurance, repairs). Typically produces a larger deduction for homeowners.

Example: A 200 sq ft office in a 1,500 sq ft home = 13.3% business use. Applied to $24,000 in annual home expenses = $3,200 deduction (vs. $1,000 simplified method).

Vehicle Deduction: Mileage vs. Actual Expenses

• Standard Mileage Rate (2025): 67 cents per business mile — simple calculation, requires contemporaneous mileage log (date, destination, business purpose, miles)
• Actual Expense Method: Deduct business-use percentage of gas, insurance, maintenance, repairs, registration, and depreciation — requires tracking all expenses
• You must choose your method in the first year you use the vehicle for business — switching from actual to mileage has restrictions
• Newburst Financial will calculate which method produces the larger deduction for your situation

Section 179 Immediate Expensing

Section 179 allows businesses to deduct the full purchase price of qualifying equipment, machinery, and software in the year purchased — rather than depreciating it over 5–7 years.

• 2025 Limit: Up to $1,160,000 in immediate deductions
• Must be placed in service before December 31 of the tax year
• Qualifying items: computers, office furniture, machinery, vehicles over 6,000 lbs GVWR, certain business-use improvements
• Cannot create a net loss — deduction limited to business taxable income

Retirement Plans: The Most Powerful Deduction

• SEP-IRA: Contribute up to 25% of net self-employment income (max $69,000 for 2025) — deadline is your tax return due date including extensions
• Solo 401(k): Employee contribution up to $23,000 + employer contribution up to 25% of compensation — total max $69,000; must be established before December 31
• SIMPLE IRA: Up to $16,000 employee contribution — available if you have employees
• Retirement contributions reduce self-employment income AND federal income tax — a double benefit