Whether you're just starting out or already running a small business, learning how to properly manage and document your expenses can significantly lower your tax bill — and save you money on activities you're already doing!
Deductions vs. Credits: What's the Difference?
Tax deductions reduce your taxable income. This means you pay taxes on a smaller amount of money.
Tax credits, on the other hand, reduce your actual tax bill, dollar for dollar.
💡 Example:
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If you made $60,000 and have $10,000 in deductions, you'll only pay taxes on $50,000.
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If you owe $5,000 in taxes and qualify for a $1,000 tax credit, your bill becomes $4,000.
Both are valuable, but credits usually provide a bigger benefit.
Why Small Business Deductions Matter
As a small business owner, you're responsible for managing cash flow, tracking expenses, and maintaining accurate tax records. Keeping clean financial documentation allows you to take full advantage of tax deductions — and reduce what you owe to the IRS.
When it's time to tally up your expenses at the end of the year, don’t overlook these important (and commonly missed) small business deductions:
11 Common Small Business Tax Deduction Mistakes to Avoid
1. Not Saving Receipts Under $75
Technically, the IRS doesn't require receipts for entertainment and meal expenses under $75 — but that doesn’t mean you shouldn't keep them. If you're ever audited, you'll need proof of what you spent, where, and why. Receipts are the easiest way to stay protected.
2. Not Tracking Reimbursable Expenses
Paying for business expenses out of pocket is fine — but forgetting to record them means lost deductions. Use a simple app or spreadsheet to keep track and ensure you get reimbursed properly.
3. Missing Moving Cost Deductions
Did you relocate for your business? If your new business location is at least 50 miles farther from your old home than your old job was, your moving costs may be deductible.
4. Mislabeling Equipment as Supplies
Capital expenditures — like office furniture and computers — must be categorized properly to be deductible. Mistakenly listing them as supplies can result in denied deductions or penalties. In most cases, you can write off up to $24,000 in capital expenditures in the year of purchase.
5. Miscalculating Auto Deductions
There are two methods for deducting business vehicle use:
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Standard mileage rate
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Actual expenses (including gas, insurance, maintenance, and depreciation)
You must choose one — you can’t claim both. Keep a notebook or mileage tracking app in your car to log the date, miles driven, destination, and purpose of your trip.
6. Overspending on Gifts
The IRS only allows a $25 gift deduction per person per year. If you give more, the excess amount isn’t deductible — so keep your generosity in check for tax purposes.
7. Overlooking Interest and Carrying Charges
Any interest or fees paid on business credit cards or loans can be deducted. Be sure to track these charges and separate them from personal expenses.
8. Missing Employee Benefit Deductions
Providing benefits like health insurance, life insurance, or education assistance? These are deductible and can also boost employee retention and morale.
9. Incorrectly Deducting Utilities
Office utilities like water, electricity, trash, and business telephone lines are fully deductible. If you're using a personal line for business calls, highlight and total the business-related portions each month.
10. Forgetting License and Regulatory Fees
Most business licenses and industry-specific regulatory fees are tax deductible. Keep records of these annual payments to claim them.
11. Missing Other Common Deductions
Don’t forget to deduct:
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Office supplies (printer ink, business cards, etc.)
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Retirement plan contributions
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Employee payroll
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Business loan interest
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Business-related books, training, or courses
Final Thoughts: Get Professional Help
Maximizing your tax savings as a small business owner isn’t just about knowing what’s deductible — it's about organizing your records and staying consistent all year long.
While this guide gives you a solid foundation, tax law is always changing. For the best results, consult with a tax advisor or Certified Public Accountant (CPA) who specializes in small businesses.
✅ BONUS: Want a Printable Tax Deduction Checklist?
Let me know and I’ll send you a free, easy-to-follow checklist to help you stay on top of deductions all year long!
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