Guide to small business tax deductions for 2025

If you’re a business owner, understanding which personal and business tax deductions you’re legally entitled to is an important way to reduce your overall tax liability. Whether you own a sole proprietorship, partnership, LLC, or corporation, we’ve broken down the key differences between personal and business deductions (also known as write-offs), including where to file each type, and what you can (and can’t) claim as a business deduction.

Personal vs. business tax deductions

Regardless of your company’s tax structure, you should deduct both personal and business expenses to reduce your tax burden. However, you can’t deduct the same purchase from both tax filings. To avoid confusion, keep your business and personal finances separate and make sure you understand each type of deduction.

How to deduct qualified personal expenses

Itemized deductions

When you choose to file itemized deductions on Schedule A (Form 1040) of your personal tax return, you’ll submit a list of qualified personal expenses to the IRS, along with the amount you paid for each. The total is then subtracted from your adjusted gross income (AGI), meaning your deductions lower the total amount you’ll be taxed on.

Common deductible personal expenses include home mortgage interest, charitable donations, certain taxes, and contributions to an IRA or HSA. Click here for more on which qualified expenses you can deduct from your personal taxes.

You can also claim the state and local taxes (SALT) deduction to further reduce your taxable income. If you have a modified AGI (MAGI) of $500,000 or less for the 2025 tax year, you can claim this deduction up to the limit of $40,000. The SALT deduction limit phases out (or decreases in amount) the more your MAGI exceeds $500,000.

Standard deduction

You can also choose to file a flat-rate standard deduction instead. This will save you time and effort, but only choose this option if your qualified expenses won’t exceed the standard deduction amount for your filing category:

How to deduct business expenses

When you file your business taxes, you can deduct any cost of running your business that the IRS deems “ordinary and necessary” for your business type. Unlike itemized deductions, you’ll simply report your business expense totals on your tax return. However, you should always maintain accurate and detailed bookkeeping records for business expenses in case the IRS chooses to audit your business.

Report your totals on the following form, based on your tax structure:

You can deduct business expenses regardless of whether you choose a standard deduction or itemized deductions on your personal tax return.

What business expenses can you deduct?

To reduce your total business tax burden, you can claim any “ordinary and necessary” costs to run your type of business. Here are eight of the most common deductions for businesses.

1. Qualified business income (QBI) deduction

If you own a sole proprietorship or are a member of an S-corporation, you can deduct up to 20% of your qualified business income (roughly, your business profit after expenses) from your net personal income (after expenses) on your personal tax return. This lowers the effective business tax rate for small businesses. This begins to phase out at net incomes above $197,000 for single filers and $394,600 for married couples filing jointly.

2. Depreciation deductions

When you make large purchases for your business, you’re generally required to spread the cost of those assets over the years you’ll use them (known as depreciation). However, for small business owners there are a handful of ways to write off these purchases the year you bought them:

• The Section 179 deduction lets you immediately deduct up to $2.5 million of depreciable property (such as equipment, software, and vehicles) placed in service after January 19, 2025. This includes items bought second-hand or brand new. Using a Section 179 deduction will frontload the tax cost of large purchases, freeing up cash flow later.
  • Keep in mind that if you sell your deducted asset for more than its remaining value after deductions, the IRS will collect taxes in a process called depreciation recapture. For example, let’s say you buy a commercial truck for $80,000 and claim a $50,000 Section 179 deduction. If you later sell the truck for more than its remaining $30,000 value, you’ll owe taxes on its sale price above $30,000.
• As of 2025, you can use bonus depreciation to deduct 100% of the cost of assets in addition to what you claimed for your Section 179 deduction, allowing you to claim costs beyond the Section 179 limit.
• With a de minimis safe harbor election, you can expense tangible assets that cost less than $2,500 per item that you acquired or produced during the tax year. If you file an applicable financial statement (AFS) with your tax return, you can claim up to $5,000 per item. You can’t deduct land or inventory with this election.

3. Self‑employment tax deduction

If you earned more than $400 in net self-employed earnings/income, you have to pay self-employment tax on your income. However, on your personal tax return, you can deduct 50% of your self-employment tax from your personal income, lowering your income tax burden.

Self-employment tax charges for both the employer and employee portions of Social Security and Medicare taxes. The Social Security tax is 12.4% of self-employment income up to $176,100, while the Medicare tax is 2.9% on all self-employment income, with no upper limit.

4. Home office deduction

If you primarily work from home, in an area that’s exclusively and regularly used to run your business, you can deduct its cost on your business tax return. To calculate its cost, track all home expenses (such as mortgage interest, rent, or utilities), and multiply by the percentage (in decimal format) of your home devoted to business use. Or, you can choose the simplified method of deducting $5 per square foot of your home that is used for business, up to 300 square feet, or $1,500.

Smart tax strategies aren't about evasion, they're about optimization.

– Ramon Liriano, COO, Elevated Tax Strategies

5. Retirement plan contributions

As a self‑employed business owner

If you’re a sole proprietor, partner in a partnership, sole member of an LLC, or member of an S‑corporation receiving W‑2 wages, you can deduct contributions to your own retirement plan on your personal tax return to lower your adjusted gross income.

These are the retirement plans eligible for tax deduction by self-employed business owners:

• Self-Employed Person IRA (SEP-IRA): You can contribute up to 25% of your total compensation, up to $70,000.
• Savings Incentive Match Plan for Employees IRA (SIMPLE IRA): You must contribute both as employee and employer. As an employee you can defer up to $16,500 (or more, if you’re over 50) of your total compensation to reduce your personal tax burden. As your own employer, you must also contribute up to 3% of your total compensation.
• Solo 401(k): You can contribute both as employee and employer. As an employee, you can contribute $23,500 (or more, if you’re over 50). As your own employer, you can also contribute up to 25% of your total compensation (after taxes), for a total maximum of $70,000 (or more, if you’re over 50).

As an employer

If you have employees, deduct your contributions to employees’ retirement plans as a business expense, up to 25% of total compensation for all employees. These are the retirement plans eligible for business tax deduction:

• SEP IRA: If you’re a small business owner, you can create SEP IRA accounts for your employees.
• SIMPLE IRA: If you’re a small business owner, you can either match your employees’ contributions or contribute a set amount.
• 401(k) plans: You can match your employees’ contributions.

You may also be eligible for the following tax credits:

• Retirement plans startup costs tax credit: If eligible, you can claim 50% of retirement plan administrative costs (up to $5,000) within your first three years of starting that plan.
• Auto-enrollment tax credit: If you add automatic enrollment to a new or existing SIMPLE IRA or 401(k) employee plan, you can claim $500 per tax year for 3 years, starting with the year you introduced auto-enrollment.

Did you know?

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6. Education deduction

When education “maintains or improves skills needed in your present work,” the cost is fully deductible. Some common business education expenses include courses, webinars, workshops, subscriptions to trade publications, and transportation expenses to and from classes. You can’t write off education costs intended to pivot you toward a different career.

7. Business use of your car deduction

If you use your vehicle solely for business purposes, you can deduct the entire cost of operating the vehicle. You can either expense all of your vehicle-related costs for the year (such as gas, oil, repairs, tires, insurance, registration, and lease payments), or use the standard mileage rate of $.70 per mile driven.

If you use your vehicle partly for work, and partly for personal reasons, you can deduct business costs using the standard mileage rate.

8. Research and development deduction (Section 174A)

As of the passage of the One Big Beautiful Bill Act in 2025, domestic research and development costs are fully deductible in the year they were incurred, overturning a 2022 amortization rule. If your business grosses less than $31 million annually, you can apply this change retroactively to tax years 2022–24 by filing an amended return for those years.

Research and development done outside the United States is not deductible.

Ramon Liriano is Chief Operating Officer (COO) of Elevated Tax Strategies, a comprehensive financial and tax services firm that specializes in small business. Reach out to see how Ramon and his team can help you make the most of your money. Elevated Tax Strategies is a proud Bluevine Accountant Partner, featured in our accountant directory.