Tax Deductions for Business Owners: What you can write off in 2025
- Luke Turner
- Sep 7
- 6 min read
Tax deductions are one of the most powerful tools business owners have to legally reduce taxable income. Whether you’re just starting out or running a 7-figure operation, knowing what you can write off—and how to do it right—can save you tens (or hundreds) of thousands of dollars a year.
In this guide, you'll learn:
What counts as a tax deduction in 2025
Which expenses business owners can (and can’t) write off
A real-world, 7-figure example with detailed tax savings
The answer to the question we are frequently asked by business owners like you.
What Is a Tax Deduction?
A tax deduction reduces your taxable income, which lowers the amount of income that gets taxed.
Example: If your business earns $1,000,000 in gross revenue and you deduct $400,000 in expenses, you're only taxed on $600,000.
To be deductible, the expense must be:
Ordinary — common in your industry
Necessary — useful for your business operations
What Business Expenses Are Deductible in 2025?
Can I deduct my home office?
Yes, if it’s used exclusively and regularly for business. You can deduct a percentage of:
Rent or mortgage interest
Utilities
Internet
Repairs
Can I deduct business meals?
Yes. In 2025, you can deduct 50% of meals that are business-related, including:
Client lunches
Travel meals
Staff celebrations
Can I deduct business travel?
Yes. You can write off:
Flights
Hotels
Rental cars/Ubers
50% of meals while traveling
Can I deduct my car expenses?
Yes. You can choose between:
Standard mileage rate (TBD for 2025, but was $0.67 in 2024)
Actual vehicle expenses (gas, insurance, depreciation)
Can I deduct software and tools?
Yes. Tools like CRMs, accounting software, design platforms, and project management apps are all deductible if used for business.
Can I deduct advertising and marketing?
Absolutely. Common deductible marketing costs:
Paid social ads
SEO services
Influencer marketing
Branded content
Sponsorships
Are wages and benefits deductible?
Yes. Employee salaries, payroll taxes, health insurance premiums, and retirement plan contributions are all tax-deductible business expenses.
Are contractor payments deductible?
Yes. Payments to freelancers, consultants, or 1099 contractors are fully deductible if for business services.
Can I deduct education and training?
Yes, if it improves your skills or helps maintain your business.
Examples:
Certifications
Business courses
Industry conferences
Can I deduct startup costs?
Yes. You can deduct:
Up to $5,000 in the first year
The rest amortized over 15 years
Are bank fees and interest deductible?
Yes. This includes:
Credit card processing fees
Business loan interest
Bank service charges
Real-World Example: Tax Strategy for a $1.3M Business in 2025
Business Profile: Boutique Marketing Agency
Owner: Danielle
Business Structure: S-Corp
Location: Austin, TX
Gross Revenue (2025): $1,300,000
W-2 Salary (Danielle): $160,000
Team: 5 full-time employees + contractors
Deductible Expenses
Total Deductible Expenses: $771,050
Retirement Strategy: Maxing Out the Solo 401(k)
Danielle contributes the maximum allowed in 2025:
Additional Tax Strategies Used
Taxable Income Calculation (After Deductions)
Gross Revenue: $1,300,000
Business Deductions: $771,050
401(k) Deduction: $70,000
Accountable Plan (home office): $3,600
Taxable Income: $455,350
R&D Credit: –$14,000 (direct tax reduction)
Federal Tax Comparison: With vs. Without Deductions
Total Tax Savings: $284,288 Real-World Example 2: Solo E-Commerce Seller (LLC)
Business owner: Mariah
Business type: Single-member LLC (Schedule C)
Gross revenue: $220,000 (Shopify + Etsy sales)
Products: Handmade skincare
No employees
Deductible Expenses
Total deductions: $116,600
Solo 401(k) Contribution
Mariah netted about $100,000 after deductions.
She contributed:
$23,500 employee deferral
$18,000 employer contribution (approx.)
Total retirement deduction: $41,500
Tax Summary
Revenue: $220,000
Total deductions: $116,600 + $41,500 = $158,100
Taxable income: $61,900
Estimated federal tax (22%): $13,618
What Can’t You Deduct?
Some common expenses are not deductible, including:
Personal expenses (unless allocated properly)
Clothing (unless uniforms or protective gear)
Fines and penalties
Political contributions
Social or athletic club dues
Frequently Asked Questions
Can I deduct business expenses if I don’t have an LLC?
Yes. Sole proprietors and freelancers can deduct business expenses on Schedule C of their personal tax return. You don’t need an LLC.
What records should I keep to support deductions?
Keep:
Receipts
Invoices
Mileage logs
Bank/credit card statements
Notes describing the business purpose
Maintain documentation for at least 3 years.
Can I deduct business expenses paid from my personal account?
Yes. As long as the expense was 100% business-related, it’s deductible.But it’s better to use a dedicated business account or card for clean record-keeping.
How do I deduct partial-use items (like a phone or car)?Deduct only the business-use percentage.
Example: If you use your car 70% for business and total expenses are $10,000, you can deduct $7,000.
Is my own pay deductible?
Sole Proprietor or Single-Member LLC: No. Owner draws are not deductible.
S-Corp/C-Corp: Yes. Wages you pay yourself through payroll are deductible.
What if I get audited?
As long as your records are organized and the deductions are legitimate, you're fine.Most audits are triggered by:
Excessive deductions
Inconsistent income reporting
Poor recordkeeping
Can I amend a previous tax return to claim missed deductions?
Yes. Use Form 1040-X to amend a federal return.You have up to 3 years from the original filing date. Can I deduct losses from a business that didn’t make a profit?
Yes. If you show a true profit motive, the IRS allows deductions—even with losses. But if you report a loss 3 out of 5 years, the IRS may treat it as a hobby.
What tax deductions do most business owners miss?
Home office
Section 179 equipment
Health insurance (self-employed)
Augusta Rule (rent your home)
Solo 401(k) employer contributions
Mileage for local business errands
Can I deduct clothing or personal grooming?
No—unless it’s a uniform or protective equipment required for the job.Regular clothes, even if worn for work, are not deductible.
Are gifts to clients deductible?
Yes, but limited to $25 per person per year. Branded swag may qualify separately under marketing.
What if I run multiple businesses?
You must keep separate records and only deduct expenses specific to each business.Some shared costs (like your phone) can be allocated proportionally.
Can I pay my kids and deduct it?
Yes—if they perform real work, you can pay them a reasonable wage:
Under 18: No payroll taxes (if sole prop or partnership)
Deductible as a business expense
Great way to fund their Roth IRA or 529 plan.
Business Tax Deductions Checklist (2025)
Fixed Expenses
Office rent
Utilities, internet, phone
Software subscriptions
Insurance (liability, auto, cyber)
Variable/Strategic Expenses
Marketing & advertising
Business travel
Equipment purchases
Education & training
Labor Costs
W-2 employee wages
Payroll taxes
Contractor (1099) payments
Owner retirement contributions
Home-Based Business
Home office
Rent under the Augusta Rule
Partial utilities/internet
Furniture/equipment
Financial/Admin
Legal & accounting fees
Bank fees
Credit card processing
Business loan interest
Final Thoughts: Deductions Are Growth Tools
Tax deductions aren’t just about lowering your bill. They’re about:
Keeping more capital in your business
Reinvesting in growth
Funding things like retirement and hiring
Lowers your tax bill
Increases reinvestable profit
Supports long-term planning (hiring, scaling, saving)
The better your tax strategy, the faster your business scales—legally and profitably.
And if your tax pro isn’t walking you through all of these opportunities?It might be time for an upgrade.
Bonus Tip: Work With a Proactive Tax Advisor
Most business owners work with a tax preparer who files returns after the year ends. That’s reactive.
What you need is a proactive tax strategist—someone who:
Reviews your financials quarterly
Suggests entity changes when appropriate (e.g., switching to S-Corp)
Helps you plan retirement contributions strategically
Guides you on recordkeeping that protects you in audits
This is where Moment Private Wealth steps in.
Ready to talk tax planning? Schedule a conversation with Moment today.
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