Small business tax deductions reduce your taxable income dollar for dollar. The difference between a well-deducted return and a poorly deducted one can easily run into thousands of dollars for a business with $500,000 or more in revenue. The key is knowing what qualifies, documenting it correctly, and not missing the deductions that are easy to overlook.
The Home Office Deduction
If you use part of your home regularly and exclusively for business, you can deduct a proportionate share of your home expenses—mortgage interest or rent, utilities, insurance, and depreciation. The simplified method allows a $5 deduction per square foot (up to 300 square feet) without tracking actual expenses. The regular method requires calculating the percentage of your home used for business and applying it to actual home expenses.
Vehicle Expenses
If you use a vehicle for business, you can deduct either the actual business expenses (gas, insurance, maintenance, depreciation) or the standard mileage rate (67 cents per mile in 2024). Keep a contemporaneous mileage log—date, destination, purpose, and miles—for every business trip. The IRS scrutinizes vehicle deductions; documentation is essential.
Section 179 and Bonus Depreciation
Section 179 allows you to immediately deduct the full cost of qualifying equipment and software in the year of purchase, up to $1.16M (2024 limit). Bonus depreciation allows an additional first-year deduction on qualifying property, though the percentage is phasing down from 100% in 2022 to 60% in 2024 and lower in subsequent years.
Key Takeaways
- Home office deduction is available for space used regularly and exclusively for business—do not skip it.
- Vehicle deductions require contemporaneous mileage logs—reconstruct later and you risk disallowance.
- Section 179 and bonus depreciation can significantly front-load equipment deductions.
