Top 5 Tax Deductions Every Small Business Should Know

If you're a small business owner, you're constantly making decisions that impact your bottom line. One of the most powerful tools you have to protect your profits is knowing how to maximize your tax deductions. Unfortunately, many business owners either miss valuable write-offs or don't fully understand how to apply them.At Peggy's Bookkeeping & Tax Service, we help small business clients uncover overlooked deductions and keep their records IRS-ready. To help you start the year strong, we've compiled a list of the top 5 tax deductions you should know about for 2025.1.       Home Office DeductionIn today's flexible work environment, more business owners are operating from home than ever. If you're using a portion of your home exclusively and regularly for business, you may qualify for the home office deduction. This isn't just for full-time remote workers — even part-time business use may qualify if it meets IRS criteria.There are two methods to calculate this deduction:The simplified method allows a standard $5 per square foot of home office space, up to 300 square feet.The actual expense method requires tracking and calculating the business-use percentage of eligible home-related costs like rent, utilities, insurance, and mortgage interest.For example, if your home office represents 10% of your home's square footage, you may deduct 10% of your annual electric bill and other qualifying expenses. However, to qualify, the space must be used exclusively for business—no personal activities allowed in that area.Peggy's Bookkeeping & Tax Service can guide you through the proper calculation method for your situation and ensure your home office setup meets IRS standards, helping you avoid red flags during an audit. 2.       Business Equipment & Supplies Every business relies on tools and materials to operate efficiently. The good news is that many of these items are fully deductible as ordinary and necessary business expenses. Whether you're running a consulting firm, a beauty salon, or an e-commerce store, if you're purchasing products or equipment to support your work, chances are you're eligible to deduct them.Deductible supplies include things like paper, pens, printer ink, and software subscriptions. But you can also deduct larger investments like laptops, office furniture, and production equipment beyond consumables.The IRS offers two powerful options for deducting high-cost items:Section 179 allows you to deduct the full purchase price of qualifying equipment in the year it's placed in service, rather than depreciating it over time.Bonus depreciation provides additional savings, especially if you purchase multiple assets in the same year. Proper tracking is essential for these deductions. That's where our bookkeeping services come in. We help you categorize expenses correctly, log depreciation when necessary, and stay audit-ready. 3.       Vehicle & Travel Expenses If your business involves driving or out-of-town meetings, you may be entitled to deduct a variety of travel-related costs. These deductions can add up quickly, especially for service-based businesses or consultants often on the road.Eligible expenses include:Business mileage (standard mileage rate or actual expenses)Gas, oil changes, maintenance, and insurance (if using the actual expense method)Airfare for business travelHotel accommodations and lodgingBusiness-related meals (typically up to 50% deductible)Ride-share, taxi, and rental car costs The expenses must be ordinary, necessary, and directly related to your business to qualify. Commuting to and from a regular workplace, however, is not deductible. At Peggy's, we help our clients track vehicle usage and travel receipts accurately to ensure every eligible dollar is counted. 4.       Professional Services No business operates in a vacuum. Entrepreneurs frequently hire outside help to handle legal, financial, and technical tasks, and fortunately, many of these services are fully deductible. If you've worked with professionals such as lawyers, consultants, accountants, or marketing experts, their fees can be written off as ordinary business expenses.For example, the cost of hiring a tax advisor like Peggy's Bookkeeping & Tax Service is itself a deductible expense. So not only are you getting expert help managing your finances, but you're also reducing your tax burden in the process.This category also covers services related to:Business incorporation and complianceBranding and design workAdvertising and website developmentBookkeeping and payroll servicesBecause professional fees can span multiple areas of your business, it's essential to classify them correctly. We help our clients track each service and ensure it's entered in the appropriate category to optimize deductions. 5.       Employee Wages & Contractor Payments Whether you're hiring your first assistant or managing a team, compensation and contractor fees are major tax-deductible expenses. These write-offs reward your team and can significantly reduce your taxable income.Key deductible payments include:Salaries and hourly wagesBonuses and commissionsEmployer-paid health insurance or retirement contributionsPayroll taxes (Social Security, Medicare, unemployment)Contractor payments (Form 1099-NEC if over $600 annually) To stay compliant, it's crucial to classify your workers properly. Misclassifying an employee as a contractor can lead to costly IRS penalties. Peggy's offers payroll and contractor management services to help ensure accurate classification, payment tracking, and year-end tax form preparation. Conclusion: Start Saving with Smarter Deductions Small businesses often operate on tight margins, so every deduction counts. Knowing what expenses are deductible and tracking them carefully throughout the year can lead to major tax savings. Whether you claim a home office, deduct mileage, or write off professional services, staying organized and informed is key.At Peggy's Bookkeeping & Tax Service, we specialize in helping small business owners, like you, take full advantage of available deductions while staying compliant with IRS guidelines. Let us help you build a stronger financial future, starting with smarter tax planning.Ready to get the most out of your 2025 tax return? 👉 Book your FREE consultation with Peggy's Bookkeeping & Tax Service today.