The $12,000 You're Probably Leaving on the IRS's Table

A Houston contractor reviewed last year’s return with us. Solid income. Reasonable expenses. Everything filed correctly.

Then we found $12,000 in legitimate deductions he’d missed. Payment processing fees. His dedicated phone line. Mileage to job sites. Professional association dues. A dozen small categories that added up to real money.

His tax bill could have been $2,880 lower. Instead, that money went to the IRS.

Every dollar of legitimate deductions you miss is a dollar you gift to the government. This checklist exists to help you stop giving gifts.

Note: Tax rules change. Always consult with a qualified tax professional for advice specific to your situation.

How Business Deductions Actually Work

Business deductions reduce your taxable income. If you’re in the 24% tax bracket, a $1,000 deduction saves approximately $240 in federal income taxes, plus another $153 in self-employment tax if you’re a sole proprietor.

That $12,000 the contractor missed? It represented nearly $4,500 in taxes he didn’t need to pay.

To claim any deduction, you must:

Have a legitimate business purpose
Maintain proper documentation
Actually pay the expense during the tax year

The first rule is non-negotiable. The second is where most business owners fail.

Office and Workspace

Home Office Deduction

If you use part of your home exclusively and regularly for business, you have options:

Simplified method: $5 per square foot, up to 300 sq ft ($1,500 max)

Regular method: Calculate the percentage of your home used for business, then deduct that percentage of:

Rent or mortgage interest
Property taxes
Utilities
Insurance
Repairs and maintenance
Depreciation

A Houston consultant with a 200 square foot home office in a 2,000 square foot house can claim 10% of qualifying home expenses. If those expenses total $24,000 annually, that’s a $2,400 deduction.

The catch: The space must be used regularly and exclusively for business. Your kitchen table where you sometimes answer emails doesn’t count.

Rented Office Space

If you rent space outside your home:

Monthly rent payments
Utilities (electric, gas, water, internet)
Common area maintenance fees
Property insurance for your space

Furniture and Equipment

Desks, chairs, filing cabinets
Computers and monitors
Printers, scanners, copiers
Phone systems

Items over $2,500 may need depreciation rather than immediate expensing. Section 179 allows immediate expensing up to annual limits. Your CPA can advise on what makes sense.

Technology and Software

Business Software

Everything you pay for to run the business:

Accounting software (QuickBooks, Xero)
Project management tools (Asana, Monday)
CRM systems (Salesforce, HubSpot)
Industry-specific software
Microsoft 365 or Google Workspace
Website hosting and domain fees

That $50/month QuickBooks subscription? $600 annual deduction. The $200/month CRM? $2,400.

Technology Equipment

Computers and laptops
Tablets and smartphones (business use portion only)
Servers and networking equipment
Backup and security systems

Cloud Services

Data storage (Dropbox, Google Drive)
Backup services
SaaS subscriptions
Cloud computing costs

Vehicle and Transportation

Vehicle Expenses

Two methods for deducting vehicle costs:

Standard mileage rate (2025): $0.70 per business mile

Simpler to track
Must log actual miles driven for business

Actual expense method:

Gas and oil
Repairs and maintenance
Insurance
Registration and license fees
Depreciation
Lease payments
Interest on car loans

A Houston sales rep driving 15,000 business miles annually can deduct $10,500 using the standard rate. That’s real money, potentially $2,500+ in tax savings.

The requirement: Track personal versus business miles carefully. Only business use qualifies. The IRS loves auditing vehicle deductions.

Other Transportation

Parking fees for business purposes
Tolls (Houston has plenty)
Public transit for business travel
Rideshare for business trips

Travel Expenses

When traveling for business, deductions include:

Getting There and Back

Airfare
Rental cars
Rideshare services
Baggage fees

Where You Stay

Hotel rooms
Airbnb for business stays
Reasonable tips for hotel staff

Eating on the Road

50% of meal costs while traveling
Must be directly connected to business travel
Keep itemized receipts (credit card statements aren’t enough)

Incidentals

Internet access during travel
Business calls
Dry cleaning while traveling
Tips for service providers

Documentation needed: Purpose of trip, business activities conducted, dates and locations. “Went to Austin” isn’t documentation. “Attended TechCon 2025 on March 15-17, met with three potential clients, presented at two sessions” is documentation.

Meals and Entertainment

Business Meals (50% Deductible)

Meals count when:

Eating with clients while discussing business
Eating with employees for business purposes
Eating during business travel

Documentation required for every meal:

Amount
Date and location
Business purpose
Names and business relationship of attendees
Topics discussed

That $150 dinner with a potential client? Write on the receipt: “Dinner with John Smith, ABC Corp, discussed Q3 project proposal, March 12, 2025.”

Entertainment

The 2017 tax reform gutted entertainment deductions. Golf outings, concert tickets, sporting events: generally not deductible.

Exceptions:

Employee recreation and holiday parties (100%)
Meals provided at entertainment events (50%, if billed separately)

Professional Services

Accounting and Tax

Bookkeeping services
Tax preparation fees
Tax planning consultation
Audit representation

Yes, what you pay us is deductible. So is every other professional who helps your business run.

Legal Fees

Business formation
Contract review
Lease negotiations
Employment matters
Intellectual property protection

Other Professional Services

Business consultants
Marketing agencies
IT support
HR consultants
Industry-specific advisors

Marketing and Advertising

Everything you spend to attract customers:

Advertising

Online ads (Google, Facebook, LinkedIn)
Print advertising
Radio/TV spots
Billboard advertising
Direct mail campaigns

Marketing Materials

Business cards
Brochures and flyers
Signage
Trade show booths and materials
Promotional items (with limits)

Digital Marketing

Website development and maintenance
SEO services
Social media management
Email marketing services
Content creation

Insurance Premiums

Business Insurance

General liability
Professional liability (E&O)
Property insurance
Workers’ compensation
Cyber liability

Health Insurance (Self-Employed)

If you’re self-employed, you can deduct:

Health insurance premiums for yourself, spouse, and dependents
Dental and vision coverage
Long-term care insurance (with limits)

Note: This deduction requires self-employment income and appears on Form 1040, not Schedule C.

Employee Costs

Wages and Compensation

Employee salaries
Bonuses
Commissions

Payroll Taxes

Employer portion of FICA (7.65%)
Federal unemployment (FUTA)
State unemployment (SUTA)

Benefits

Health insurance contributions
Retirement plan contributions
Life insurance
Disability insurance
Education assistance (up to $5,250 per employee per year)

Contractor Payments

Independent contractors
Freelancers
Subcontractors

Remember: Issue 1099-NEC for contractors paid $600 or more annually.

Retirement Contributions

Self-Employed Retirement

SEP-IRA: Up to 25% of net self-employment income (max $69,000 for 2025)
Solo 401(k): Up to $23,000 employee contribution plus employer contribution
SIMPLE IRA: Up to $16,000 plus 3% employer match

A Houston consultant with $150,000 in net profit could contribute $37,500 to a SEP-IRA, reducing taxable income immediately while building retirement wealth.

Employer Contributions

401(k) employer matches
Pension contributions
Profit-sharing contributions

Retirement contributions deliver double benefits: reduce taxable income now, grow tax-deferred for decades.

Education and Training

Deductible Education

Courses that maintain or improve business skills
Professional certifications
Industry conferences and seminars
Continuing education requirements

Employee Training

Skills training
Safety training
Professional development

Not Deductible

Education to qualify for a new career
Minimum education requirements to enter a profession

Interest Expenses

Business Loan Interest

Term loan interest
Line of credit interest
Equipment financing interest
SBA loan interest

Credit Card Interest

Business credit card interest (on business purchases only)

Vehicle Loan Interest

Interest on car loans (business use portion)

The Commonly Missed Categories

This is where most of that $12,000 hides:

Bank and Payment Fees

Monthly bank fees
Wire transfer fees
Credit card processing fees (2-3% of every card transaction)
PayPal, Stripe, Square fees
ACH fees

A business doing $200,000 in credit card sales pays roughly $5,000-6,000 in processing fees. Every dollar is deductible.

Bad Debts

Invoices you can’t collect (accrual basis taxpayers)
Must be previously included in income

Business Licenses and Permits

Professional licenses
Business permits
Industry certifications
Regulatory fees

Association Memberships

Chamber of Commerce
Trade associations
Professional organizations
Business networking groups

Publications and Subscriptions

Industry journals
Business newspapers
Professional newsletters
Research databases

Small Tools and Supplies

Hand tools
Cleaning supplies
Safety equipment
Office supplies

Documentation Requirements

For every single deduction, maintain:

Receipt or invoice showing amount, date, vendor
Proof of payment (bank statement, credit card statement)
Business purpose notation
Participant information for meals and travel

Retention Period

Keep records for at least 7 years
Employment tax records: 4 years minimum
Property records: Until sold plus 7 years

Thermal paper receipts fade within months. Photograph them immediately or lose the documentation.

What You Cannot Deduct

Avoid these mistakes:

Personal expenses mixed with business
Clothing (unless true uniforms or specialized protective gear)
Commuting from home to regular work location
Political contributions
Fines and penalties
Personal portion of mixed-use items

Stop Leaving Money Behind

Every deduction category on this list represents money you earned and may be entitled to keep. The Houston contractor who missed $12,000 in deductions wasn’t careless. He just didn’t know what to look for.

At EZQ Group, we help Houston businesses maximize legitimate deductions through proper bookkeeping and proactive tax planning. Clean books throughout the year mean complete deductions at tax time.

Ready to stop giving the IRS gifts? Contact us to discuss your tax strategy.

This checklist provides general information. Tax laws are complex and change frequently. Consult with a CPA or tax professional for advice tailored to your specific situation.