What Can I Deduct on My Taxes? The Small Business Edition

A Houston restaurant supplier sat down for a mid-year review with a tax advisor. Revenue was strong. Overhead was manageable. On paper, the business looked healthy.

Then the advisor asked one question: “How are you tracking deductions?”

The answer was a Gmail folder full of forwarded receipts and a personal credit card mixed with business charges. By the time everything was sorted, the owner had missed more than $14,000 in legitimate write-offs the prior year. At a combined federal and self-employment rate, that translated to roughly $5,300 in unnecessary taxes.

The money wasn’t hidden. It was sitting in plain sight across a dozen categories the owner never thought to claim.

Tax rules change frequently. This article provides general information, not tax advice. Always consult a qualified tax professional for guidance specific to your situation.

How Business Tax Deductions Work

A deduction reduces taxable income. It does not reduce taxes dollar-for-dollar. A $1,000 deduction for someone in the 22% federal bracket saves approximately $220 in income tax. For self-employed individuals, self-employment tax savings (15.3% on the first $176,100 of net income for 2025) can add another $153 per $1,000.

Those numbers compound fast when multiple categories are in play.

To be deductible, an expense generally needs to be:

Ordinary: common and accepted in the industry
Necessary: helpful and appropriate for the business
Documented: with receipts, invoices, or records showing date, amount, vendor, and purpose

That third requirement is where the majority of deductions are lost. Not because they don’t qualify, but because the paperwork doesn’t exist when it’s needed. A good receipt organization system can prevent thousands of dollars from slipping through.

Office and Workspace

Home Office

Millions of business owners operate from a spare bedroom, converted garage, or dedicated room in the house. The IRS recognizes this with the home office deduction, which comes in two flavors:

Simplified method: $5 per square foot, up to 300 square feet. Maximum deduction: $1,500.

Actual expense method: Calculate the percentage of your home used exclusively for business, then apply that percentage to mortgage interest or rent, property taxes, utilities, insurance, repairs, and depreciation.

A Houston freelance designer with a 250-square-foot office in a 2,000-square-foot home has a 12.5% business use percentage. If total housing expenses (mortgage interest, taxes, utilities, insurance) come to $30,000 for the year, the deduction under the actual method is $3,750, more than double the simplified method.

Key requirement: The space must be used regularly and exclusively for business. A kitchen table that doubles as a workspace does not qualify.

Rented Office or Coworking Space

Monthly rent, utilities, internet service, and common area maintenance fees for a dedicated business space are fully deductible.

Furniture and Equipment

Desks, chairs, monitors, printers, and filing cabinets all qualify. Items costing more than $2,500 may need to be depreciated over time, though Section 179 allows many businesses to expense equipment immediately up to annual limits.

Vehicle and Transportation

For many Houston business owners, the truck or SUV is one of the biggest assets and one of the biggest potential deductions.

Two Methods for Vehicle Costs

Standard mileage rate (2025): $0.70 per business mile. A Houston HVAC contractor driving 20,000 business miles per year deducts $14,000 using this method.

Actual expense method: Gas, oil, repairs, insurance, registration, depreciation, and lease payments, tracked and allocated by business use percentage.

Both methods require a mileage log separating business and personal driving. The IRS audits vehicle deductions regularly, and “I use it mostly for work” without documentation is not a defensible position.

Other Transportation

Tolls on the Hardy Toll Road, Sam Houston Tollway, or any other business route
Parking fees at client sites, courthouses, or commercial districts
Rideshare fares for business purposes

Travel

When business requires overnight travel, several expense categories open up.

Transportation

Airfare, train, or bus tickets
Rental cars and fuel
Rideshare to and from business destinations
Baggage fees

Lodging

Hotel rooms for the duration of business activity
Reasonable tips for hotel staff

Meals While Traveling

50% of meal costs during legitimate business travel
Itemized receipts are essential; a credit card statement alone is generally not sufficient

Incidentals

Internet access on the road
Dry cleaning during extended trips
Business phone calls

Documentation matters here more than almost anywhere else. “Went to Dallas” is not documentation. “Attended ABC Industry Conference, February 10-12, met with three vendors, presented at two sessions” is the level of detail that holds up.

Meals

Business meals are 50% deductible when there is a clear business purpose. That means meals with a client while discussing a project, meals with employees during a working session, or meals during business travel.

What to record for every business meal:

Date and location
Amount (tip included)
Names of attendees and their business relationship
Business topics discussed

A $120 client dinner at a Houston steakhouse with a note on the receipt (“Dinner with Maria Lopez, Bayou Builders, discussed Q2 renovation project scope”) is a $60 deduction. That same dinner with no documentation is worth nothing at tax time.

Entertainment

The Tax Cuts and Jobs Act of 2017 eliminated most entertainment deductions. Texans tickets, golf outings, and concert seats are generally not deductible, even if clients attend.

Exceptions exist for company holiday parties and employee recreation events, which remain 100% deductible.

Insurance

Business Insurance Premiums

General liability
Professional liability (errors and omissions)
Commercial property insurance
Workers’ compensation
Cyber liability
Commercial auto insurance

Health Insurance for the Self-Employed

Self-employed individuals can generally deduct health, dental, and vision insurance premiums for themselves and their dependents. This is an above-the-line deduction on Form 1040 rather than a business expense on Schedule C, but it still reduces taxable income.

Long-term care insurance premiums are also deductible, subject to age-based limits.

Professional Services

Accounting and Tax

Legal

Business formation and entity structuring
Contract review and negotiation
Employment law consultation
Intellectual property filings

Other Professional Fees

IT support and managed services
Business consulting
HR consulting
Industry-specific advisors

Every dollar paid to a professional who helps run the business is generally deductible. That includes the CPA, the attorney, the IT consultant, and the marketing firm.

Marketing and Advertising

Everything spent to attract and retain customers falls here:

Google Ads, Facebook Ads, LinkedIn campaigns
Print advertising and direct mail
Business cards, brochures, signage
Website development, hosting, and maintenance
SEO and content marketing services
Trade show booth fees and materials
Promotional items

A Houston plumbing company spending $1,500 per month on Google Ads and $500 per month on local SEO deducts $24,000 annually in this category. That’s a meaningful reduction in taxable income.

Technology and Software

Subscriptions

Accounting software (QuickBooks, Xero, FreshBooks)
CRM platforms (Salesforce, HubSpot)
Project management tools
Microsoft 365 or Google Workspace
Industry-specific software
Cloud storage and backup services

A $75/month accounting subscription, $150/month CRM, and $20/month cloud storage total $2,940 per year in deductions that many owners forget to categorize.

Hardware

Computers, laptops, tablets
Smartphones (business use portion)
Servers and networking equipment
Security cameras and systems

Employee and Contractor Costs

Employee Expenses

Salaries, wages, bonuses, and commissions
Employer payroll taxes (FICA, FUTA, SUTA)
Health insurance contributions
Retirement plan contributions
Education assistance (up to $5,250 per employee per year)

Independent Contractors

Payments to freelancers, subcontractors, and consultants

A 1099-NEC is required for any contractor paid $600 or more in a calendar year. More on that in our guide to 1099 filings.

Retirement Contributions

Self-employed retirement plans provide a deduction today and tax-deferred growth for decades.

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

A Houston consultant earning $140,000 in net profit who contributes $35,000 to a SEP-IRA reduces their current taxable income by that full amount. At a 24% federal rate plus self-employment tax savings, that’s roughly $13,000 in combined tax reduction while building long-term wealth.

Interest and Financial Expenses

Business Loan Interest

Term loans and lines of credit
SBA loan interest
Equipment financing
Business credit card interest (on business purchases only)

Bank and Processing Fees

This is one of the most commonly overlooked categories:

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

A business processing $300,000 in credit card sales annually pays roughly $7,500-9,000 in processing fees. Every cent is deductible, but many owners never track it as a separate expense category.

Education and Training

Courses and certifications that maintain or improve existing business skills
Industry conferences and seminars
Continuing education required by licensing boards
Employee training programs

Not deductible: Education that qualifies someone for a new profession or meets minimum requirements to enter a field.

The Categories That Get Missed

Most business owners cover the obvious deductions. The tax savings that slip away tend to hide in smaller, easily forgotten categories:

Business licenses and permits: professional licenses, city permits, regulatory fees
Association memberships: Chamber of Commerce, trade organizations, professional groups
Publications and subscriptions: industry journals, business news services, research databases
Bad debts: invoices that proved uncollectable (for businesses using accrual accounting)
Small tools and supplies: hand tools, cleaning products, safety equipment, office supplies

Individually, these might be $50 or $200. Collectively across a full year, they can reach several thousand dollars.

What Cannot Be Deducted

Some expenses are never deductible, no matter how they’re categorized:

Personal expenses disguised as business costs
Everyday clothing (unless specialized uniforms or protective gear)
Commuting between home and a regular work location
Political contributions or lobbying expenses
Fines and penalties from government agencies
Personal portion of mixed-use items (split personal and business use accurately)

The Documentation Habit

Every deduction on this list requires supporting records. The IRS does not accept “I’m pretty sure I spent that.” The standard of proof is:

Receipt or invoice showing amount, date, and vendor
Proof of payment: bank or credit card statement
Business purpose: a brief note explaining why the expense was necessary
Participant details: for meals and travel, names and business relationships

Records should be retained for at least seven years. Thermal receipts fade within months, so photographing or scanning them immediately is worth the habit. For a deeper dive, see our post on what records to keep.

Deductions Are a Year-Round Practice

The Houston restaurant supplier who lost $14,000 in deductions didn’t have a tax problem. The business had a tracking problem. By the time tax season arrived, receipts were gone, expenses were miscategorized, and entire deductible categories were invisible.

The businesses that capture every legitimate deduction share one thing: clean, categorized books maintained consistently throughout the year. Not a scramble in March. Not a shoebox in April. A system that runs month by month, so every deductible dollar is accounted for when the return is filed.

At EZQ Group, we help Houston small businesses build that system, from bookkeeping that categorizes expenses in real time to tax planning that identifies savings opportunities before they expire. The result is a return that reflects every deduction the law allows.

Ready to find out what you’ve been missing? Contact us to schedule a tax planning consultation.

This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax laws are complex and subject to change. Consult a qualified CPA or tax professional for guidance tailored to your specific situation.