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We spend most of our time telling business owners what they can write off.
But the conversations that matter most?
Those happen when we tell them what they can’t.
Because the IRS doesn’t send letters about missed opportunities. They send letters about aggressive claims backed by missing documentation.
You already know about the obvious deductions. Office supplies, software subscriptions, professional services. Those aren’t the problem.
The problem shows up in three places:
The expenses you think qualify but don’t.
The expenses that depend entirely on documentation you’re not keeping.
And the Texas-specific rules that changed in 2026 while you were busy running your business.
Here’s what actually trips people up, and where our free deduction decision tool can help you navigate the non-deductible expenses gray area.
Some expenses feel like business costs because you spent the money while doing business. The IRS disagrees.
Business gifts cap at $25 per person, per year
You can spend $500 on a client gift. You can only deduct $25 of it. This catches people every year who want to show appreciation to their best customers. The limit hasn’t changed since 1962, and it’s not adjusting for inflation.
Land purchases generate zero deductions
The IRS position: land doesn’t wear out or become obsolete. You can depreciate the building. You can depreciate certain improvements like fences, driveways, or parking lots. But the dirt itself? That’s permanent. No deduction, no depreciation, no exceptions.
Entertainment expenses remain at 0%
Taking a client to a baseball game? Concert tickets? Golf outing? None of it qualifies after the Tax Cuts and Jobs Act eliminated entertainment deductions. You can still deduct 50% of food and beverages purchased separately at the venue. But the ticket itself generates nothing.
Your daily commute costs you personally.
Driving to your regular workplace is personal use, even when that workplace is where you conduct business. The IRS draws a clear line: commuting to your main location is non-deductible. Driving to a client site or temporary work location remains fully deductible. The distinction matters more than most people realize.
Unreimbursed employee expenses disappeared permanently.
If you’re a W-2 employee paying for business expenses out of pocket, those deductions are gone. The One Big Beautiful Bill Act eliminated them. Businesses need to implement accountable plans by 2026 to ensure expenses remain deductible and tax-free for employees. If you’re still operating under the old model, you’re leaving money on the table.
This is where most audit problems start.
The expense qualifies. The deduction is legitimate. But the documentation doesn’t exist, or it’s incomplete, or it’s reconstructed months later when the IRS asks questions.
The $75 receipt threshold creates false confidence
The IRS requires receipts for any single expense of $75 or more. People hear this and assume expenses under $75 need no documentation. Wrong. You still need proof. Credit card statements, bank records, or written logs can support smaller purchases. But “I know I bought it” doesn’t work during an audit.
Lodging expenses require receipts at any amount
Hotels, Airbnb rentals, any overnight accommodation needs detailed documentation showing dates, location, purpose, and amount paid. There’s no dollar threshold exception here. The $75 rule doesn’t apply to lodging.
If you’re unsure whether your documentation meets IRS standards, our tool walks you through exactly what you need.
Business meals need more than a credit card receipt
The IRS wants the amount, date, place, business reason, and names of people present with their business relationship to you. A receipt proves you bought food. It doesn’t prove the meal was business-related. We’ve watched legitimate deductions get disallowed because the documentation stopped at the credit card statement.
Vehicle expenses demand contemporaneous logs.
Date, destination, business purpose, miles driven. For every business trip. One case we reviewed resulted in $200,000 in additional tax liability when adequate substantiation wasn’t maintained. The taxpayer knew they drove for business. They just couldn’t prove it.
Supporting documents must establish five things:
A combination of documents can satisfy these requirements together when a single receipt doesn’t carry all details. But you need something that connects the dots.
The IRS uses algorithms to flag returns that deviate from industry averages.
They call it the Discriminant Information Function. It compares your deductions to similar businesses in your profession and revenue range.
If business meals average 10% of income in your industry and you write off 35%, the system notices.
The deduction might be legitimate. But the variance triggers examination. You’ll need to prove why your business operates differently than your peers.
Our deduction decision tool helps you evaluate whether your claims fall within reasonable industry ranges.
Claiming 100% business use of a vehicle is a red flag.
It’s rare for any vehicle to never be used personally. The IRS expects to see some personal use unless you have a dedicated work vehicle that never leaves the job site. Even then, they’ll want documentation proving the separation.
The IRS expanded its use of artificial intelligence in 2026.
They’re using machine learning to detect mismatches before formal audits begin. Any missing transactions or incorrect reporting can automatically trigger a notice. The system is faster and more thorough than manual review.
Taxpayers earning over $400,000 face higher audit rates.
Especially if income sources include self-employment, capital gains, or cryptocurrency. Sole proprietors are up to five times more likely to be audited than wage earners depending on income level.
1099 reporting thresholds changed.
The 1099-NEC and 1099-MISC reporting thresholds increased from $600 to $2,000 starting in 2026. Third-party settlement organizations like Venmo and PayPal returned to $20,000 and 200 transactions. If your reporting doesn’t match what the IRS receives from payment processors, you’ll hear about it.
Meals provided to employees for employer convenience are generally no longer deductible.
This includes meals on employer premises for business reasons. Limited exceptions apply, but the default position changed in 2026.
Texas enacted significant business property tax cuts that affect how you track and report assets.
Proposition 9 increased the Business Personal Property exemption from $2,500 to $125,000 per location.
Effective January 1, 2026, this eliminates BPP tax entirely for hundreds of thousands of small businesses. If you operate below that threshold, you’re done with business personal property tax.
The exemption applies per separate location.
If your business operates five locations, you can claim five separate $125,000 exemptions. This makes accurate asset tracking by physical address critical for multi-location businesses. The way you organize your asset list now determines your tax liability later.
Texas franchise tax depreciation rules now align with federal bonus depreciation.
Beginning with the 2026 franchise tax report, Texas businesses may elect to deduct the full cost of qualifying fixed assets like machinery, equipment, and furnishings acquired after January 19, 2025. This creates planning opportunities for equipment purchases.
Texas has no state income tax.
This creates what we call a double advantage when combined with permanent federal tax reductions. Your federal tax bill is your entire income tax picture. This makes federal deduction strategy even more critical for Texas business owners. Every dollar you save federally is a dollar you keep.
We promise we don’t tell you this to create anxiety.
We tell you this because the gap between what you think qualifies and what actually qualifies costs real money.
The business owners who stay out of trouble do three things consistently:
You’re running a business. You don’t have time to become a tax expert.
But you do need to know where the lines are.
Because the IRS already does.
If you’re tracking business mileage, are you documenting destination and purpose for each trip?
If you’re deducting meals, do you have records beyond the credit card receipt?
If you bought equipment or vehicles in 2025, did you track which location they’re assigned to for Texas BPP purposes?
If you’re claiming home office deductions, can you prove exclusive business use?
These aren’t theoretical questions. They’re the ones that determine whether your deductions survive examination.
The best time to fix documentation problems is before they become problems.
The second best time is right now. That’s why we created our free deduction decision tool to give you instant clarity on whether specific expenses qualify and what documentation you need to keep.
We’ve built our Fort Worth CPA firm around staying ahead of these issues. Our clients don’t wonder what they can deduct or what documentation they need. They know, because we’ve already covered it.
If you’re operating in Texas and you want someone reviewing your deduction strategy before you file, reach out. The conversation is straightforward, and the clarity is worth it.
In the meantime, start with our deduction decision tool to see where you stand, then let’s talk through the specifics of your situation.
Because tax savings only count when they’re still there after the IRS looks.
Until next time!
Adam Traywick, CPA is the President and founding CPA of Adam Traywick, LLC, a Adam Traywick CPA small-business accounting firm. He has over 20 years of experience helping small business owners across home-services trades, hair salons, real estate, and insurance agencies optimize taxes, run cleaner books, and avoid the surprises that come from once-a-year accountants.
