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Tax deductions are how small business owners actually keep more of what they earn. Every dollar of legitimate business expense reduces taxable income, which reduces federal income tax, self-employment tax, and (often) state income tax. The math gets large fast: $20,000 of properly-documented deductions can save $7,000-$9,000 in combined federal taxes for a high-bracket business owner. Here is the framework for the most-used small business tax deductions in 2026, with the rules around each that make the difference between bulletproof and audit-bait.
The Qualified Business Income (QBI) deduction lets eligible pass-through business owners deduct up to 20% of their qualified business income from federal taxable income. Created by the 2017 Tax Cuts and Jobs Act and currently scheduled to expire at the end of 2025 (Congress is debating an extension).
How it works:
If QBI expires after 2025 without extension, this is the most significant federal tax change for small business owners since 2017. Plan for both scenarios.
Section 179 and bonus depreciation are two ways to accelerate depreciation deductions on qualifying business property — equipment, vehicles, computers, off-the-shelf software, certain real estate improvements. They work together but with important differences.
For HVAC business owners buying a $75,000 service van, Section 179 + remaining bonus depreciation can fully expense the truck in year one. For contractors buying $250,000 of equipment, Section 179 alone covers most of it. See our HVAC accounting page for the broader vehicle and equipment depreciation framework.
Business travel deductions cover transportation, lodging, meals (50% deductible), and incidental expenses on trips away from your tax home for business purposes. The IRS requires the primary purpose to be business — combined business/personal trips need careful allocation.
Record-keeping requirement is strict: contemporaneous notes on each expense (date, amount, business purpose, attendees if a meal). The IRS does NOT accept reconstructed logs at tax time.
Business meals are 50% deductible in 2025 (the temporary 100% deduction for restaurant meals expired after 2022). Three conditions must be met:
Entertainment expenses (sporting events, concerts, golf outings) are NOT deductible under the 2017 TCJA, even if business is discussed. If you take a client to a baseball game and eat at a restaurant beforehand, the restaurant meal is 50% deductible but the game tickets are not.
Office snacks and employee meals at the office: 50% deductible through 2025. After 2025 (unless Congress extends), these drop to 0% deductible.
Yes, with rules. You can deduct up to $5,000 of business startup costs in the year your business begins, plus $5,000 of organizational costs. Amounts above $5,000 in each category must be amortized (deducted in equal installments) over 180 months (15 years).
Phase-out: each $5,000 limit phases out dollar-for-dollar when total startup/organizational costs exceed $50,000 in that category. A business with $55,000 in startup costs gets $0 immediate deduction and must amortize all $55,000 over 180 months.
What counts as startup costs: market research, advertising, employee training pre-opening, professional fees (legal, accounting) to set up the business, travel to research and create the business. What does NOT count: cost of buying business assets (those are capitalized), expenses after the business is operating.
The “business begins” date is when you first sell a product or service, not when you incorporate. For consulting or service businesses, this is often the date of your first client engagement.
Yes, but as an above-the-line deduction on Form 1040, not as a business deduction. Up to $2,500 of student loan interest per year is deductible, with income phase-outs at $80,000–$95,000 (single) / $165,000–$195,000 (MFJ) in 2025.
The loan must be for qualified higher education expenses (tuition, fees, books, room and board), for yourself, spouse, or dependent at the time the debt was incurred. Refinanced student loans count if they replaced qualified original loans.
The deduction is “above the line,” which means it reduces adjusted gross income (AGI) — making it more valuable than an itemized deduction. You can claim it even if you take the standard deduction.
Casualty losses from federally-declared disasters (hurricanes, wildfires, tornadoes) are deductible for individuals, business owners, and renters in the affected area. The 2017 TCJA eliminated deduction of personal casualty losses NOT tied to a federally-declared disaster.
For business property: casualty losses (damaged or destroyed business assets) are deductible as ordinary business losses without the personal-casualty restriction. Insurance proceeds reduce the deductible amount.
Texas business owners in declared disaster areas (Hurricane Harvey 2017, winter storm Uri 2021, etc.) have extended tax deadlines and special disaster-loss elections. The election allows claiming the loss on the PRIOR year’s return for faster refund. For ongoing 2026 disasters, the IRS publishes specific relief at irs.gov/newsroom/tax-relief-in-disaster-situations.
Self-employed individuals age 65+ enrolled in Medicare can deduct Medicare premiums above the line as part of the self-employed health insurance deduction. This includes Medicare Part B, Part D, and Medicare Supplement (Medigap) premiums.
The deduction is limited to net self-employment earnings — you cannot create a loss with it. If you have a spouse covered by your business plan, their Medicare premiums also qualify. The deduction reduces AGI directly (above the line), making it more valuable than an itemized medical expense deduction.
For employees age 65+, Medicare premiums are deductible only as itemized medical expenses (Schedule A), subject to the 7.5% AGI floor. Most retired W-2 employees take the standard deduction and lose this benefit.
Most tax-planning approaches assume you want to maximize deductions in the current year. Sometimes the opposite is true — a “contrary approach” where you defer deductions or accelerate income.
Situations where deferring deductions or accelerating income wins:
Tax planning is the analysis BEFORE the year ends; tax preparation is the filing AFTER. The biggest gains for small business owners almost always come from year-end planning conversations in October-December. See our $150K+ Texas earner tax strategy guide for the broader high-income framework.
If your current accountant only talks to you at tax time, you are leaving deductions on the table. Let’s set up a year-round planning rhythm so deductions are captured strategically, not opportunistically.
Until next time.
The Qualified Business Income (QBI) deduction lets eligible pass-through business owners deduct up to 20% of qualified business income. Full deduction available for taxable income up to $241,950 single / $483,900 MFJ (2025). Phased out between $241,950-$291,950 single and $483,900-$583,900 MFJ. Above the phase-out, Specified Service Trade or Business (SSTB) owners lose the deduction; non-SSTB trades stay eligible. Currently scheduled to expire end of 2025 unless Congress extends.
Section 179 lets you expense up to $1,250,000 of qualifying business property in 2025 (phase-out begins at $3,130,000 of property placed in service). Bonus depreciation adds 40% in 2025, dropping to 20% in 2026, 0% in 2027 unless Congress extends. Section 179 applies first, then bonus depreciation, then regular depreciation. Section 179 cannot create a tax loss; bonus depreciation can.
Business meals are 50% deductible in 2025. The temporary 100% deduction for restaurant meals expired after 2022. To qualify: the meal must not be lavish, you or an employee must be present, and active business discussion must occur immediately before, during, or after the meal. Entertainment (sporting events, concerts) is not deductible at all under the 2017 TCJA, even with business purpose.
Up to $5,000 of business startup costs in the year your business begins, plus $5,000 of organizational costs. Amounts above $5,000 in each category amortize over 180 months (15 years). The $5,000 immediate deduction phases out dollar-for-dollar when category totals exceed $50,000. Business begins on the date of your first sale or service delivery, not the date of incorporation.
Yes, up to $2,500 of student loan interest per year as an above-the-line deduction on Form 1040 (not as a business deduction). 2025 phase-out: $80,000-$95,000 single / $165,000-$195,000 MFJ. Loan must be for qualified higher education expenses for yourself, spouse, or dependent at the time the debt was incurred. Refinanced student loans count if they replaced qualified original loans. The deduction works even if you take the standard deduction.
Adam Traywick, CPA is the President and founding CPA of Adam Traywick, LLC, a Fort Worth 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.
