Tax season as a small business owner or freelancer can feel like a mixed bag. On one hand, you’re celebrating a year of hard work and growth. On the other hand? There’s the stress of dealing with taxes. It’s easy to feel overwhelmed by all the forms and calculations that seem to stand between you and your well-earned income.

But here's a secret that seasoned entrepreneurs know: tax season doesn't have to be a nightmare. In fact, it can be an opportunity to keep more money in your pocket. The key lies in understanding small business tax deductions, legitimate expenses the IRS expects you to claim to lower your taxable income! 

Think of deductions as a reward for the costs you incur while running your business. From the rent you pay for your office to the internet bill that keeps you connected, many of your daily operational costs can actually work in your favor come tax time. By maximizing these deductions, you reduce your tax liability, maximizing your savings and making the entire process a little less stressful.

This guide will walk you through the top 10 small business deductions and tax expenses you can use to reduce your tax burden. We'll break down complex tax jargon into simple, actionable tips that you can apply right now. Whether you're a consultant, a contractor, or a real estate professional, knowing what you can write off is the first step toward financial empowerment.

And the best part? You don't have to do it alone. With Wave, managing and tracking your expenses is simple. Our small business software helps you organize your deductions throughout the year, so when tax time rolls around, you're not scrambling for receipts: you're ready to file with confidence.

What are business deductions and why do they matter?

Before we dive into the specific expenses, let's clarify what a tax deduction actually is. Simply put, a deduction (or "write-off") is an expense that the IRS allows you to subtract from your business’s total income. This calculation lowers the amount of your profit that is subject to tax.

Here is the basic math: Total Income - Deductible Expenses = Taxable Income.

By maximizing your deductions, you lower your taxable income, which directly reduces the amount of tax you owe. This keeps more money in your business, allowing you to reinvest in growth, hire help, or simply enjoy the fruits of your labor. These deductions are particularly important for freelancers and small business owners, who often have more flexibility — and responsibility — regarding what they claim compared to traditional employees.

Top 10 small business deductions and tax expenses

Ready to start saving? Here are the top 10 deductions that could make a big difference in your tax bill this year.

1. Rent and utilities

If you lease a dedicated office space, shop, or storefront, the rent you pay is fully deductible. But it doesn't stop there. The government cuts you some slack for keeping the lights on, too. Utilities such as electricity, gas, water, and even your trash collection fees are considered necessary business expenses.

Internet and phone bills are also key players here. In today's digital world, it's hard to run a business without a solid internet connection and a smartphone. If you have a dedicated business landline, the full cost is deductible. For mobile phones and internet connections that you use for both personal and business tasks, you can only deduct the percentage used for business.

Example: Let’s say you lease a small office for your consulting firm for $1,000 a month. You also pay around $150 monthly for utilities (electricity and internet). Over the course of a year, that’s $12,000 in rent and $1,800 in utilities. That is $13,800 you can deduct from your taxable income.

Tip: Keep detailed records of your rent and utility payments. If you’re audited, you’ll need to prove these were legitimate business expenses.

2. Home office

For many freelancers, contractors, and consultants, "going to work" means walking from the bedroom to the office. If your home doubles as your workspace, you can claim the home office deduction. This allows you to deduct a portion of your home’s overall expenses, including mortgage interest, rent, homeowners insurance, property taxes, and utilities.

To qualify, the IRS requires that the space be used regularly and exclusively for business. That means your dining room table doesn't count if you also eat dinner there every night. It must also be your principal place of business.

There are two ways to calculate this:

1. The Simplified Method: You deduct $5 per square foot of your home used for business, up to a maximum of 300 square feet (for a total of $1,500).
2. The Regular Method: You calculate the percentage of your home's square footage used for business and apply that percentage to your total home expenses.

Example: If your home office is 150 square feet and your whole house is 1,500 square feet, your office takes up 10% of your home. If your total home expenses (rent/mortgage interest, utilities, etc.) are $20,000 for the year, you can deduct $2,000 (10%).

Tip: Don't be afraid of this deduction! While some people fear it triggers audits, if you have a legitimate home office and keep good records, it's a valuable tool for lowering your taxes.

3. Advertising expenses

Getting the word out about your business costs money, but luckily, the IRS considers these costs 100% deductible. Whether you are printing flyers for a local bulletin board or running a sophisticated digital marketing campaign, if it promotes your business, it's likely a write-off.

This category covers a wide range of promotional activities:

• Business cards and brochures
• Website hosting, design, and maintenance fees
• Social media ads (Facebook, Instagram, LinkedIn)
• Google ads
• Sponsorship of local events
• Promotional swag (branded pens, mugs, t-shirts)

Example: You launch a new website for your real estate business, costing $2,000 for design and $300 for annual hosting. You also spend $500 on a Facebook ad campaign to generate leads. That entire $2,800 is a deductible business expense.

Tip: Keep digital copies of invoices for online ads and receipts for any physical marketing materials. Categorizing these correctly in your bookkeeping software makes them easy to bundle at tax time.

4. Insurance

Protecting your business is smart, and the tax code rewards you for it. Premiums for insurance policies that protect your trade, business, or profession are generally deductible. This helps offset the cost of staying safe and compliant.

Common deductible insurance types include:

• General Liability Insurance: Protects against claims of bodily injury or property damage.
• Professional Liability Insurance: Essential for consultants and contractors to protect against negligence claims.
• Property Insurance: Covers your office furniture and equipment.
• Workers' Compensation: Mandatory if you have employees.

Example: You pay $1,200 a year for general liability insurance and another $600 for property insurance to cover your equipment. Both premiums are fully deductible, reducing your taxable income by $1,800.

Tip: Double-check your policies. Personal insurance (like your home or auto policies) generally isn't fully deductible unless specifically allocated for business use, but dedicated business policies are usually fair game.

5. Legal and professional fees

You don't have to be an expert in everything. Hiring professionals to help you run your business isn’t only a smart move for your sanity, it’s also a tax write-off. Fees paid to lawyers, accountants, bookkeepers, and tax preparers are deductible business expenses.

This deduction extends to other professional costs as well, such as:

• Membership fees for professional organizations or trade associations.
• Subscriptions to trade journals or industry publications.
• Business books and educational resources.

Example: You hire a lawyer to draft a standard contract for your clients, costing $1,500. You also pay an accountant $800 to prepare and file your taxes. That $2,300 is deductible.

Tip: Track these expenses throughout the year. It’s easy to forget a $50 consultation or a yearly membership renewal fee, but they add up!

6. Retirement contributions

Saving for the future is crucial, especially when you don't have an employer matching your 401(k). Fortunately, tax-advantaged retirement accounts for self-employed individuals offer some of the most powerful deductions available.

Contributions to plans like a SEP IRA, SIMPLE IRA, or a Solo 401(k) are tax-deductible. This means every dollar you contribute lowers your taxable income for the year, while also growing tax-deferred for your retirement. 

Note that contributions are deductible subject to plan rules and annual limits. Here are some examples of 2025 limits at a glance:

• IRA limits: $7,000
• Solo 401(k) and SEP limits (for most plans): $23,500
• Simple IRA and Simple 401(k) limits: $16,500
• Total Annual Limit: $70,000

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Example: You have a great year and decide to contribute $10,000 to your SEP IRA. That contribution is a tax-deductible expense, knocking $10,000 off your taxable income immediately.

Tip: Talk to a financial advisor to pick the right plan for you. Maximizing your retirement contributions is one of the smartest ways to lower your current tax bill while building long-term wealth.

7. Health insurance premiums

Healthcare is a major expense for self-employed individuals, but there is a silver lining. If you are self-employed and have a net profit for the year, you may be eligible to deduct 100% of the health insurance premiums you pay for yourself, your spouse, and your dependents.

This includes premiums for:

• Medical insurance
• Dental insurance
• Long-term care insurance

Crucially, this is an "above-the-line" deduction, meaning you can take it even if you don't itemize your deductions. However, you cannot claim this if you are eligible for a health plan through your spouse's employer.

Example: You pay $450 per month for a comprehensive health plan for yourself and your family. Over the year, that's $5,400 in premiums that you can deduct.

Tip: Ensure the policy is established under your business or your name. Keep track of premiums for all dependents, including children under age 27.

8. Bad debts

In a perfect world, every client would pay on time. In reality, you might encounter a client who ghosts you after the work is done or simply refuses to pay. If you use accrual accounting (where you record income when you invoice, not when you get paid), you can write off these uncollectible amounts as "bad debt."

Note: If you use cash-basis accounting (common for many freelancers where you only record income when cash hits the bank), you generally cannot deduct bad debts because you never counted that money as income in the first place.

Example: You invoiced a client $1,000 for a consulting project in December. You recorded it as income in your books. By June, it’s clear they aren’t paying. You can claim that $1,000 as a bad debt deduction to offset the income you previously reported.

Tip: Document your efforts to collect. Keep emails, letters, and records of phone calls. The IRS likes to see that you tried to get paid before writing it off.

9. Office supplies and tools

Running a business requires stuff. From the laptop you work on to the sticky notes you use to brainstorm, the tangible items you use to operate are deductible.

"Office supplies" is a broad category that includes:

• Traditional supplies: Pens, paper, staplers, printer ink, folders.
• Postage and shipping: Stamps, courier fees, shipping boxes.
• Small equipment: Software subscriptions, apps, small electronics.

Example: Over the year, you spend $200 on printer ink and paper and $150 on postage for client packages. These are all deductible expenses.

Tip: It’s easy to lose track of small receipts for things like pens or stamps. Use a mobile app (like Wave’s mobile app!) to snap photos of receipts immediately so you don't miss out on these smaller deductions.

10. Salaries and wages

If you have hired help, whether it's a full-time employee or a contract assistant, the money you pay them is a business expense. This is often one of the largest deductions for growing small businesses.

You can deduct:

• Gross salaries and wages paid to employees.
• Bonuses and commissions.
• Payments to independent contractors (freelancers).
• Employer-paid payroll taxes (like Social Security and Medicare).
• Employee benefits (like education assistance or life insurance).

Example: You hire a virtual assistant as a contractor to help with admin tasks, paying them $3,000 over the year. You also pay a project manager $2,000 for a specific job. That $5,000 total is fully deductible.

Tip: If you pay a contractor $600 or more in a year, you generally need to file Form 1099-NEC. Keeping your payroll records organized is essential for claiming this deduction legally.

Additional deductions and resources

The list above covers the heavy hitters, but there are plenty of other expenses you shouldn't overlook.

• Vehicle expenses: If you use your car for business, you can deduct expenses using the standard mileage rate or actual expenses (gas, repairs, insurance). Commuting from your home to a regular office isn't deductible, but driving to client sites or supply runs is. For tax year 2025, the IRS has officially set the standard mileage rate at 70 cents per mile
• Travel expenses: Business trips (airfare, hotels, taxis) are deductible if the trip is primarily for business.
• Education: Courses, seminars, and workshops that maintain or improve your skills in your current field are deductible.
• Business meals: You can generally deduct 50% of the cost of business-related meals (like taking a client to lunch).

For a truly comprehensive deep dive, it’s always a good idea to refer to the official IRS Guide to Deducting Business Expenses or consult with a qualified tax professional. They can help you navigate the specific nuances of your industry.

How to track and maximize deductions

Knowing what to deduct is step one. Keeping track of it all is step two, and that’s where many business owners stumble. Trying to reconstruct a year’s worth of expenses from a shoebox of faded receipts in April is a recipe for stress and missed savings.

The solution? Consistent, automated bookkeeping.

With Wave, tracking your expenses and deductions is simple. With the Pro Plan, you can connect your bank accounts to automatically import transactions, meaning you never have to manually enter every coffee or ink cartridge purchase. Wave learns from your behavior, automatically sorting expenses into the right tax categories.

Receipts are your best friend.
Always keep receipts for every expense you plan to deduct. It’s your proof if the IRS ever asks questions. Wave’s receipt feature allows you to snap a photo of a receipt on your phone, and it’ll extract the details and match it to a transaction. No more shoeboxes, no more faded ink.

Regular check-ins.
Don't wait until tax season to look at your books. Review your expenses monthly. This helps you catch missing transactions and gives you a real-time view of your business's financial health.

Make tax season a breeze

Reducing your tax burden through deductions is one of the most effective ways to save money and improve your cash flow. It’s not about "working the system," it’s about claiming the legitimate business expenses you are entitled to. By staying organized and taking advantage of these top 10 deductions, you can keep more of your hard-earned profit where it belongs: in your business.

Don't let tax anxiety hold you back. Start tracking your expenses today with Wave. Sign up now to organize your finances, automate your bookkeeping, and make next tax season the easiest one yet!