Why this matters

Small business owners frequently focus on revenue and immediate expenses, yet many miss personal deductions that directly reduce their taxable income. These are not “creative” loopholes — they’re established tax rules with documentation requirements. Overlooking them can mean thousands of dollars left unclaimed and, conversely, sloppy claims can draw IRS scrutiny. In my practice working with small firms and sole proprietors, I’ve seen simple documentation habits and a basic checklist recover significant refunds and prevent audits.

How to think about personal deductions

Personal deductions available to business owners fall into a few buckets: direct business expenses (reported on Schedule C, K-1, or the business return), above-the-line deductions that reduce adjusted gross income (AGI), and personal credits or deductions tied to activities that support the business (education, retirement contributions, health savings). The rules differ depending on the business structure (sole proprietor, partnership, S corp, or C corp) and whether the expense is personal in nature or ordinary and necessary for the trade.

Top commonly missed deductions (and how to claim them)

1) Home office deduction

  • What it is: If you use part of your home exclusively and regularly for business, you can deduct a portion of expenses such as rent or mortgage interest, utilities, repairs, and depreciation. The IRS explains eligibility and the two calculation methods (simplified and regular) in Publication 587 (Home Office Deduction). (See IRS Publication 587: https://www.irs.gov/pub/irs-pdf/p587.pdf)
  • Why it’s missed: Owners assume they can’t deduct home costs unless they own the home, or they use a space that’s not “exclusive.” They also fail to document square footage or a time-based allocation when space is shared.
  • Practical tip: Measure the dedicated workspace, keep a floor plan or photo, and save utility bills. Consider the simplified method for low recordkeeping needs, but run both calculations in year one to see which yields a larger deduction.
  • FinHelp links: For step-by-step guidance see our home office guides: home office deduction: Qualifying and Calculating It and Home Office Deduction (linked below).

2) Self-employed health insurance premiums (above-the-line)

  • What it is: Self-employed individuals can usually deduct premiums for medical, dental, and long-term care insurance that they pay for themselves, their spouse, and dependents. This deduction reduces AGI, which can also improve eligibility for other credits. The IRS Self-Employed Individuals Tax Center details these rules. (https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center)
  • Why it’s missed: Taxpayers assume health insurance is only an itemized medical expense, which has limits, or they fail to separate out employer-sponsored coverage if they have an S corp where premiums may be handled differently.
  • Practical tip: Track premium payments on a calendar and confirm treatment of premiums paid through an S corporation payroll (different reporting rules apply).

3) Retirement plan contributions (SEP-IRA, Solo 401(k), SIMPLE IRA)

  • What it is: Contributions to SEP-IRAs, Solo 401(k)s, and SIMPLE IRAs reduce taxable income and help business owners save for retirement. Contribution limits and rules vary by plan type and by whether employees participate.
  • Why it’s missed: Owners sometimes miss the deadlines for establishing plans or think they can’t contribute after income is received. Others overlook deductions on behalf of employees, which affects employer obligations.
  • Practical tip: Decide on a plan early in the year; work with your CPA to calculate maximum deductible employer contributions. See the IRS Retirement Plans for Small Employers pages for current rules and limits. (https://www.irs.gov/retirement-plans/retirement-plans-for-small-businesses)

4) Qualified Business Income (QBI) deduction (Section 199A)

  • What it is: Eligible owners of pass-through businesses may claim a deduction up to 20% of qualified business income, subject to income thresholds, service-business limitations, and wage/property-based calculations. The IRS provides worksheets and guidance for the QBI deduction. (https://www.irs.gov/newsroom/qualified-business-income-deduction-faqs)
  • Why it’s missed: Complexity — many taxpayers miscalculate taxable income thresholds, fail to separate qualified business income from investment income, or forget to apply the deduction when filing.
  • Practical tip: Use a tax professional or tax software that supports QBI worksheets. Keep separate records for business income, wages, and relevant property basis.

5) Vehicle and mileage deductions

  • What it is: Deduct either the standard mileage rate (IRS publishes annual rates) or actual vehicle expenses for business use. Keep a contemporaneous mileage log with purpose, date, starting/ending odometer readings, and business miles. Publication 463 covers travel, gift, and vehicle rules. (https://www.irs.gov/pub/irs-pdf/p463.pdf)
  • Why it’s missed: Owners don’t track trips in real time, mix personal and business use, or default to the wrong method. Some also fail to realize commuting to a regular workplace is not deductible, while business travel between appointments is.
  • Practical tip: Use mileage-tracking apps and reconcile logs with credit card statements monthly.

6) Work-related education and professional development

  • What it is: Education that maintains or improves skills required by your trade, or that is required by your employer, can be deductible as a business expense. (See IRS Publication 535: Business Expenses.) (https://www.irs.gov/pub/irs-pdf/p535.pdf)
  • Why it’s missed: People assume all education is a personal expense; they’re also unsure whether a course qualifies if it prepares them for a new trade.
  • Practical tip: Document course descriptions, invoices, and how the training relates to your existing business activities.

7) Depreciation and Section 179 expensing

  • What it is: Equipment, computers, and qualifying business property can be deducted immediately under Section 179 (up to limits) or depreciated over time. Failing to claim either method leaves deductions on the table.
  • Why it’s missed: Owners don’t capitalize purchases or incorrectly expense them. Some forget to elect Section 179 on timely-filed returns.
  • Practical tip: Track purchase dates and keep invoices; consult your tax advisor to choose between Section 179 and bonus depreciation.

8) Health Savings Account (HSA) contributions

  • What it is: If you’re covered by a qualified high-deductible health plan (HDHP), contributions to an HSA are deductible and earnings grow tax-free when used for qualified medical expenses. This is an above-the-line deduction. (See IRS Publication 969: Health Savings Accounts.)
  • Why it’s missed: Business owners miss eligibility details for HDHPs or don’t complete HSA contributions timely.
  • Practical tip: Fund the HSA before the tax filing deadline for the prior year and keep records of plan eligibility.

9) Business meals, travel, and entertainment (follow the rules)

  • What it is: Business travel and meals are deductible in specific circumstances. Since 2023, most business meals provided by restaurants are 50% deductible (exceptions apply). Entertainment expenses are generally nondeductible. Check Publication 463 for current rules.
  • Why it’s missed: Misunderstanding 50% vs 100% treatment and failing to document the business purpose and attendees.
  • Practical tip: Note the business purpose on receipts and save itemized receipts; use expense management software to store notes.

Common mistakes that lead to missed or disallowed deductions

  • Poor recordkeeping: Lack of contemporaneous logs, missing receipts, or undocumented allocations between personal and business use.
  • Mixing personal and business funds: No business bank account or credit card means reconstruction of expenses is harder and more audit-prone.
  • Assuming personal expenses can’t be business deductions: Some personal expenses have partial business allocations (phone, internet, home utilities).
  • Ignoring plan deadlines: Retirement plans and certain elections have setup or election deadlines that prevent claiming missed deductions for past years.

Examples from practice

  • Sarah, a home-based graphic designer: She documented 120 sq. ft. used exclusively for client work, kept utility bills and calculated both simplified and regular home office methods. Claiming the home office and a portion of internet service reduced her taxable income by several thousand dollars.
  • Mark, a freelance writer: He paid for an online editing course that improved his client services. By documenting the course syllabus, the invoice, and demonstrating how it maintained his skills, he claimed the expense as an ordinary and necessary business expense.

Recordkeeping checklist

  • Separate bank account and credit card for business.
  • Contemporaneous mileage log (date, miles, purpose, start/end odometer).
  • Copies of invoices, receipts, and cancelled checks.
  • Photos or floor plans for home office claims.
  • Year-end summary of retirement plan contributions and health insurance premiums.

How to proceed (step-by-step)

  1. Gather last two years of tax returns and identify deductions you previously took.
  2. Run through the categories above with receipts and logs; quantify each potential deduction.
  3. Use accounting software or a simple spreadsheet to map expenses to deduction categories.
  4. Consult a CPA or enrolled agent—especially for QBI, home office allocations, and retirement plan setup.
  5. Make a compliance plan (monthly bookkeeping, yearly tax checklist) so deductions aren’t missed next year.

Key authoritative resources

Internal FinHelp recommendations and links

Professional disclaimer

This article explains common personal deductions available to small business owners for educational purposes only. It is not personalized tax advice. Tax rules change; consult a qualified tax professional (CPA, EA, or tax attorney) before relying on this information for filing or planning. I draw on long experience advising small businesses, but individual circumstances vary.

Bottom line

Small business owners who adopt consistent recordkeeping and review the deduction categories above will typically reduce taxable income and lower overall tax bills. Start with a month-by-month documentation plan, consult authoritative IRS guidance when in doubt, and work with a tax professional for complex items like QBI, retirement plan elections, and home office allocations.