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New Business Owner? Don’t Miss These Tax Deductions

Learn the most common tax deductions to track, keep your finances organized, and maximize your savings when tax season arrives.

U GOT IT CORP

7/8/20263 min read

A modern home office setup with a laptop, calculator, notebook, and coffee on a wooden desk.
A modern home office setup with a laptop, calculator, notebook, and coffee on a wooden desk.

Starting a business is exciting, but it can also feel overwhelming. Between permits, paperwork, expenses, and daily operations, it is easy to miss important financial details. One of the smartest habits you can build early is tracking your business expenses so you are prepared when tax season arrives. Even if you are not ready to hire a bookkeeper yet, understanding common deductions can help you stay organized and make better financial decisions.

As soon as possible, keep your personal and business finances separate. Save your receipts, track your income, and make notes about expenses while the details are still fresh. You do not need to become a tax expert, but staying informed helps you ask better questions and understand what your accountant or bookkeeper is doing. Knowing the deductions that may apply to your business gives you more control and helps you build a stronger financial foundation. Staying informed can also help you have more productive conversations with your accountant and make sure nothing important is overlooked.

Here are common Schedule C deductions that many sole proprietors should know about when organizing expenses for tax season:

Remember: not every deduction applies to every business. To claim an expense, it generally must be ordinary, necessary, business-related, and supported by good records.

Common Tax Deductions New Business Owners Should Track

  • Cost of Goods Sold (COGS): If you sell physical products, you can deduct the direct costs of making or buying them. This includes raw materials, inventory purchases, direct labor, and shipping fees to get inventory to you (freight-in).

  • Advertising and Marketing: Any money spent promoting your new business is deductible. This covers website domain and hosting fees, social media ads, flyers, business cards, logo design, and promotional giveaways.

  • Car and Truck Expenses: If you use your personal vehicle for business errands (such as picking up supplies, visiting clients, or going to the bank), you can deduct those miles. You can use the IRS standard mileage rate or track actual expenses (gas, oil changes, insurance, and repairs prorated for business use). Always keep a detailed mileage log!

  • Contract Labor: Payments made to freelancers, virtual assistants, or independent contractors who help you run your business. (Keep in mind: If you pay an individual contractor $600 or more in a year, you will need to send them a Form 1099-NEC).

  • Home Office Deduction: If you use a specific, dedicated space in your home exclusively and regularly for business, you can write off a portion of your rent, mortgage interest, utilities, and home insurance. You can use the IRS simplified method ($5 per square foot up to 300 sq. ft.) or calculate actual home expenses based on square footage percentage.

  • Office Expenses and Software: Everyday items like printer paper, pens, shipping supplies, software subscriptions (e.g., Canva, Zoom, invoicing software), and small tools needed to run daily operations.

  • Startup Costs: The IRS allows you to deduct up to $5,000 in qualifying business startup costs (like market research, preliminary legal setup fees, and initial launch ads) in your first active year of business.

  • Professional Fees: Fees paid to lawyers, tax preparers, or consultants to help structure or protect your business.

  • Utilities and Phone Service: The business portion of your internet bill and mobile phone service. If you use one cell phone for both personal and business calls, estimate the percentage of time used for business and deduct that portion.

  • Rent and Storage Fees: Rent paid for dedicated business space outside your home, such as a shop, co-working desk, workshop, or storage unit for inventory.

  • Bank and Payment Processing Fees: The fees collected by processing tools like Stripe, PayPal, Square, or Shopify when customers buy from you, as well as monthly service charges for your business bank account.

  • Insurance: Premiums for general business liability insurance, commercial property insurance, or professional liability coverage.

    Travel and Business Meals:

  • Travel: You may be able to deduct ordinary and necessary expenses for overnight business trips away from your tax home, such as airfare, hotel stays, rideshares, parking, and related travel costs.

  • Meals: 50% of the cost of food and beverages when taking a client out to discuss business or while traveling overnight for business.

Disclaimer: This article is for general educational purposes only and is not tax, accounting, or legal advice. Tax rules can change, and every business situation is different. Please consult a qualified tax professional, accountant, or CPA before making tax decisions. This content is based on publicly available IRS guidance and does not imply IRS endorsement or partnership.

Source note: Business deductions for sole proprietors are generally reported on Schedule C, and IRS Publication 535 provides guidance on business expenses. IRS rules can change, so always confirm current requirements with the IRS or a qualified tax professional.