2025 Small Business Tax Deductions

For the 2025 tax year, the most impactful small business deductions include the permanent restoration of 100% bonus depreciation and the expansion of Section 179 expensing for equipment purchases.

Other common deductions, such as for home offices and health insurance premiums, remain available.

A significant development is the “One Big Beautiful Bill Act” (OBBBA), signed into law on July 4, 2025, which introduced key permanent changes.

Major 2025 Tax Law Changes (U.S.)

• 100% Bonus Depreciation: The OBBBA permanently restores and makes the 100% first-year bonus depreciation available for eligible new and used property placed in service after January 19, 2025. This is a major change from the previously scheduled phase-out.
• Expanded Section 179 Expensing: The maximum amount a small business can immediately expense under Section 179 increased to $2.5 million for property placed in service after December 31, 2024, with a phase-out threshold of $4 million (amounts indexed for inflation after 2025).
• Immediate R&E Deductions: Domestic research and experimental (R&E) expenditures incurred in 2024 and after can be deducted immediately, reversing a prior requirement to amortize them over five years.
• Permanent QBI Deduction: The Qualified Business Income (QBI) deduction, which allows eligible owners of pass-through businesses (sole proprietorships, S-corps, partnerships, LLCs) to deduct up to 20% of their business income, was made permanent and no longer scheduled to expire after 2025.
• Business Interest Limitation Relief: Starting in 2025, the calculation for the business interest expense limitation reverts to a more generous method, generally allowing businesses to deduct more interest expense.

Common, Ongoing Deductions

Small businesses can still deduct “ordinary and necessary” expenses for their operations. These include:

• Home Office Expenses: Deduct a portion of your rent/mortgage, utilities, and insurance if you use a part of your home exclusively and regularly for business.
• Vehicle Expenses: Use either the standard mileage rate (70 cents per business mile for 2025) or the actual expense method (gas, repairs, insurance, etc.).
• Health Insurance Premiums: Self-employed business owners can typically deduct 100% of their health, dental, and long-term care insurance premiums for themselves and their families.
• Retirement Contributions: Contributions to retirement plans like a SEP IRA or Solo 401(k) are tax-deductible and can significantly lower taxable income.
• Marketing and Advertising: Costs for websites, digital ads, printing, and promotions are 100% deductible.
• Salaries and Contractor Pay: Wages paid to employees and fees paid to independent contractors are deductible expenses.
• Travel and Meals: Business travel expenses (airfare, lodging) are fully deductible, while most business meals are 50% deductible.
• Insurance and Legal Fees: Premiums for business insurance (liability, property, workers’ comp) and fees for legal/accounting professionals are deductible.