What Do I Need to Keep Track of for My Small Business Taxes?

Running a small business comes with a long to-do list—and tracking tax deductions is one item you can’t afford to ignore. Good recordkeeping and a solid understanding of deductible expenses can save you thousands at tax time. Yet many business owners overpay simply because they miss or misclassify common deductions.

Here’s what you should track year-round and some of the most overlooked tax breaks you might already qualify for.

Top Expense Categories You Must Track for Tax Time

Keep detailed records for all of the following categories:

• Income: Track all revenue sources, including cash, checks, credit card payments, and 1099s
  
• Cost of Goods Sold (COGS): Materials, supplies, and labor directly tied to what you sell
  
• Operating Expenses: Rent, utilities, software, phone, internet, office supplies
  
• Employee and Contractor Pay: Wages, salaries, contractor payments, payroll taxes
  
• Advertising and Marketing: Digital ads, printed materials, website expenses
  
• Travel and Meals: Airfare, lodging, business meals (50% deductible)
  
• Mileage and Auto: Track business miles or actual vehicle expenses
  
• Insurance: Business liability, property, health, and workers’ comp
  
• Professional Fees: Accountant, legal services, consulting
  
• Training and Education: Webinars, courses, certifications
  
• Bank and Credit Card Fees: Interest, service fees, merchant processing
  
• Depreciation and Asset Purchases: Equipment, vehicles, computers
  

Use accounting software like QuickBooks to automate this process, or partner with a bookkeeping service to stay compliant and organized.

Most Overlooked Small Business Tax Breaks

Even seasoned entrepreneurs miss valuable deductions. Here are some of the most frequently underutilized:

1. Home Office Deduction
If you work from home, you may be able to deduct a portion of your rent/mortgage, utilities, and internet—based on the square footage used exclusively and regularly for business. You can use:

• Simplified method: $5 per square foot (up to 300 sq ft)
  
• Actual expense method: Pro-rated based on total home expenses
  

2. Cell Phone and Internet
If you use your personal phone and internet for business, a portion is deductible—typically based on percentage of business use. Document your usage consistently.

3. Startup Expenses
Up to $5,000 in startup costs and $5,000 in organizational costs can be deducted in your first year of business (phase-out begins at $50,000 in expenses).

4. Business Gifts
Gifts to clients or vendors are deductible up to $25 per recipient per year. To qualify, you must:

• Document the business purpose
  
• Keep receipts
  
• Ensure gifts are not considered entertainment
  

5. Self-Employed Retirement Plans
Solo 401(k), SEP IRA, or SIMPLE IRA contributions reduce taxable income and help you save for the future. You can contribute up to:

• $69,000 in a Solo 401(k) (2024), depending on income and age
  
• 25% of net income with a SEP IRA
  

6. Health Insurance Premiums
If you’re self-employed and not eligible for a group plan elsewhere, your premiums may be deductible above the line, lowering your adjusted gross income (AGI).

7. Business Use of Vehicle
Track your business miles with a logbook or app. In 2024, the standard mileage deduction is 67 cents per mile. Alternatively, you can deduct actual expenses (gas, insurance, depreciation), but must keep records.

8. Tax Preparation and Advisory Fees
The cost of tax prep, bookkeeping, and advisory services for your business is fully deductible.

Understanding Standard Deductions vs. Business Deductions

Standard deduction applies to individuals and is taken instead of itemizing:

• $14,600 for Single (2024)
  
• $29,200 for Married Filing Jointly
  
• $21,900 for Head of Household
  
• Add $1,550–$1,950 for seniors over 65
  

Business deductions are entirely separate. As a small business owner, you deduct expenses from your gross income to arrive at net profit, which is what you pay tax on.

These deductions are required to be reported to reduce your taxable income—and they must be documented to be valid in an audit.

Which Deductions Must Be Withheld from Paychecks?

If you have employees (or are an employee-owner of an S Corp or C Corp), you must withhold:

• Federal Income Tax (based on employee W-4)
  
• Social Security Tax (6.2%)
  
• Medicare Tax (1.45%)
  
• State and Local Taxes (if applicable)
  

As an employer, you must also match Social Security and Medicare taxes and pay unemployment taxes (FUTA/SUTA).

Sole proprietors and partners do not take payroll, so they do not withhold these from draws—but must pay self-employment tax (15.3%) on net earnings.

Conclusion

Small business owners can legally and significantly reduce their tax bill by understanding which deductions apply and how to track them. Don’t leave money on the table by missing out on the home office, retirement, startup costs, or mileage deductions.

Want help identifying which deductions your business qualifies for? Contact Molen & Associates today. Our team of professionals specializes in helping business owners maximize deductions and stay IRS-compliant with smart, year-round tax strategies.