For small business owners, deductions are one of the most powerful tools to reduce taxable income—but they’re also one of the most misunderstood. With increased IRS scrutiny in recent years, it’s more important than ever to know what qualifies as a legitimate business expense.
The general rule is simple: a deductible expense must be “ordinary and necessary” for your business. But applying that rule in real life can get tricky.
Let’s start with a few commonly misunderstood categories:
Meals and Entertainment
- Business meals are typically 50% deductible if they are directly related to business.
- Entertainment expenses (like sporting events or concerts) are generally not deductible, even if business is discussed.
Vehicle Expenses
- You can deduct either mileage (standard rate) or actual expenses (gas, insurance, repairs).
- Only business use counts—commuting to and from your regular workplace does not qualify.
Home Office Deduction
- You must use part of your home exclusively and regularly for business.
- Occasional or mixed use can disqualify the deduction.
Because these areas are often abused, they tend to draw more IRS attention. That doesn’t mean you shouldn’t claim them—it just means you need proper documentation.
Best practices include:
- Keeping receipts and logs (especially for travel and mileage)
- Using accounting software or apps to track expenses in real time
- Maintaining clear separation between personal and business finances
Another common mistake is either overclaiming or underclaiming deductions. Some business owners take aggressive positions that increase audit risk, while others leave money on the table out of fear.
The goal is balance: Claim everything you’re entitled to, but make sure you can back it up.
In today’s environment, deductions are still a valuable tax-saving strategy—but only when done correctly. A quick review with your accountant at Accavallo & Company can ensure you’re maximizing benefits while staying compliant.
