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Tax Deductions Demystified: What Small Business Owners Can Actually Write Off · Profit Points Podcast

• 0:00
  SPEAKER_00: Hey, glad you're here.
• 0:01
  SPEAKER_00: This is Profit Points, and I'm Megan Schwann, your accounting sidekick and certified profit first professional, and fix the snips advisor.
• 0:09
  SPEAKER_00: If you're a small business owner who wants to actually understand what is happening in your business financially, not just survive it, but genuinely get it, you're in the right place.
• 0:20
  SPEAKER_00: Every episode covers one concept, uses real numbers, and ends with something you can actually do.
• 0:26
  SPEAKER_00: That's the deal.
• 0:27
  SPEAKER_00: Let's talk about today's topic.
• 0:30
  SPEAKER_00: Deductions might be the tax topic I get asked about the most.
• 0:35
  SPEAKER_00: And also the one with the most information floating around.
• 0:40
  SPEAKER_00: I have seen business owners claim things absolutely shouldn't be claiming.
• 0:45
  SPEAKER_00: I have also seen business owners make thousands of dollars in legitimate deductions because nobody told them they qualified.
• 0:53
  SPEAKER_00: Today I want to clear up both sides of that picture because the goal is not just to claim everything that you can, it is to claim everything that you should correctly with the documentation to back it up.
• 1:08
  SPEAKER_00: I'm Megan, your accounting sidekick.
• 1:11
  SPEAKER_00: This is the Profit Points Podcast.
• 1:13
  SPEAKER_00: Let me start with the basics.
• 1:16
  SPEAKER_00: A tax deduction reduces your taxable income.
• 1:20
  SPEAKER_00: It does not reduce your tax bill dollar for dollar.
• 1:24
  SPEAKER_00: I want to be clear about that because a lot of people misunderstand this.
• 1:28
  SPEAKER_00: For example, if you have a$500 deduction and you're in the 25% tax bracket, that deduction saves you approximately$125 in taxes.
• 1:40
  SPEAKER_00: 25% of$500, not$500.
• 1:45
  SPEAKER_00: The deduction reduces the income that's ultimately being taxed, which in turn reduces your tax bill by a percentage of that amount.
• 1:55
  SPEAKER_00: Understanding this matters because it can change how you think about deductions.
• 2:00
  SPEAKER_00: There's also a lot of things in between there, depending on your overall tax situation, but that's the general gist.
• 2:08
  SPEAKER_00: Deductions are valuable, but they're not magic.
• 2:12
  SPEAKER_00: The goal isn't to spend more to save on taxes.
• 2:17
  SPEAKER_00: The goal is to make sure every legitimate business expense you're already incurring is properly documented and claimed.
• 2:26
  SPEAKER_00: Okay, there's the difference there.
• 2:28
  SPEAKER_00: So today's profit point is about informed deduction strategy, knowing what qualifies, how to document it, and how to use deductions as a legitimate part of your tax plan without you crossing into risky or risk territory.
• 2:49
  SPEAKER_00: All right.
• 2:50
  SPEAKER_00: So let's walk through some of the most commonly missed and most commonly misused deductions for small business owners that I usually see.
• 2:59
  SPEAKER_00: Um, home office is a big one.
• 3:02
  SPEAKER_00: If you use a portion of your home regularly and exclusively for business, you can deduct either a calculated percentage of your home expenses or use the simplified method of$5 per square foot up to 300 square feet.
• 3:18
  SPEAKER_00: The keyword here is exclusively.
• 3:21
  SPEAKER_00: If your office is also where you fold your laundry or have dinner, aka or kitchen table, it doesn't qualify.
• 3:30
  SPEAKER_00: But if you have dedicated workspace, this is a real deduction.
• 3:34
  SPEAKER_00: Now the other thing too is that depending on how your business is structured, this might change.
• 3:40
  SPEAKER_00: If you are an S-corp you or a C Corp, you may also need an accountable plan in place.
• 3:47
  SPEAKER_00: Mileage is another big deduction that gets over underutilized, misused, misdocumented.
• 3:54
  SPEAKER_00: Um, every business mile you drive is deductible, though, in some way, shape, or form.
• 4:02
  SPEAKER_00: In 2026, the IRS standard mileage rate is$72, 72.5 cents per mile.
• 4:11
  SPEAKER_00: Excuse me.
• 4:12
  SPEAKER_00: If you drove 5,000 miles this year at the end of the year, that's a$3,625 deduction.
• 4:21
  SPEAKER_00: But but is that you have to track it.
• 4:25
  SPEAKER_00: The IRS expects a mileage log, date, destination, business purpose, purpose, miles driven.
• 4:33
  SPEAKER_00: You can coordinate your mileage log with your calendar.
• 4:38
  SPEAKER_00: So then you don't have to write all of that information in a book.
• 4:41
  SPEAKER_00: But there are also apps that make it a lot easier to track this.
• 4:46
  SPEAKER_00: I recommend using one, especially if mileage is a common occurrence in your business.
• 4:51
  SPEAKER_00: If you're already using QuickBooks Online, there's a mileage tracker built in already.
• 4:56
  SPEAKER_00: You just need to download the app on your phone.
• 4:58
  SPEAKER_00: But doing that is really important.
• 5:01
  SPEAKER_00: And even if you go with actual expenses and depreciation for your auto expenses, you still need to track mileage, especially if it is used for both business and personal use, which is common for business owners.
• 5:14
  SPEAKER_00: Okay, so another one that often gets overlooked is professional development.
• 5:20
  SPEAKER_00: Courses, books, coaching, conferences that are directly related to your business are also typically deductible.
• 5:27
  SPEAKER_00: Health insurance premiums is another one.
• 5:29
  SPEAKER_00: If you're self-employed and not eligible for coverage through a spouse's employer, you can often deduct 100% of your health insurance premium or get a credit related to health insurance coverage.
• 5:41
  SPEAKER_00: This is a big one and it gets missed regularly.
• 5:45
  SPEAKER_00: Software and tools is another one.
• 5:47
  SPEAKER_00: Things like your software subscription, your project management software, your email marketing platform, all of those things are deductible.
• 5:56
  SPEAKER_00: And then finally, meals is another big area that often gets misused or underutilized or undocumented.
• 6:05
  SPEAKER_00: So meals, business meals, have to have a purpose and explanation to it as well.
• 6:11
  SPEAKER_00: Typically, you want to make sure you're recording who it was with and where you were and why, what was going on.
• 6:17
  SPEAKER_00: If you really want to go above and beyond, then you would talk, you would also note what the conversation was regarding.
• 6:23
  SPEAKER_00: Um, but those are things that are deductible up to 50%.
• 6:28
  SPEAKER_00: The personal meals are not.
• 6:31
  SPEAKER_00: The line is clear with all of these things, right?
• 6:34
  SPEAKER_00: Are you seeing that pattern?
• 6:35
  SPEAKER_00: It's really about business purpose and documentation.
• 6:40
  SPEAKER_00: And you need to have both to be able to really write something off and have a good explanation about it.
• 6:47
  SPEAKER_00: The place where people get into trouble is because they claim deductions that are partially personal and they deducted as a fully business expense.
• 6:58
  SPEAKER_00: So something like a family vacation where you attended one conference session.
• 7:03
  SPEAKER_00: Um that is not fully deductible in that kind of a scenario.
• 7:08
  SPEAKER_00: The luxury car lease that you're claiming 100% business usage for, but you're also used for personal driving, that has to be adjusted, hence the mileage.
• 7:17
  SPEAKER_00: The meals that were social, not business.
• 7:29
  SPEAKER_00: Also isn't naive about these things.
• 7:31
  SPEAKER_00: So if you're ever audited, you will need to document and back up every claim.
• 7:36
  SPEAKER_00: And there's also uh guardrails or uh typical, you know, percentages of use, you know.
• 7:45
  SPEAKER_00: So like if you have a business where typically you wouldn't see mileage, it can get flagged if you have a ton of mileage.
• 7:52
  SPEAKER_00: If you don't have the proper documentation in place, you're gonna be in trouble for that.
• 7:57
  SPEAKER_00: So just kind of keep that in mind as well.
• 7:59
  SPEAKER_00: Like, don't push the envelope if it's really not realistic.
• 8:02
  SPEAKER_00: The rule I always tell clients is that if you can't explain the business purpose of an expense clearly and specifically, then you don't want to claim it.
• 8:12
  SPEAKER_00: Like, don't run that risk.
• 8:14
  SPEAKER_00: The burden of proof is on you as a taxpayer.
• 8:18
  SPEAKER_00: So the argument that you make has to be legitimate.
• 8:21
  SPEAKER_00: And remember, we talked about this in the past that the IRS defines business expenses as anything that's ordinary and necessary to your business.
• 8:30
  SPEAKER_00: So if you have something that's luxury or um something that you can't make a legitimate explanation or argument for as to why it is used for a business and why you can't use it personally or why you wouldn't use it any other time, guess what?
• 8:44
  SPEAKER_00: You're not going to be able to substantiate that expense.
• 8:47
  SPEAKER_00: The tax savings are never worth the risk and possible taxes, interests, and penalties that get tacked on if the IRS decides that your argument isn't good enough.
• 8:57
  SPEAKER_00: So make sure you are very clear on this.
• 9:00
  SPEAKER_00: And if you're not sure, make sure you're asking somebody to help you determine whether or not you have a valid argument for that expense.
• 9:08
  SPEAKER_00: I will tell you what I tell every client at this point in the conversation.
• 9:12
  SPEAKER_00: The deductions you miss are almost never because they did not qualify.
• 9:17
  SPEAKER_00: They're because nobody wrote them down.
• 9:19
  SPEAKER_00: So this is the other part that you need to pay attention to and take action on.
• 9:24
  SPEAKER_00: This week, I want you to get last month's bank statement and credit card statements and go line by line.
• 9:31
  SPEAKER_00: Anything with a business purpose gets categorized.
• 9:34
  SPEAKER_00: Anything that's still sitting in generic buckets or uncategorized buckets gets fixed.
• 9:41
  SPEAKER_00: We do not like miscellaneous.
• 9:42
  SPEAKER_00: If you have a miscellaneous expense line on your PL, fix it.
• 9:46
  SPEAKER_00: It should not be in there.
• 9:48
  SPEAKER_00: We always give that back to our clients.
• 9:50
  SPEAKER_00: Like, nope, we need to know exactly what these were for.
• 9:53
  SPEAKER_00: Um, anything business that is still coming out of your personal account, you need to switch that to your business account.
• 10:00
  SPEAKER_00: Do it this weekend.
• 10:02
  SPEAKER_00: You get three days for most people.
• 10:04
  SPEAKER_00: Use your three days.
• 10:06
  SPEAKER_00: Uh, give your tax preparer something to work with.
• 10:09
  SPEAKER_00: This is how you keep more of what you earned without putting yourself at risk.
• 10:15
  SPEAKER_00: Okay, so deductions are a smart, legal, and important part of running a tax-efficient business, but they only work if you're tracking them consistently and claiming them correctly.
• 10:27
  SPEAKER_00: Every dollar of legitimate deduction you miss is a dollar of income you're being taxed on unnecessarily.
• 10:35
  SPEAKER_00: And you've already spent that money.
• 10:36
  SPEAKER_00: So don't pay taxes on it twice, okay?
• 10:40
  SPEAKER_00: If you want someone to review your books and make sure you're capturing every legitimate deduction, that's part of what we do at Sidekick Accounting.
• 10:48
  SPEAKER_00: Book your strategy call.
• 10:50
  SPEAKER_00: Go to chatwithmeg.com.
• 10:52
  SPEAKER_00: Let me get my little thing up, chatwithmeg.com to book your free consult.
• 10:56
  SPEAKER_00: I get this question every week.
• 10:58
  SPEAKER_00: So share this with a friend who's been confused about deductions as well, um, because it's a common thing that pops up.
• 11:05
  SPEAKER_00: So be a good friend and share it as well.
• 11:07
  SPEAKER_00: And I will see you next week.
• 11:10
  unknown: Bye.
• 11:10
  SPEAKER_00: All right, that's your episode this time.
• 11:13
  SPEAKER_00: Don't forget your action step.
• 11:14
  SPEAKER_00: I want you to actually do it, not just add it to the list.
• 11:18
  SPEAKER_00: If this episode was helpful, share it with a fellow business owner who needs to hear it.
• 11:22
  SPEAKER_00: And if you're ready to go deeper on your specific numbers, book a strategy call with Sidekick Accounting.
• 11:28
  SPEAKER_00: Go to chatwithmeg.com, and I'll see you next time on Profit Points.