Tax Write-Offs and Deductions Explained for 2025

No one wants to pay more taxes than they have to. And yet, every year, business owners leave money on the table simply because they don’t fully understand the tax write-offs and deductions available to them. The good news? With a little planning and the right strategy, you can significantly reduce your taxable income, lower your federal income tax bill, and keep more of your hard-earned money in your business.

So, what is a tax write-off, and how can it help you pay less tax in 2025? Let’s find out.

What is a Tax Write-Off?

Put simply, a tax write-off (also known as a tax deduction) is a qualified expense that lowers your taxable income. For business owners, that means everything from your office rent to your advertising costs may count as a deduction, as long as it’s a legitimate business expense.

If your business brought in $200,000 in business income last year but had $50,000 in business expenses, you may only owe taxes on the remaining $150,000. That’s the power of deductions—they directly lower the amount of income the IRS can tax.

With inflation, ongoing changes to the federal income tax code, and increased scrutiny on small business returns, being proactive about how you claim tax deductions can have a big impact on your bottom line.

What Counts as Taxable Income?

Before you can take advantage of any tax write-offs or deductions, you need to know what the IRS considers taxable income. This includes most types of earnings—wages, salaries, tips, self-employment income, interest, dividends, and even certain benefits like unemployment compensation.

In short, if it boosts your bank account, there’s a good chance it’s taxable. And at tax time, that’s the number that matters. Your federal taxes are calculated based on your taxable income, not just what you earned, but what’s left after adjustments and deductions.

The goal is to legally reduce the amount of income the IRS can tax. That’s where deductions come in.

Standard vs. Itemized Deductions

The Standard Deduction (2025)

For many individuals and families, the easiest way to reduce taxable income is by taking the standard deduction. This is a flat amount you can deduct from your adjusted gross income (AGI), and it varies based on your filing status.

For the 2025 tax year:

• Single filers: $14,600
• Married filing separately: $14,600
• Married filing jointly: $29,200
• Head of household: $21,900

If your total itemized deductions don’t exceed these amounts, it usually makes sense to stick with the standard deduction.

Itemized Deductions

But if you’ve had a year with high qualified medical expenses, paid significant mortgage interest, or made large charitable contributions, itemizing might work in your favor. Common itemized deductions include:

• Medical expenses (above 7.5% of your AGI)
• State and local taxes (SALT), capped at $10,000
• Mortgage interest
• Charitable donations (cash and non-cash)
• Property taxes
• Sales taxes, in some states

Business owners with higher personal expenses in these categories may benefit from itemizing, especially in high-tax states with steep local income taxes.

Most Common Tax Deductions

Above-the-Line Deductions

These deductions reduce your adjusted gross income even if you don’t itemize. Some of the most common include:

• IRA contributions (up to annual limits, depending on income and participation in other retirement plans)
• Student loan interest (up to $2,500 per year)
• Health Savings Account (HSA) contributions, which are tax-deductible and can be used for qualified medical expenses

Itemized Deductions Categories

Even if you take the standard deduction, it’s helpful to understand the major itemized deduction categories in case your expenses rise. These include:

• Medical expenses that exceed 7.5% of AGI
• The SALT deduction, capped at $10,000
• Mortgage interest on primary residences
• Charitable contributions, which may have higher caps for appreciated assets
• Casualty and theft losses, in federally declared disaster areas

Keeping tabs on these expenses throughout the tax year can help you make smarter decisions when filing.

Deductions for Business Owners & Self-Employed Individuals

Here’s where things really get interesting. If you’re self-employed or own a business, you can deduct business expenses that are ordinary and necessary for your operations. These deductions can significantly reduce your business income and lower your income tax liability.

That includes expenses incurred throughout the year for things like equipment, advertising, software, and business meals, as long as they’re directly related to your work. For example, meals with clients or during business travel are typically 50% deductible, as long as the purpose is work-related and properly documented.

You can also deduct depreciation on business assets, such as computers, office furniture, or machinery, spreading the cost over the useful life of the item. Interest on business loans is also deductible, as long as the interest paid is tied to funds used for costs related to running your business.

Keep in mind: the IRS expects you to pay tax on every dollar of business income not offset by deductions. That’s why tracking and categorizing your expenses is one of the smartest moves you can make as a business owner.

Home Office Deduction

If you use part of your home exclusively for work, you may qualify for the home office deduction. You can calculate this in two ways:

• Simplified method: $5 per square foot, up to 300 sq. ft.
• Actual expense method: Based on the percentage of your home used for business (you’ll deduct expenses like utilities, rent, and insurance accordingly)

Travel, Meals, and Entertainment

Business travel is generally fully deductible, including airfare, lodging, and related expenses. Meals are 50% deductible in most cases, and entertainment is only deductible in specific circumstances where business was conducted.

Equipment and Supplies

Computers, printers, software, and even office furniture can be deducted or depreciated, depending on cost and usage. These write-offs help offset large upfront investments.

Vehicle Expenses

If you use a car for business purposes, you can choose between:

• Standard mileage rate (65.5 cents per mile in 2023; 2025 rate TBD)
• Actual expenses (gas, insurance, repairs, depreciation)

Just make sure you’re tracking mileage accurately.

Retirement Contributions

Contributing to a Solo 401(k) or SEP IRA not only prepares you for the future, it gives you a tax deduction now. Contributions are limited based on income and plan type, but they can reduce your taxable business income substantially.

Health Insurance Premiums

If you’re self-employed and not eligible for an employer plan, you may be able to deduct your business insurance premiums for health coverage, including for your spouse and dependents.

Tax Credits vs. Deductions

While tax deductions lower your taxable income, tax credits are even more powerful because they provide a dollar-for-dollar reduction in the amount of tax you owe. That means if you qualify for a $2,000 credit, your tax bill is reduced by the full $2,000, not just a percentage.

Examples of Common Tax Credits:

• Child Tax Credit: Up to $2,000 per qualifying child (phase-out limits apply)
• Earned Income Tax Credit (EITC): For low- to moderate-income working individuals
• Education Credits: Such as the American Opportunity Credit or Lifetime Learning Credit
• Energy Credits: For installing solar panels or other energy-efficient home improvements

If you’re using tax software, make sure you enter all eligible information to check for applicable credits. Unlike deductions, credits can sometimes result in a refund even if you don’t owe any taxes.

Important Considerations for 2025

Keep Impeccable Records

The IRS expects receipts, mileage logs, bank statements, and documentation for any deductions you claim. Sloppy or missing records can lead to denied deductions and penalties. A good rule of thumb? If you want to deduct expenses related to your business, you need a paper trail.

Watch for Income Limits

Some deductions and credits start to phase out as your income rises. For instance, student loan interest and education credits have AGI caps. Be sure to track where you fall so you don’t overestimate your deductions.

Stay Ahead of Tax Law Changes

Every year brings updates to deductions, phase-outs, and federal income tax rules. For the 2025 tax year, changes may come into play around energy credits, income thresholds, or standard deduction amounts. It’s smart to keep up or work with a professional who does.

Working with a Tax Professional

There’s no substitute for solid advice. If your situation involves multiple income streams, employees, significant business deductions, or major life events, working with a tax professional can save you far more than you spend.

Why It Matters

• Ensure compliance with current tax laws
• Avoid underpayment penalties
• Maximize legitimate business expenses
• Optimize your federal income tax return

Proactive planning throughout the year—not just at filing time—can help you reduce tax stress and boost your financial confidence.

Put Your Deductions to Work

Understanding how to leverage tax write-offs and tax deductions is a must for any business owner looking to grow sustainably in 2025. With the right strategies, tools, and support, you can lower your income tax, increase your take-home pay, and reinvest more into your business.

Ready to get serious about your deductions? Let OTB Tax show you how to deduct expenses related to your business the right way—legally, morally, and ethically. Schedule a tax strategy session today, and take control of your financial future.