Small Business Tax Write-Offs that survive an audit

The test every deduction has to pass

A business expense is deductible when it is ordinary and necessary for the business, reasonable in amount, and substantiated. Nearly every disallowed deduction fails the third test rather than the first two — the expense was real, the records were not.

Build the paper trail as you go: a dedicated business bank account and card, receipts attached to transactions, a contemporaneous mileage log, and written agreements for anything involving a related party.

The deductions owners most often miss

None of these are aggressive. They are ordinary provisions that go unclaimed because nobody set them up.

• Home office — a regular, exclusive-use space, taken by the actual-expense method when it beats the simplified rate
• Vehicle use — mileage or actual expenses, with a log; heavy vehicles carry different depreciation rules
• Retirement contributions — a solo 401(k) or SEP can shelter a large share of profit
• Health insurance and an HSA — premiums for a self-employed owner and family
• Equipment and software — Section 179 or bonus depreciation instead of multi-year capitalization
• Accountable plan reimbursements — reimburse yourself for business costs paid personally, deductible to the entity and untaxed to you
• Rent to yourself for occasional business use of a personal residence, within the statutory day limit
• Family payroll — real work, market wages, real records

Structure beats line items

Entity and election choices move more money than any individual expense. An S-corporation election can reduce self-employment tax on distributions once reasonable compensation is set correctly. The qualified business income deduction depends on income level, wages paid, and property basis — which are all things you can influence before year end.

For owners holding real estate, cost segregation accelerates depreciation on the building's components and can create large early-year deductions against the right kind of income.

• S-corp election with documented reasonable compensation
• QBI (Section 199A) optimization through wages and timing
• Cost segregation on owned or newly acquired property
• Accountable plan and formal owner-entity agreements

What triggers trouble

Personal expenses run through the business, round-number estimates, mileage claimed without a log, payments to family without work performed, and deductions that appear only in the year income spiked. Every one of these is a documentation problem before it is a legal one.