The Power of Small Business: Tax Savings & Wealth Building

A small business will save you taxes with better write-offs, and help you build wealth with more cash flow. Many of our clients have saved on taxes and built their wealth by starting a small business. It can be a side hustle, a consulting gig, or owning a small rental property.

We are not proposing setting up a business just for tax write-offs. The goal is to build a legitimate business that allows you to make more money and, as a benefit, save taxes by writing off expenses you wouldn’t otherwise be able to.

Tax Benefits of a Small Business

TAX SAVINGS is a powerful benefit of starting a small business. A legitimate business allows you to convert what would otherwise be personal expenses into valid business deductions.

Home Office Deduction

If you have a small business—whether it’s a side hustle, a rental property, or 1099 work—you likely qualify for the home office deduction. In fact, we encourage you to take it!

To qualify, you must meet two basic requirements:

1. Exclusive and Regular Use: The space must be used exclusively and regularly for business.
2. Principal Place of Business: It must be your principal place of business or where you meet clients.

There are two options to calculate the home office deduction:

1. Simplified Option

This option reduces the record-keeping burden. You simply multiply the allowable square footage of your office by a prescribed rate.

• Rate: $5 per square foot.
• Maximum: 300 square feet (max deduction of $1,500 per year).
• Benefit: You can still claim mortgage interest and property taxes as itemized deductions on Schedule A, and there is NO depreciation recapture when you sell your home.

2. Regular Method

This is often the better option if you have a large home office or high housing expenses (rent, mortgage interest, utilities). It requires more math and record-keeping but can yield a larger deduction.

• Calculation: Based on the percentage of your home devoted to business use.
• Expenses: Includes mortgage interest, rent, insurance, utilities, repairs, and depreciation.
• Strategy: With the 2025 Standard Deduction increasing to $31,500 (Married Filing Jointly), fewer people will itemize. Using the Regular Method allows you to move a portion of your mortgage interest and property taxes to your business (Schedule C), where they reduce your business income dollar-for-dollar, while you still claim the full Standard Deduction on your personal return.
• Consideration: You will have to recapture the depreciation taken when you sell your home.

Auto Deduction

There’s another incredible reason to claim a home office deduction: it opens the door to a great auto deduction!

Normally, commuting from your home to a regular job is not deductible. However, if you have a “home office” that qualifies as your principal place of business, your home is now your “workplace.” This means:

• Driving from your home office to a client site is business mileage.
• Driving to pick up supplies is business mileage.
• Driving to a meeting is business mileage.

This can significantly increase your deductible miles for the year.

Writing Off Tech Items

There is a lot of misinformation regarding what is or isn’t deductible, especially with technology. However, legitimate business purchases are 100% deductible.

• Computers & Tablets: If you buy a laptop or iPad for your business, it is deductible.
• Smartphones: The business portion of your cell phone bill and the device itself can be written off.
• Depreciation: You can often expense these items immediately using Section 179.
  • New for 2025: The “One Big Beautiful Bill Act” (OBBBA) massively increased the Section 179 limit to $2.5 million. This means almost any equipment purchase by a small business can be fully deducted in the year of purchase.
  • Bonus Depreciation: While Bonus Depreciation is phasing down (40% for 2025), the expanded Section 179 limit makes this less of an issue for most small business owners.

Travel Expenses

Every time a business owner travels for business, it should be a write-off! Travel expenses are generally 100% deductible (meals are typically 50%). Deductible items include:

• Airfare & Baggage fees
• Hotels, Airbnb, VRBO
• Rental cars, Uber, Lyft, Turo
• Trains, tolls, and parking

5 Ideas to Coordinate Travel with Business:

1. Annual Company Meeting: Hold a board meeting or strategic planning session.
2. Client Visits: Visit a current or prospective client.
3. Vendor Meetings: Meet with suppliers or partners.
4. Sourcing: Pick up supplies or equipment for your business.
5. Education: Attend a conference, seminar, or workshop.

Client Success Story: The Side Hustle Savings

Note: Details have been anonymized to protect client privacy.

A marketing professional started a freelance consulting gig on the side. By setting up a legitimate home office and tracking business mileage, they were able to write off a portion of their rent, utilities, and car expenses.

This reduced their taxable income by over $12,000 in the first year. Instead of owing taxes on their extra income, the deductions offset the revenue, and they actually received a larger refund than before!

Conclusion

Starting a small business is one of the most effective ways to build wealth and save on taxes. If you are thinking about starting a side hustle or already have one, make sure you are maximizing your deductions.

Please schedule your free consultation with Sarita or contact us if you have any questions.