When your business is mostly your time and expertise, you don't have many costs to write off — which can make your tax bill feel higher than it should. The good news is that several deductions and strategies are built for exactly this situation. Here are the ones worth knowing about.
A quick note: this is general information to help you ask better questions, not tax advice. Tax rules change and depend on your specifics — confirm anything here with your CPA before acting on it. (I keep your books clean and refer the tax filing itself out to a tax pro.)
The short version
- Low expenses don't mean no deductions — they mean the ones you have matter more.
- Home office, mileage, health insurance, and retirement are the big four for service businesses.
- The QBI deduction can take up to 20% off qualified business income, if you qualify.
1. The home office deduction
If you work from home, you can deduct a portion of your rent or mortgage interest, utilities, and internet — based on the space you use exclusively for business. It doesn't have to be a whole room, but it does have to be used only for work. For service owners without an outside office, this is one of the most valuable and most overlooked deductions there is.
2. Vehicle and mileage
Business driving is deductible, either by tracking your actual vehicle costs or by using the standard per-mile rate. Either way, the key is documentation: log your business trips with the date, mileage, destination, and purpose. Good records here both maximize the deduction and protect you if anyone ever asks.
3. Self-employed health insurance
If you're self-employed, you can generally deduct the health insurance premiums you pay for yourself, your spouse, and dependents. It's a meaningful deduction that stands on its own — valuable even when your other business expenses are minimal.
4. Retirement contributions
Plans built for the self-employed — a SEP-IRA or a Solo 401(k) — let you contribute far more than a standard IRA, and those contributions are generally tax-deductible. You lower this year's taxable income while paying your future self. For a profitable service business with few expenses, this is often the single biggest lever.
5. The Qualified Business Income (QBI) deduction
Many sole proprietors, LLCs, and S-corporations under certain income thresholds can deduct up to 20% of their qualified business income. The rules have limits and phase-outs, so it's worth confirming with your CPA — but when it applies, it's substantial.
None of these require big spending; they reward good records and a little planning. If you run as (or are weighing) an S-corporation, you can see how several of these deductions add up with the free S-Corp savings calculator.
FAQ
What's the most overlooked deduction for service businesses?
The home office deduction, closely followed by retirement contributions. Both are common to miss and can be significant.
Do I need receipts and records for all this?
Yes — documentation is what makes a deduction stick. Clean books and a simple mileage and receipt habit are what let you claim these confidently.
Isn't the home office deduction an audit risk?
It's a legitimate deduction when you genuinely use the space only for business and keep records. Claimed honestly and documented, it's nothing to fear.
Should I form an S-corporation to save on taxes?
It can make sense above a certain income level, but it adds payroll and filing requirements. Run the numbers — the S-Corp calculator is a good start — and confirm with your CPA.