Tax deductions play a big role in helping small businesses reduce what they owe and keep more of what they earn. But to take advantage of them, you need to know which expenses qualify and how they fit into both federal and Texas state tax rules.
In Texas, there’s no state income tax. But that doesn’t mean you can ignore state-level reporting. This article will explain how small business tax deductions work in Texas, what qualifies, and how to stay on the safe side of both the IRS and the Texas Comptroller.
What Counts as a Deductible Business Expense?
According to the IRS, a deductible business expense must be “ordinary and necessary.” That means it should be something commonly accepted in your line of work and reasonably helpful to running your business. For example, office rent, payroll, internet service, insurance premiums, and software subscriptions typically qualify as deductible business expenses.
To make sure these deductions hold up, you need proper documentation. That includes receipts, contracts, proof of payment, and mileage logs when applicable. Without those, you may lose the deduction during a tax review, even if the expense was legitimate.
How Texas Tax Law Affects Deductions
Texas does not collect a state income tax from individuals or corporations. However, most businesses are still subject to the Franchise Tax, which is based on revenue or margin, not net income. Because of this, many federal deductions don’t lower your Texas tax bill directly—but they still matter.
Accurate expense tracking ensures your gross receipts are properly calculated and helps you file a correct Franchise Tax Report. It also prevents small errors from leading to compliance issues, especially when your revenue nears the no-tax-due threshold.
Common Tax Deductions for Texas Businesses
Here are some common deductions small business owners in Texas may be able to claim:
- Home office expenses, if the space is used exclusively and regularly for business
- Vehicle use, if you keep detailed mileage logs for business-related travel
- Professional services, such as bookkeeping, accounting, legal advice, or tax prep
These deductions lower your federal taxable income, which can result in real savings. However, claiming them requires clear records and proper categorization.
What You Shouldn’t Deduct (or Should Deduct Carefully)
Some expenses might seem like business costs but don’t meet the IRS requirements. For example, entertainment is no longer deductible, even if you’re meeting with clients. Meals are only 50% deductible, and only when business-related.
Clothing is another gray area. Uniforms with logos may qualify, but everyday clothes, even if worn for work, generally do not. The same goes for travel. If it’s not clearly tied to business or you mix in personal time, the deduction could be reduced or denied.
Being too aggressive with deductions can backfire. Overstating expenses or misclassifying personal costs as business-related could increase your audit risk.
Good Recordkeeping Makes a Difference
Keeping good records isn’t just about staying organized. It’s about protecting your deductions. If you claim something on your return, you need to be able to prove it if asked. That means holding onto receipts, invoices, mileage logs, and digital backups for at least three to four years.
Using accounting software like QuickBooks, Wave, or Xero can help you keep everything in one place. But even with software, you still need to make sure entries are accurate and updated regularly.
Don’t Guess—Get It Right the First Time
Tax season is stressful enough without second-guessing whether your deductions are correct. Taking shortcuts or estimating expenses may save time now, but it often leads to missed savings or trouble later.
A solid approach is to review your expenses monthly, not just when taxes are due. That gives you time to fix errors, track down missing receipts, and adjust your strategy if something changes during the year.
Work With Deligans Tax Partners, LLC
If you’re unsure which expenses qualify, or you’re tired of guessing, Deligans Tax Partners, LLC can help. We work with small businesses across Texas to identify legitimate small business tax deductions, keep accurate records, and file clean, accurate tax returns.
Whether you need help with individual tax prep, business returns, consulting, or everyday bookkeeping, our team is here to support your success and protect you from costly mistakes.
Visit https://deligans.tax to find out how we can help you file with confidence.