Maximize Your Tax Savings: Top Deductions and Credits for Sole Proprietors

Managing taxes can be challenging as a sole proprietor! By taking advantage of available deductions and credits you can significantly lower your taxable income- but knowing if you qualify, planning ahead and keeping compliant records isn’t always top of mind with everything else you have to do while running a business. We are passionate about helping entrepreneurs maximize the tax savings available through tax deductions and tax credits, and proactively planning ahead so that these savings can be used to grow and improve business all year long.

What is the difference between Tax Deductions and Tax Credits?

Tax deductions reduce your taxable income, which means you’re taxed on a smaller amount of your earnings. This can also affect the overall tax bracket you fall into, so it can adjust the percentage of income that you will pay overall. Tax credits, on the other hand, are directly subtracted dollar for dollar from the tax you owe.

Top Tax Deductions for Sole Proprietors

1. Business “Write-Off” Deductions

• Marketing expenses

• Professional services (fees paid to accountants, lawyers and consultants)

• Charitable contributions

• Interest paid on business credit card/bank fees

• Office rental expenses

• Insurance

• Software subscriptions/apps

• Payroll

• Employee gifts and benefits

• Bad debts (unpaid debts issues to customers)

2. Accountable Plan Deductions: An Accountable Plan allows sole proprietors to reimburse themselves for business-related expenses in a way that is tax deductible for the business, and does not count as taxable income for the owner. The expenses covered by an accountable plan include business related and justifiable as “necessary and ordinary” costs of:

• Travel expenses

• Meals

• Office supplies and equipment.

• Professional development costs, such as courses and certifications.

• Home office deduction

• Business vehicle expenses

• Supplies and equipment

• Education and training

3. Section 179

• Section 179 depreciation can allow for immediate write-offs for tools and equipment you invest in

4. Health Related Expenses

• Setting up an HRA plan enables you to reimburse yourself (and all other employees) for healthcare spending in a way that is tax deductible for your business and does not count towards taxable income on personal taxes

• The cost of health insurance premiums are deductible

5. Retirement Plan Contributions

• Contributions to retirement plans such as SEP IRAs, SIMPLE IRAs, or Solo 401(k)s are deductible (you can read more about the options available and contribution limits here:

Top Tax Credits for Sole Proprietors

1. Earned Income Tax Credit (EITC)

• If your income meets the criteria, the EITC can provide substantial tax relief (check income thresholds annually to determine eligibility. Learn more here.

2. Energy Efficiency Credit

• You may be eligible for tax credits when investing in energy-efficient property or equipment for your home office or business

3. Family and Medical Leave Credit

• If you offer paid family or medical leave to employees, you may be eligible for this credit

4. Work Opportunity Tax Credit (WOTC)

• Hiring employees from certain target groups (such as veterans or long-term unemployed individuals) can make you eligible for tax credits

How We Can Help

Navigating tax deductions and credits as a sole proprietor can be overwhelming as tax laws change frequently, and these deductions and credits require specific documentation and planning ahead. At Visibility we know that understanding your options and projected tax liability all year long is key to successful tax planning. We partner with our business clients to keep a tax lens on finances every month-not just during tax filing season. Reach out to learn more about how you can have the financial visibility you need to maximize your tax benefits in 2025!