Business Tax Myths Exposed

Running a business means juggling countless responsibilities, especially when it comes to taxes. With laws frequently changing, keeping up with your federal, state, and local tax obligations can feel overwhelming. When it comes to small businesses, misinformation is everywhere. Below, we clear up several common misconceptions that could be costing you.

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May 13, 2025

Start-Up Costs Are Fully Deductible Upfront

Many new business owners assume that they can deduct all start-up expenses immediately. However, the ability to immediately deduct start-up costs depends on the amount.

You may deduct up to $5,000 of start-up and $5,000 of organizational costs, but only if total costs are under $50,000. Any remaining amount must be amortized over 15 years. Note that purchases like equipment are depreciated or expensed under Section 179 rules.

Overpaying Taxes Prevents an Audit

Paying more than you owe doesn’t protect you. The IRS focuses on accuracy—not generosity. Overpayments won’t offset issues in other areas of your return.

To reduce audit risk, keep thorough documentation and consult a knowledgeable tax professional. Compliance—not overpayment—is what matters most.

Incorporated Businesses Generate More Deductions

Many assume forming a corporation opens the door to more tax breaks. In reality, self-employed individuals often qualify for similar deductions.

Incorporating may bring unnecessary costs, especially for small or new businesses. Before making that leap, speak with a tax advisor to determine if it truly benefits your situation.

The Home Office Deduction Is a Red Flag

The IRS no longer sees home office deductions as automatic audit triggers—especially with the rise of remote work.

What’s important is proper documentation. As long as you use your home office regularly and exclusively for business, you can safely claim the deduction.

You Cannot Deduct Expenses Without a Home Office

Even if you don’t claim a home office deduction, you can still write off other business expenses. This includes supplies, phone bills, contract labor, and business-related travel.

The home office deduction is just one piece of the puzzle. You don’t need it to qualify for other legitimate deductions.

Part-Time Business Owners Cannot Set Up Retirement Plans

Even if you have a day job with a 401(k), you may still be eligible to set up a SEP-IRA or other self-employed retirement plan for your side business.

Additionally, these plans offer valuable tax deductions and long-term savings opportunities—even for part-time entrepreneurs.

Ending Business Tax Confusion

When it comes to taxes, misinformation can be costly. With these business tax myths exposed, you’re now better equipped to make informed decisions.

However, getting these business tax myths exposed is only part of the process—what matters next is applying that knowledge. Partnering with a qualified tax professional can help ensure that all your bases are covered.

Don’t let bad advice or assumptions hurt your bottom line. Contact our office if you have any questions regarding your tax situation.

References

Publication 334 (2024), Tax Guide for Small Business. Internal Revenue Service. https://www.irs.gov/publications/p334