Top Tax Deductions Every Small Business in Texas Should Know

Introduction: Stop Leaving Money on the Table

Ever finish a long day, look at your bank balance, and think, where did it all go? Then tax season arrives, and you wonder if you left money on the table. You are not alone. Most owners miss deductions not because they are careless, but because they are busy. The good news with a simple system and a Texas‑savvy checklist, you can capture more of what you already spend to run and grow your business.

Why This Matters in Texas Right Now

Texas is friendly to business—no personal state income tax, strong local economies, and room to grow. That said, federal taxes still bite, and Texas adds its own layers: franchise tax for many entities, and sales and use tax across cities and special districts. Cash is precious when rates are high and customers pay a little slower. Every legal deduction you document lowers your federal bill, helps with quarterly payments, and smooths cash flow across the year. The aim here is simple: know the big buckets, track them in real time, and file with confidence instead of hoping for a miracle in March.

The Simple Answer

Deductions are ordinary and necessary business expenses. If you spend money to earn money, and you can document the business purpose, you probably have a deduction. The trick capture it as life happens, categorize it correctly, and keep the receipt with the transaction. Below is a Texas‑smart tour of the deductions most owners miss or underuse, plus how to track them without turning your week upside down.

Core Operating Costs You Should Never Miss

• Cost of Goods Sold (COGS): Inventory, freight, packaging, and direct labor tied to production. Track purchases separately from operating expenses. Job costing? Assign materials and labor to the job, not a catch‑all supplies bucket.
  
• Rent and Utilities: Office, shop, kitchen, yard, and storage rent are deductible. Utilities—electricity, water, gas, trash—are too. Keep shared space agreements and CAM invoices on file.
  
• Insurance: General liability, professional liability, workers’ comp, commercial auto, cyber, and property coverage. Employee health insurance is deductible. Self‑employed? Your own health insurance may be deductible above the line.
  
• Repairs and Maintenance: Fixing what you own counts as an expense. Improving it may be a capital asset. Keep invoices detailed to support the deduction.
  

People Costs That Reduce Your Tax Bill

• Payroll and Payroll Taxes: Wages, employer Social Security and Medicare, state unemployment tax, and payroll processing fees are deductible. Reconcile quarterly reports to your books.
  
• Contract Labor: Pay contractors through your business account, collect W‑9s, and issue 1099s. Label payments clearly.
  
• Retirement Contributions: Employer contributions to SIMPLE IRAs, SEP IRAs, and 401(k)s are deductible. Solo owners can often make sizeable contributions to lower taxable income.
  
• Employee Benefits: Health, dental, vision, HSA contributions, and wellness stipends can be deductible. Keep plan documents and invoices organized by year.
  

Vehicle, Travel, and Meals Without the Headaches

• Vehicle Expenses: Standard mileage or actual expenses. Mileage logs should include dates, destinations, and business purpose. Actual expenses require fuel, maintenance, insurance, depreciation, and a business use percentage.
  
• Travel: Airfare, lodging, rides, and reasonable tips are deductible when travel is primarily for business. Document the business purpose, agendas, and confirmations.
  
• Meals: 50% deductible when tied to business, like client lunches or travel days. Not deductible if lavish or unsubstantiated. Note the who and why on the receipt.
  

Workspaces and Tools That Keep You Running

• Home Office: Deduct a portion of home expenses if used regularly and exclusively for business. Simplified method: square footage × IRS rate. Regular method: actual percentage of mortgage/rent, utilities, insurance, and repairs.
  
• Software and Subscriptions: Accounting, project management, e‑commerce, design apps, and cloud storage are deductible. Annual billing often saves money.
  
• Phones and Internet: Allocate personal vs. business use or use a business line. Apply the method consistently and document it.

Marketing and Growth That Pay for Themselves

• Advertising and Marketing: Website, design, printing, sponsorships, paid social, SEO, and trade shows. Save contracts and invoices. Barter? Record fair value both ways.
  
• Education and Training: Courses, conferences, certifications, and books that maintain or improve skills. Out-of-town travel follows the same rules.
  
• Professional Fees: CPA, tax, legal, and advisory services. Separate personal vs. business portions.

Texas-Specific Reminders You Cannot Skip

• Texas Franchise Tax: Deductible at the federal level for C corporations. Pass-through owners? Ask your CPA how it applies. File even if no tax is due.
  
• Sales and Use Tax: Do not deduct sales tax you collect. Deduct sales tax paid on business purchases. Provide resale certificates for items for resale. Track use tax for out-of-state purchases used in Texas.

Bigger Ticket Items: Time Your Moves

• Section 179 and Bonus Depreciation: Equipment, machinery, computers, and some vehicles may be expensed in the year placed in service. Work with your CPA to time purchases for maximum impact.
  
• Leasehold Improvements: Depreciated over time, but some improvements may allow faster write-offs. Keep contracts and invoices detailed.

Cleaner Records, Stronger Deductions

• Use one business bank account and one business credit card.
  
• Attach receipts inside your bookkeeping app.
  
• Keep a simple yearly folder: bank statements, credit card statements, payroll reports, invoices, loan documents, sales tax, franchise tax filings, mileage logs, and home office documentation.

Quarterly Habits That Lock in Savings

• Reconcile monthly: Spot missing receipts and miscoded expenses early.
  
• Review your profit and loss: Ensure all categories are captured.
  
• Set aside tax money: Pay quarterly estimates from a dedicated account.
  
• Book a quick CPA check-in: 15–30 minutes to catch new rules or credits.

A Few Edge Cases to Get Right

• Mixed-use purchases: Deduct based on percentage used for business.
  
• Gifts: Client gifts are limited. Branded items may qualify as advertising.
  
• Charitable contributions: Entity type and payment source affect deduction.
  
• Startup costs: Deduct part in the first year; amortize the rest.

What This Looks Like in Real Life

• Houston food truck: Tracked phone/internet, fuel, and commissary rent separately → more deductions and clean sales tax trail.
  
• Austin creative studio: Implemented 13-week cash flow, moved software to annual billing, attached receipts → faster month-end.
  
• Dallas trades contractor: Separated tools and supplies, tracked mileage → better vehicle deductions and job profitability.

A Calm Way to Finish

You do not need to memorize the tax code. Focus on top categories, capture proof consistently, and adopt steady habits year-round. Start with your top five spend buckets. Add one new habit each month: mileage in January, receipt capture in February, W‑9s in March, etc. A short check-in with your CPA before quarter-end can prevent costly mistakes. The payoff is real: lower taxes, cleaner books, fewer surprises, and more confidence for your next big decision as a Texas business owner.

Frequently Asked Questions About Texas Business Deductions

1. What expenses can a Texas small business deduct?

You can deduct almost any “ordinary and necessary” cost of doing business. This includes Cost of Goods Sold (COGS), rent, utilities, insurance, payroll, marketing, professional fees, and software subscriptions.

2. Can I deduct the Texas Franchise Tax?

Yes. While the Texas Franchise Tax is a state tax, it is generally deductible as a business expense on your federal income tax return.

3. Is my daily commute to work deductible? No. Commuting from your home to your regular place of business is not deductible. However, travel from your office to a client site, or travel to a temporary work location, is deductible. If you have a home office, travel to client sites is also deductible.

4. Do I need a receipt for every single expense?

The IRS generally requires receipts for expenses over $75. However, it is best practice to keep digital copies of all receipts. For credit card statements to be valid proof, they must show the payee, date, and amount.

5. How much of my home office can I deduct?

You can deduct the portion of your home used exclusively and regularly for business. You can use the Simplified Method ($5 per sq. ft. up to 300 sq. ft.) or the Regular Method (calculating the actual percentage of utilities, mortgage interest, and repairs).