Tax season comes around every year, but most small business owners still feel unprepared when it arrives. At The Wozny Tax Company in Mokena, IL, we work with sole proprietors, LLCs, S-Corps, restaurants, contractors, and growing businesses of every kind. This guide gives you the same framework our tax professionals use when preparing a small business return, organized by category, updated for 2026 tax law changes, and built for action.

Whether you are filing your first business return or looking to capture deductions you may have missed in prior years, this resource will help you walk in prepared and confident.

Ready to work with a local expert instead? Schedule a consultation or call us directly at (708) 479-1700.

Before You Begin: Essential Preparation Steps

The biggest mistake small business owners make is starting the tax preparation process in February or March without any organized records. Everything in this guide becomes easier when your financial records are in order before you sit down to file.

Step 1: Gather Your Documents

Before anything else, locate these items:

Income records: All 1099 forms you received (1099-NEC, 1099-K, 1099-MISC), bank statements showing business deposits, payment platform reports from PayPal, Stripe, or Square, sales invoices and receipts, and last year’s federal and state tax returns.

Expense records: Receipts for every business purchase made during the year, credit card statements for business-only accounts, vendor invoices, mileage logs if you used a vehicle for business, and home office measurements if you work from home.

Payroll and contractor records: W-2 forms if you have employees, 1099-NEC forms you issued to independent contractors paid $600 or more, and payroll tax returns (Forms 941 and 940).

Step 2: Build Your Financial Summary

If you use accounting software, run these reports before your tax appointment:

• Profit and Loss Statement for the full calendar year
• Balance Sheet as of December 31
• General Ledger with all transactions categorized
• Accounts Receivable and Accounts Payable summaries

If you do not use accounting software, bring your organized bank statements and a summary of categorized expenses. We can work from there.

Step 3: Understand the “Ordinary and Necessary” Test

The IRS allows deductions only for expenses that are both ordinary — common and accepted in your type of business — and necessary — helpful and appropriate for running your business. Every deduction on this page meets that test when properly documented. When in doubt, document the business purpose and keep the receipt.

Step 4: Separate Business and Personal Completely

Commingling personal and business finances is the single most common problem we see when a new client comes in for the first time. Open a dedicated business checking account, use a business-only credit card, and never pay personal bills from business funds. For mixed-use items like a vehicle or cell phone, calculate and document the business-use percentage.

The Complete Small Business Deduction Categories

The following categories represent the major areas where small businesses can legitimately reduce their taxable income. Every category includes what qualifies, how to document it, and where it appears on your tax return. If you are unsure whether a specific expense qualifies, that is exactly what a tax preparation appointment is for.

1. Advertising and Marketing

All costs directly tied to promoting your business are 100% deductible in 2026. This includes digital advertising on Google, Facebook, or LinkedIn; your website design and hosting fees; SEO and content marketing services; business cards and printed materials; vehicle wraps; logo design; email marketing platforms; and social media management tools. Keep invoices from agencies, ad platforms, and designers.

2. Vehicle Expenses

You have two options for deducting business vehicle use. The standard mileage rate for 2026 is 72.5 cents per mile, up from 70 cents in 2025. Multiply your documented business miles by $0.725 for your deduction. The actual expense method requires calculating your business-use percentage and applying it to all vehicle costs — gas, insurance, repairs, tires, registration, and depreciation.

The IRS requires a contemporaneous mileage log documenting the date, destination, business purpose, and miles driven for every business trip. Parking fees and tolls are deductible under either method. Commuting between your home and regular office does not count.

Heavy vehicles over 6,000 lbs GVWR may qualify for Section 179 expensing up to $31,300 in year one for SUVs, with full deduction available for qualifying pickup trucks.

3. Home Office Deduction

To qualify, the space must be used exclusively and regularly for business — not a kitchen table you also use for family meals. You can use the simplified method ($5 per square foot, up to 300 sq ft, maximum $1,500 deduction) or the regular method, which applies your business-use percentage to actual home expenses including mortgage interest, rent, utilities, insurance, and repairs.

The home office deduction is frequently avoided due to unfounded audit fears. With proper documentation, it is a fully legitimate and often significant deduction worth $1,500 to $5,000 or more annually.

4. Qualified Business Income (QBI) Deduction

Pass-through business owners — sole proprietors, partners, S-Corp shareholders, and LLC members — may deduct up to 20% of qualified business income. For 2026, the full deduction applies to single filers below $191,050 and joint filers below $382,050. A new minimum deduction of $400 applies if you have at least $1,000 in qualified business income.

5. Office Supplies and Equipment

Supplies consumed within the year — paper, printer ink, postage, cleaning supplies, small tools under $2,500 — are immediately deductible. Equipment, computers, and furniture can be handled three ways: Section 179 expensing (up to $2,560,000 for 2026), 100% bonus depreciation for property acquired and placed in service after January 19, 2025, or regular MACRS depreciation over the asset’s useful life.

6. Employee Wages and Benefits

Salaries, bonuses, commissions, paid time off, and overtime for W-2 employees are fully deductible. Employee benefits include health, dental, and vision insurance premiums; life insurance; retirement plan contributions; and education assistance up to $5,250 per employee per year.

7. Contract Labor and 1099 Payments

Payments to independent contractors — designers, consultants, subcontractors, bookkeepers, IT support, virtual assistants — are deductible. You must issue a Form 1099-NEC to any contractor paid $600 or more during the year by January 31.

8. Business Meals

Workplace meals are now 0% deductible. Client and prospect meals remain 50% deductible when a business discussion occurs and you or an employee is present. Business travel meals remain 50% deductible. Company-wide events open to all employees — holiday parties, team picnics — remain 100% deductible.

9. Travel Expenses

Business travel requires an overnight stay away from your tax home and must be primarily for business. Fully deductible travel costs include airfare, rental cars, rideshare, hotel accommodations, baggage fees, laundry, business calls, and tips for service providers. Fifty percent of meal costs during travel are deductible.

10. Insurance Premiums

General liability, professional liability, property, commercial auto, workers’ compensation, cyber liability, and key person life insurance are fully deductible. Self-employed health insurance is 100% deductible as an above-the-line adjustment.

11. Professional Services and Tax Preparation Fees

Accounting, bookkeeping, legal fees, business consulting, payroll processing, and tax return preparation fees are fully deductible.

12. Rent and Lease Payments

Commercial rent for office, retail, warehouse, storage, or coworking space is fully deductible. Equipment leases are also deductible.

13. Utilities and Communications

Business-space utilities — electricity, gas, water, internet, and trash service — are deductible. Business phone lines are fully deductible. Personal cell phone business-use percentage is deductible.

14. Startup Costs

Costs incurred before opening — market research, legal fees, pre-opening advertising, professional fees, training — qualify as startup costs. Deduct up to $5,000 in year one; remaining costs amortized over 180 months.

15. Retirement Plan Contributions

SEP-IRA contributions up to 25% of net self-employment income (max $69,000). Solo 401(k) employee deferral $23,000 plus $7,500 catch-up if 50+.

16. Education and Professional Development

Deduct education maintaining or improving skills for current business, professional memberships, trade association fees, Chamber of Commerce dues, industry publications.

17. Software and Subscriptions

Accounting platforms, CRM tools, project management apps, cloud storage, email marketing platforms, video conferencing, social media tools, website hosting, industry-specific software.

18. Bank Fees and Credit Card Fees

Monthly maintenance, transaction fees, wire transfers, business credit card annual fees, interest, merchant processing fees.

19. Business Interest Expense

Interest on business loans, lines of credit, business credit cards, vehicle loans allocated to business use.

20. Taxes and Licenses

State/local income taxes, property taxes on business assets, sales tax on purchases, business licenses, and permits. Federal taxes, penalties, fines are not deductible. Self-employment tax 50% deductible as adjustment.

Critical 2026 Tax Law Changes for Small Businesses

Tax law changes affect what you can deduct, how much, and when. The following updates are in effect for the 2026 tax year and impact most of our small business clients.

Section 179 Deduction Increased to $2,560,000

The Section 179 first-year expensing limit jumped from $1,250,000 to $2,560,000 for tax years beginning after December 31, 2024. The phase-out threshold is $4,090,000. This means businesses can immediately write off significantly more equipment, machinery, furniture, and software in the year it is placed in service.

Bonus Depreciation Returns to 100%

For property both acquired and placed in service after January 19, 2025, bonus depreciation is back to 100%. Property acquired before January 20, 2025 receives only 40% bonus depreciation even if placed in service in 2025. The acquisition date matters — not just when you started using the asset. Plan equipment purchases accordingly.

Standard Mileage Rate Is 72.5 Cents Per Mile

The IRS increased the business mileage rate by 2.5 cents to $0.725 per mile for 2026. If you drove 10,000 business miles, your standard mileage deduction is $7,250. Maintain a contemporaneous mileage log for every business trip.

Workplace Meals Are Now 0% Deductible

Break room snacks, coffee, meals provided for the employer’s convenience, and similar workplace food expenses are no longer deductible starting in 2026. Client meals at 50% and company-wide parties at 100% are unchanged. Review how you have historically categorized employee meals — this change requires updated tracking practices.

QBI Minimum Deduction of $400

A new minimum qualified business income deduction of $400 applies when you have at least $1,000 in QBI and materially participate in your business. This guarantees at least some QBI deduction even in situations where the amount might otherwise phase out.

No Tax on Tips (OBIA Provisions)

Recent federal tax legislation introduced provisions around tip income that may affect restaurants and service businesses. Our team stays current on how these provisions interact with your payroll reporting and business tax return. Ask about this specifically at your appointment if you operate a tip-reporting business.

RECORD KEEPING REQUIREMENTS

The IRS does not require any particular system — only that your records are accurate, complete, and available if requested. Here is what you need to maintain and for how long.

What the IRS Requires on Every Receipt

For expenses of $75 or more, you must have a receipt. Every receipt needs to show the date, amount, vendor name, description of goods or services, and payment method. For meals, also document the business purpose and the names and roles of everyone present. For vehicle expenses, your mileage log must record the date, destination, business purpose, and miles driven for every trip — kept at the time of travel, not reconstructed at year end.

How Long to Keep Records

Keep tax returns and supporting documentation for at least three years from the filing date. Employment tax records require four years. If you substantially underreported income (25% or more), the IRS has six years to audit. Our practical recommendation: keep everything for seven years. Digital storage makes this easy and the cost is negligible compared to the risk of missing documentation.

Digital Records Are Fully Accepted

The IRS accepts scanned receipts, emailed receipts, digital photos of paper receipts, and records maintained in accounting software. Use a receipt scanning app like Expensify, Dext, or Shoeboxed. Back up to cloud storage and keep duplicate copies. Most modern accounting platforms store receipt images directly alongside the transaction.

Accounting Software Recommendations by Business Size

Freelancers and solo operators: Wave (free) paired with a free mileage app like Stride provides solid basic tracking. Small businesses with 1 to 10 employees: QuickBooks Online or Xero with built-in receipt capture and bank feeds handles most needs at $20 to $35 per month. The cost of accounting software is itself a deductible business expense.

Avoiding Common Audit Red Flags

Most small business audits are triggered by specific patterns in a return, not random selection. Understanding what draws attention helps you document your legitimate deductions properly and avoid mistakes that attract scrutiny.

Reporting Consistent Losses Year After Year

The IRS may reclassify your business as a hobby if it shows a loss in three or more of five consecutive years. If your business is genuinely profitable on a cash basis but shows losses due to depreciation or other legitimate deductions, documentation of your profit intent and business activity is important. We can help you structure this correctly.

Large Home Office Deductions Relative to Income

A home office deduction is not inherently an audit trigger, but a home office deduction that equals or exceeds your business income raises questions. Use the correct calculation method, maintain measurements, and document exclusive business use. The deduction is legitimate when properly supported.

100% Business Use of a Vehicle

Claiming that a vehicle is used 100% for business is an immediate flag when the vehicle is not clearly a commercial-only asset. Most business owners use vehicles for some personal purposes. Document business use accurately, maintain your mileage log, and claim the correct percentage.

High Meal and Entertainment Deductions

Meals in excess of what is typical for your industry or income level relative to reported income stand out. Now that entertainment is entirely non-deductible and workplace meals are 0% deductible, any entertainment misclassified as a meal adds further risk. Document every meal thoroughly.

Misclassifying Employees as Contractors

Worker misclassification is a serious compliance issue. If the IRS determines that your 1099 contractors should have been W-2 employees, you face back taxes, penalties, and interest. The behavioral control test, financial control test, and type of relationship all factor into proper classification. Ask us if you are unsure about any worker’s status before filing.

Significantly Rounding Numbers

Returns full of rounded numbers — every expense ending in $0 or $00 — suggest estimated rather than documented amounts. Track and claim actual figures from your records.

How Your Business Entity Affects Your Tax Return

Your legal business structure determines which tax forms you file, how your income and deductions are treated, and what strategies are available to you. Here is a practical overview for each entity type.

Sole Proprietor and Single-Member LLC

You report business income and expenses on Schedule C attached to your personal Form 1040. All deductions discussed in this guide apply here. You are subject to self-employment tax of 15.3% on net profit, but 50% of that is deductible as an above-the-line adjustment. The qualified business income deduction of up to 20% is available. Simple, low-cost to maintain, and suitable for most early-stage businesses.

Partnership and Multi-Member LLC

The partnership files Form 1065 and issues a Schedule K-1 to each partner showing their share of income, deductions, and credits. Partners report their K-1 information on their personal returns. The partnership itself does not pay federal income tax. The QBI deduction passes through to partners on the K-1.

S-Corporation

The S-Corp files Form 1120-S and issues K-1s to shareholders. Owner-employees must pay themselves a reasonable W-2 salary, which reduces the amount subject to the self-employment tax equivalent. Distributions beyond the salary are not subject to Social Security and Medicare taxes — this is the primary tax advantage of S-Corp status. Most small business owners benefit from S-Corp election when net profit consistently exceeds $60,000 to $80,000. Payroll processing is required, which adds cost and compliance complexity.

C-Corporation

The C-Corp pays corporate income tax at a flat 21% federal rate, and shareholders pay personal income tax on dividends received — creating double taxation. For most small businesses this structure is not advantageous, but it can make sense when seeking outside investment, planning to go public, or retaining significant earnings in the business. Charitable contributions are deductible by the corporation up to 10% of taxable income.

When to Consider Changing Your Structure

Entity structure planning should be revisited as your business grows. If you are consistently profitable and have not evaluated your entity structure in the past two years, bring this up at your next tax appointment. The right structure can save thousands annually in self-employment taxes alone.

Commonly Missed Deductions — Do Not Leave Money on the Table

Even business owners who are diligent about tracking expenses often overlook these categories. Review each one against your prior-year records.

Software subscriptions: SaaS tools add up fast. Zoom, Slack, Adobe Creative Cloud, Canva, project management platforms, website hosting, email marketing, and cloud storage are all deductible. Small businesses commonly miss $1,000 to $3,000 annually here.

Bank fees and credit card fees: Monthly maintenance fees, transaction fees, and merchant processing costs from Square, Stripe, or PayPal are deductible. Review every monthly statement — this category often totals $500 to $1,500 per year.

Professional development: Online courses relevant to your current business, certification exam fees, industry conference registration, books, trade publications, and LinkedIn Premium when used for business development are all deductible.

Home office (when legitimate): Many business owners avoid this deduction due to unfounded audit fear. When the space is genuinely exclusive to business use, the deduction is valid and can be worth $1,500 to $5,000 or more annually.

Self-employed health insurance: If you pay for your own health coverage, the full premium for yourself, your spouse, and dependents is deductible — above the line, not on Schedule C. This is one of the most valuable deductions available and is frequently missed.

Startup costs from prior years: If you started your business in the last few years, costs incurred before you opened — market research, legal fees, pre-opening advertising — may be amortizable. If these were not captured in earlier returns, there may be an opportunity to amend.

Retirement plan contributions: Self-employed retirement contributions reduce both income tax and, in some cases, self-employment tax. If you are not contributing to a SEP-IRA or Solo 401(k), you are likely leaving significant tax savings unclaimed.

Client gifts up to $25 per person: Small tangible gifts to clients and referral sources are deductible up to $25 per recipient per year. Keep a log of who received gifts and the business relationship.

Part of your cell phone bill: If you use your personal phone for business, the business-use percentage is deductible. Document how you calculated it.

Mileage to the post office, bank, or supply store: Local business errands are deductible at the standard mileage rate. Many small business owners track long trips but miss the short ones that add up over the year.

Your Tax Season Action Plan

Throughout the Year

Set up a separate business bank account and credit card if you have not already. Choose accounting software and categorize expenses weekly or monthly. Install a mileage tracking app and log every business trip at the time of travel. Scan and save receipts immediately — do not wait until December. Set quarterly reminders to pay estimated taxes and review your deduction categories.

Quarterly Tasks

Review your profit and loss statement, calculate and pay estimated federal and Illinois state taxes, reconcile all business accounts, update your mileage log, and review any uncategorized transactions. If you are behind on estimated payments, address this now rather than at filing time.

Before Your Tax Appointment at Wozny Tax

Run your annual P&L and Balance Sheet. Total each deduction category. Organize receipts by category. Calculate your total annual business miles and home office measurements if applicable. Gather all 1099s you received and all 1099-NECs you issued to contractors. Make a list of any questions you want to discuss — entity structure, prior-year errors, retirement planning, or upcoming major purchases.

After You File

Pay any balance owed by the filing deadline. Set up your quarterly estimated tax schedule for the next year. Archive your prior year records — keep them for at least seven years. Identify any record-keeping gaps and address them before they happen again.

2026 Tax Key Figures — Quick Reference

Schedule C Line-by-Line Deduction Reference

Frequently Asked Questions About Small Business Tax Preparation

Are tax preparation fees deductible for small businesses?

Yes. The portion of your tax preparation fees that relates to your business return — Schedule C preparation, S-Corp return preparation, payroll tax compliance, and similar business-related work — is a deductible business expense on Schedule C, Line 17. Personal return preparation fees are not deductible under current tax law (suspended through at least 2025). Most tax preparers, including our team, can provide a fee allocation if you need one documented for your records.

How much does small business tax preparation cost?

Tax preparation fees vary based on the complexity of your return, the type of entity, number of states, and how organized your records are when you arrive. A simple Schedule C for a sole proprietor with clean records costs significantly less than an S-Corp return with multiple partners and payroll. The Wozny Tax Company offers transparent pricing — call us at (708) 479-1700 or schedule a consultation to discuss your specific situation and get an accurate estimate before you commit.

What is the difference between a tax deduction and a tax credit?

A deduction reduces your taxable income. A $10,000 deduction at a 24% tax rate saves you $2,400. A credit reduces your tax bill dollar-for-dollar — a $2,400 credit saves exactly $2,400 regardless of your tax rate. Credits are more powerful but less common. Most of what this guide covers are deductions. When credits are available — like the Work Opportunity Tax Credit or research credits — they are even more valuable and worth asking about specifically.

Which tax preparer is best for small businesses?

The best tax preparer for a small business is one with direct experience preparing the type of return you need — Schedule C for sole proprietors, Form 1120-S for S-Corps, or Form 1065 for partnerships — and familiarity with your industry. Credentials matter: CPAs and Enrolled Agents can represent you before the IRS if needed, which unlicensed preparers cannot. Local preparers who know Illinois state tax law and who serve businesses similar to yours provide year-round value beyond just filing your return. The Wozny Tax Company has served small businesses in Mokena and the surrounding Will County area for years with exactly this profile.

Can a tax preparer call the IRS on my behalf?

A Certified Public Accountant or Enrolled Agent can represent you before the IRS, including responding to notices, negotiating on your behalf, and handling audits. If your preparer does not hold one of these credentials, their ability to represent you is limited to the return they prepared. This is one reason credentials matter when choosing who prepares your business taxes.

When should I start preparing my small business taxes?

Effective small business tax preparation happens throughout the entire year — not in February or March. Weekly expense categorization, real-time mileage logging, and monthly reconciliation put you in a position where tax season is simply a matter of running reports and scheduling your appointment. If you start from scratch each spring, plan to book your appointment in January or early February before slots fill. S-Corp and partnership returns are due March 15, earlier than individual returns. Individual returns and Schedule C filers have until April 15.

What tax preparation software is best for small businesses?

If you plan to prepare your own small business return, TurboTax Self-Employed and H&R Block Self-Employed handle Schedule C returns with guided interview-style input. FreeTaxUSA offers a lower-cost alternative for straightforward returns. However, these tools only work as well as the records and judgment the person using them brings. For S-Corps, partnerships, or any situation with depreciation, payroll, multiple income streams, or prior-year issues, professional preparation is a better value. Missed deductions and errors cost more than the preparation fee.

Are tax preparation fees deductible in Illinois?

Illinois follows federal rules for business expense deductions. The business portion of tax preparation fees is deductible on your federal Schedule C, which flows through to your Illinois return. Illinois does not conform to all federal tax provisions, so there can be differences — particularly around bonus depreciation and Section 179 — that require separate Illinois calculations. This is another area where working with a local preparer familiar with Illinois law provides value that out-of-state software cannot replicate.

Will tax preparers become obsolete with AI and software?

Software handles data entry well. What it cannot provide is the strategic judgment to identify which deductions you are missing, whether your entity structure is costing you money, how to respond to an IRS notice, or whether an upcoming business decision has tax consequences. Tax law is complex, changes frequently, and interacts differently with every business’s specific circumstances. The role of a trusted local tax professional — someone who knows your business, tracks law changes, and is accountable to you — is not replaced by software. It is complemented by it.