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Many ordinary and necessary business expenses, like transportation, rent, and supplies, may be deductible and can save your business money each year.
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Small business tax deductions can reduce taxable income, but eligibility rules vary, and not every expense qualifies. This guide breaks down common business tax deductions and explains how they work so you can identify deductible expenses more confidently.
Table of Contents
A tax deduction is a qualifying business expense that reduces your taxable income. To be deductible, an expense must be ordinary and necessary for operating your business, according to IRS guidelines.
How deductions are reported — and which ones apply — depends on your business structure. Some deductions are available to most businesses, while others apply only to certain entities or types of activity.
Below are common business expenses that may qualify as tax deductions. Availability depends on how the expense is used and your business structure.
If you use a personal vehicle for business purposes, you may be able to deduct qualifying business mileage. Examples include client meetings and other business-related errands.
Personal commuting does not qualify.
Businesses may choose either the standard mileage rate or actual vehicle expenses, but not both for the same vehicle. The standard mileage rate is set annually by the IRS.
Instead of using the standard mileage rate, businesses may deduct actual vehicle expenses related to business use. Qualifying expenses can include:
Only the business-use portion of vehicle expenses is deductible, and this method cannot be combined with the mileage deduction for the same vehicle.
Businesses may deduct certain travel expenses incurred while traveling away from their tax home for work. Qualifying expenses can include:
Travel must be primarily for business purposes.
Business meal expenses may be partially deductible if they are ordinary and necessary, not lavish or extravagant, and the taxpayer is present. Meals must generally involve a customer, employee, vendor, or other business contact.
If these requirements are met, 50% of qualifying meal expenses may be deducted. Entertainment expenses are not deductible.
Businesses may qualify for a home office deduction if a portion of the home is used exclusively and regularly for business. Deductions can be calculated using either:
Actual expenses may include rent, utilities, repairs, and other costs related to the business-use portion of the home. This method can result in a larger deduction but requires detailed recordkeeping.
Businesses that own qualifying commercial property may be able to deduct costs over time through depreciation. In some cases, cost segregation allows certain components of a property to be depreciated more quickly.
Ordinary office supplies, such as paper, ink, and breakroom items, are generally deductible in the year they are purchased.
Office furniture and equipment may also be deductible, though larger purchases may need to be depreciated over time rather than expensed immediately.
Businesses that sell products may deduct costs directly associated with producing or purchasing inventory through the cost of goods sold calculation. These costs can include:
Because COGS calculations depend on inventory accounting, businesses should work with an accountant and maintain accurate beginning and ending inventory records.
Tools and equipment used for business purposes may be deductible.
Smaller items may be expensed in the year they are purchased, while larger or longer-lasting equipment typically must be depreciated over multiple tax years.
Businesses that own qualifying commercial buildings — or designers of public buildings — may be eligible for a deduction under IRC Section 179D for installing energy-efficient lighting, HVAC, or building envelope systems.
The deduction amount is generally based on the building’s square footage and the level of energy efficiency achieved. Certification by a qualified professional is required.
Because eligibility rules are technical and have expanded in recent years, businesses should consult a tax professional to determine qualification and proper documentation.
Businesses may deduct ordinary and necessary repair and maintenance costs that keep property in normal operating condition. These expenses must not materially add value to the property or extend its useful life.
Improvements or upgrades may need to be capitalized and depreciated instead.
Businesses may deduct rent paid for office space, equipment, or property used solely for business operations. Rent is not deductible if the business has or will receive ownership or equity interest in the property.
Certain costs associated with relocating a business — such as transporting equipment or inventory — may be deductible as ordinary business expenses.
Personal moving expenses are not deductible, and deductibility depends on the nature of the cost and how it relates to business operations. Businesses should consult a tax professional to determine which relocation costs qualify.
Businesses may deduct utility expenses that are directly related to business operations, including:
If you qualify for the home office deduction, a portion of home utility expenses may also be deductible based on business use.
If internet access is required to operate your business, the cost is generally deductible.
If you work from home and qualify for the home office deduction, you may be able to deduct a portion of your internet costs based on business use. Personal use is not deductible.
Software used to run your business is generally deductible, whether purchased outright or paid as a monthly subscription.
Common deductible software includes:
Wages paid to employees are deductible business expenses, including salaries, hourly wages, and other taxable compensation.
This includes payments made to both full-time and part-time employees.
Employee commissions are deductible because they are treated as taxable compensation. This applies whether commissions are paid alone or in addition to regular wages or salaries.
Most employer-provided benefits are deductible business expenses when offered as part of a compensation package.
Common deductible benefits include:
Deductibility depends on plan structure and compliance with IRS rules.
Employee gifts may be deductible, but the deduction is limited to $25 per employee per year.
Entertainment expenses are not deductible, and certain costs (such as gift wrapping or shipping) may be excluded. Businesses should review current IRS guidance before claiming this deduction.
Businesses may deduct the cost of work-related education provided to employees, provided it maintains or improves job-related skills.
Deductible expenses may include:
To qualify for the annual education assistance exclusion (up to $5,250 per employee), businesses must have a written education assistance program in place.
Certain business insurance premiums are often tax-deductible, including insurance for:
Some taxes paid by a business are deductible, while others are not.
Generally deductible business taxes include:
Federal income taxes are not deductible. Businesses should follow guidance from the Internal Revenue Service to determine which taxes qualify. State and local income taxes paid by pass-through owners on their individual returns are not business deductions.
Ordinary and necessary professional fees are generally deductible when related to business operations.
Examples include fees paid to:
Personal legal or professional expenses are not deductible.
Fees charged by banks and credit card processors are generally deductible if they’re tied to business accounts or transactions.
Common deductible fees include:
Personal banking fees are not deductible.
In most cases, businesses can deduct interest paid or accrued during the tax year on business-related debt, provided the business is legally liable for the loan.
This can include interest on business loans, lines of credit, and business credit cards. If a loan is used for both business and personal purposes, only the business-use portion of the interest is deductible.
Certain types of interest may be limited or excluded, so it’s best to confirm eligibility with an accountant or tax professional.
Advertising and marketing costs are generally deductible when they are directly related to promoting your business.
Deductible expenses may include:
Political advertising is not deductible.
Cleaning and janitorial services for business property are deductible operating expenses. This includes routine cleaning, sanitation services, and supplies used to maintain business facilities.
If you qualify for the home office deduction, a portion of home cleaning expenses may also be deductible based on business use.
Certain non-physical business assets may be deductible or amortized over time, depending on the asset and how it’s acquired.
Examples of intangible assets include:
Many intangible assets must be amortized over a set period rather than deducted in full in the year purchased. Because amortization rules vary, businesses should consult a tax professional to ensure proper treatment.
Charitable contribution treatment depends on business structure:
Charitable contributions are not deductible as ordinary business expenses unless the business is a C corporation.
Small business tax deductions are claimed when you file your business income tax return. The specific forms you use depend on your business structure and the type of expenses you’re deducting.
Common forms include:
Your accountant or tax preparer can help determine which forms apply to your business and ensure they’re completed correctly.
To support your deductions, maintain accurate accounting records and keep receipts and documentation for all deductible expenses throughout the year.
If you failed to claim a deduction on a prior return, you may be able to correct it by filing an amended return, depending on the deduction and how much time has passed. Amended returns are generally subject to IRS time limits, so it’s best to act sooner rather than later.
Because deduction rules and filing requirements can be complex, working with a tax professional can help ensure you claim every deduction you’re eligible for — without creating compliance issues.
The most effective way to maximize small business tax deductions is to maintain accurate records and save receipts for all business expenses throughout the year. Working with an accountant or certified tax preparer can also help ensure you identify every deduction your business qualifies for.
Understanding which expenses are deductible allows you to plan purchases strategically and make informed budgeting decisions. Staying organized and proactive throughout the year can help your business take full advantage of available tax deductions while staying compliant.
There’s no limit on the number of tax deductions a business can claim, but many individual deductions come with specific rules and caps. For example, business meals are generally limited to 50% of eligible costs, while certain assets must be depreciated over time rather than deducted in full.
Because deduction limits vary by expense type and business structure, working with an accountant or qualified tax preparer is the best way to understand how these rules apply to your business.
To stay organized throughout tax season, use our small business tax prep checklist. For personalized guidance, consult your accountant or a trusted tax professional.
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