Small Business Tax Deductions: What You Can Write Off

Small business tax deductions can reduce your taxable income, but eligibility rules vary, and not every expense qualifies. This guide explains how business tax deductions work and highlights common deductions your business may be able to claim.

How Do Tax Deductions Work For Businesses?

A tax deduction is an eligible business expense that reduces your taxable income. To qualify, an expense generally 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. While many deductions are available to most businesses, others apply only to specific industries, business entities, or activities.

Common Small Business Tax Deductions

Below are common business expenses that may qualify as tax deductions. Eligibility depends on your business structure, how the expense is used, and IRS rules.

Advertising & Marketing Expenses

Advertising and marketing costs are generally deductible when they are directly related to promoting your business.

Deductible expenses may include:

• Online and social media advertising
• Print, radio, or billboard ads
• Promotional items and branded materials
• Website design, hosting, and marketing tools
• Business cards and signage

Political advertising is not deductible.

Bank & Credit Card Fees

Fees charged by banks and credit card processors are generally deductible if they’re tied to business accounts or transactions.

Common deductible fees include:

• Monthly account service fees
• Annual credit card fees
• Overdraft and NSF fees
• Wire and transfer fees
• Credit card processing fees

Personal banking fees are not deductible.

Business Meals

Business meal expenses may be partially deductible if they are ordinary and necessary. The expense must generally have a business purpose, and the taxpayer (or an employee) must be present.

If these requirements are met, 50% of qualifying meal expenses may be deducted. Entertainment expenses are not deductible.

Business Mileage

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.

Business Relocation Expenses

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.

Business Taxes

Some taxes paid by a business are deductible, while others are not.

Generally deductible business taxes include:

• State and local income taxes paid at the business level
• Payroll taxes paid by the employer
• Real estate taxes on business property
• Sales taxes paid on business purchases (when not recovered)

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.

Business Travel Expenses

Businesses may deduct certain travel expenses incurred while traveling away from their tax home for work. Qualifying expenses can include:

• Transportation
• Lodging
• Baggage fees
• Dry cleaning
• Business-related communication costs

Travel must be primarily for business purposes.

Car & Truck Expenses

Instead of using the standard mileage rate, businesses may deduct actual vehicle expenses related to business use. Qualifying expenses can include:

• Fuel
• Oil changes
• Repairs
• Maintenance
• Insurance
• Registration
• Parking fees
• Depreciation

Only the business-use portion of vehicle expenses is deductible, and this method cannot be combined with the mileage deduction for the same vehicle.

Charitable Donations

How charitable contributions are deducted depends on your business structure.

• C corporations may deduct charitable donations made directly by the business, subject to IRS limits.
• Pass-through entities (sole proprietorships, partnerships, LLCs, and S corporations) do not deduct charitable contributions at the business level. Instead, donations pass through to the owner and are treated as personal charitable deductions on the individual tax return.

Charitable contributions are not deductible as ordinary business expenses unless the business is a C corporation.

Cleaning & Janitorial Expenses

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.

Cost Of Goods Sold (COGS)

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:

• Raw materials
• Merchandise
• Packaging
• Freight

Because inventory accounting rules can be complex, businesses should maintain accurate inventory records and consult a tax professional when needed.

Depreciation & Cost Segregation

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.

Employee Benefits

Most employer-provided benefits are deductible business expenses when offered as part of a compensation package.

Common deductible benefits include:

• Health insurance premiums
• Retirement plan contributions
• Paid sick leave and vacation pay
• Bonuses
• Accident and disability coverage
• Group life insurance
• Dependent care assistance
• Adoption assistance
• Cafeteria plans and welfare benefit funds

Deductibility depends on plan structure and compliance with IRS rules.

Employee Commissions

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.

Employee Education

Businesses may deduct the cost of work-related education provided to employees, provided it maintains or improves job-related skills.

Deductible expenses may include:

• Tuition
• Books and supplies
• Lab fees
• Certain required travel or transportation costs

To qualify for the annual education assistance exclusion (up to $5,250 per employee), businesses must have a written education assistance program in place.

Employee Wages

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.

Energy-Efficient Commercial Buildings (Section 179D)

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.

Home Office

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:

• The simplified method, based on square footage (set annually by the IRS), or
• The actual expense method, which allocates a portion of qualifying home expenses

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.

Insurance Premiums

Certain business insurance premiums are often tax-deductible, including insurance for:

• Fire
• Storms or floods
• Theft
• Accident
• Loss
• Liabilities
• Malpractice

Interest

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.

Internet Services

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.

Legal & Professional Fees

Ordinary and necessary professional fees are generally deductible when related to business operations.

Examples include fees paid to:

• Attorneys
• Accountants
• Tax preparers
• Business consultants

Personal legal or professional expenses are not deductible.

Office Supplies & Furniture

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.

Property Repairs & Maintenance

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.

Rent

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.

Software Subscriptions

Software used to run your business is generally deductible, whether purchased outright or paid as a monthly subscription.

Common deductible software includes:

• POS software
• Accounting software
• Payroll software
• HR software
• Project management tools
• Email marketing platforms
• Website builders and hosting services

Startup Costs

Businesses may be able to deduct or amortize certain startup costs incurred before opening, subject to IRS limits.

Tools & Equipment

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.

Trademarks, Copyrights, & Other Intangible Assets

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:

• Licenses and permits
• Trademarks
• Patents
• Copyrights

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.

Utilities

Businesses may deduct utility expenses that are directly related to business operations, including:

• Electricity
• Water
• Heating
• Business phone services

If you qualify for the home office deduction, a portion of home utility expenses may also be deductible based on business use.

How To Claim Small Business Tax Deductions

Small business tax deductions are generally claimed when you file your federal income tax return. The forms you use depend on your business structure and the deductions you’re claiming.

Common forms include:

• Schedule C (Form 1040): Used by sole proprietors and single-member LLCs to report business income and expenses
• Schedule E: Used to report pass-through income or losses from S corporations and partnerships (via Schedule K-1), as well as certain rental and royalty income
• Form 8829: Used to calculate and claim the home office deduction
• Form 4562: Used to claim depreciation and amortization deductions for qualifying business property

Your accountant or tax preparer can help determine which forms apply to your business and ensure they’re completed correctly.

Keep accurate accounting records, receipts, invoices, and other supporting documentation for all deductible business expenses. Good recordkeeping makes it easier to prepare your return and substantiate deductions if the IRS requests additional information.

Missed A Deduction?

If you discover that you missed a deduction on a previously filed return, you may be able to claim it by filing an amended return, subject to IRS filing deadlines.

Because deduction rules can be complex, working with a CPA or qualified tax professional can help ensure you claim eligible deductions correctly while remaining compliant with IRS requirements.

How Do You Maximize Small Business Tax Deductions?

The best way to maximize small business tax deductions is to keep accurate financial records and save receipts and supporting documentation for business expenses throughout the year. Working with a CPA or qualified tax professional can also help ensure you identify eligible deductions and claim them correctly.

Understanding which expenses are deductible can help you make informed spending decisions and prepare for tax season. Staying organized year-round makes it easier to maximize available deductions while remaining compliant with IRS requirements.

Is There A Limit On Small Business Tax Deductions?

There’s no limit on the number of tax deductions a business can claim, but many individual deductions have specific eligibility requirements or dollar limits. For example, business meals are generally limited to 50% of eligible costs, while certain assets must be depreciated over time instead of deducted in full.

Because deduction rules vary by expense type and business structure, a CPA or qualified tax professional can help you understand which deductions apply to your business and how to claim them correctly.

To stay organized throughout tax season, use our small business tax prep checklist. For personalized guidance, consult your accountant or a trusted tax professional.