The main business write-off categories on a federal return are day-to-day operating expenses, employee pay and benefits, business travel and meals, depreciation of capital assets, the 20% qualified business income deduction for pass-through owners, and targeted deductions for home offices, vehicle use, business interest, and startup costs. Each category has its own rules about what qualifies, how much you can claim, and what proof the IRS expects. Getting the categories wrong is expensive: the IRS applies a 20% accuracy-related penalty to underpayments caused by negligence or a substantial understatement of tax.1Internal Revenue Service. Accuracy-Related Penalty
Everyday Operating Costs
The broadest category covers what it takes to keep the lights on. Federal law allows a deduction for all “ordinary and necessary” expenses paid during the year in connection with a trade or business.2Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses Ordinary means common and accepted in your industry. Necessary means helpful and appropriate for the work, not indispensable.3Internal Revenue Service. Ordinary and Necessary These costs are generally deducted in full in the year you pay or accrue them.
Typical items in this bucket:
- Rent for commercial space and the utilities that go with it (electricity, internet, water).
- Office supplies you use up during the year, like paper, ink, and postage.
- Insurance premiums for liability, property, professional malpractice, and business interruption coverage.
- Professional fees paid to attorneys, accountants, and consultants for work tied directly to the business.
- Advertising and marketing, including digital ads, print placements, and website hosting, as long as the spend is not capital in nature.
The test each expense has to pass is a clear connection to how you earn income. Personal, lavish, or unrelated costs will not hold up.
Wages, Contractors, and Benefits
Labor is usually the single largest deduction. Wages, salaries, commissions, and bonuses paid to W-2 employees are fully deductible when the pay is reasonable for the work, is for services actually performed, and is actually paid or accrued in the year claimed.2Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses Reasonable means the amount is in line with what similar businesses pay for comparable duties. The IRS looks hardest at compensation in closely held businesses where owners set their own pay.
Payments to independent contractors are deductible too. For tax years beginning in 2026, the reporting threshold for filing a Form 1099-NEC has risen from $600 to $2,000, with an inflation adjustment starting in 2027.4Internal Revenue Service. Publication 1099 – General Instructions for Certain Information Returns Misclassifying an employee as a contractor can trigger back payroll taxes and penalties, so the label matters.
Benefits open up additional write-offs. The employer’s share of health insurance premiums, employer HSA contributions, and employer contributions to qualified retirement plans like a 401(k) or SIMPLE IRA are deductible. So are job-related training and continuing education for staff.
Business Travel and Meals
Travel is deductible when work takes you away from your tax home for substantially longer than a normal workday and you need to sleep or rest before returning.5Internal Revenue Service. Topic No. 511 – Business Travel Expenses Your tax home is the metro area of your main place of business, which is not always where you live. Airfare, car rentals, lodging, and incidentals like tips and dry cleaning are fully deductible on qualifying trips.
Business meals are deductible at 50% of the cost.6Internal Revenue Service. Income and Expenses 2 To qualify, you or your employee must be present, the meal cannot be lavish, and it must serve a direct business purpose, such as a working lunch with a client or a meal during business travel. The temporary 100% deduction for restaurant meals expired after 2022.
Substantiation is where most of these deductions die. You need records made at the time of the expense showing the amount, date, place, business purpose, and attendees. Reconstructing a shoebox of receipts at year-end will not survive scrutiny.
Equipment, Vehicles, and Buildings
When you buy something that lasts more than a year, you generally cannot deduct the full cost immediately. You capitalize it and recover the cost through depreciation. The default system is the Modified Accelerated Cost Recovery System (MACRS), which assigns each asset a recovery period: five years for vehicles and computers, seven years for office furniture and general machinery, 27.5 years for residential rental buildings, and 39 years for nonresidential real property.7Internal Revenue Service. Publication 946 – How To Depreciate Property Personal property is depreciated on an accelerated schedule; buildings use straight-line.
Two provisions let you skip the multi-year wait.
Section 179
Section 179 lets you deduct the full cost of qualifying business property in the year you place it in service.8Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets For 2026, the maximum deduction is $2,560,000, and the limit begins phasing out dollar-for-dollar once total qualifying purchases exceed $4,090,000. The deduction cannot exceed your taxable income from active business operations, though any disallowed amount carries forward. The property has to be bought for business use, not acquired from a related party or converted from personal use.
100% Bonus Depreciation
Bonus depreciation writes off a percentage of qualifying property immediately, on top of or instead of Section 179. The One, Big, Beautiful Bill Act of 2025 permanently restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025, reversing the phase-down that had cut the rate to 60% in 2024 and 40% in early 2025.9Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill Bonus depreciation has no dollar cap, applies to new and used tangible personal property, and can create or increase a net operating loss. Many businesses use Section 179 first to soak up active income, then apply bonus depreciation to what remains.
The 20% Qualified Business Income Deduction
Owners of sole proprietorships, partnerships, S corporations, and other pass-through entities may deduct up to 20% of qualified business income under Section 199A.10Internal Revenue Service. Qualified Business Income Deduction The deduction was set to expire after 2025, and the One, Big, Beautiful Bill Act made it permanent. It is claimed on your personal return and reduces taxable income, though it does not reduce self-employment tax.
The full 20% is available without restriction when your taxable income falls below the phase-in threshold. For 2026, that threshold begins at $201,750 for single filers and $403,500 for joint filers. Above those levels, the deduction may be limited by the W-2 wages your business pays and the cost basis of its depreciable property. Specified service businesses, including law firms, medical practices, and consulting firms, face a stricter rule: the deduction phases out entirely once income clears the top of the range. The overall deduction cannot exceed the lesser of your QBI component or 20% of your taxable income minus net capital gains.
Home Office and Vehicle Use
Home Office
Deducting business use of your home requires that you use a specific area exclusively and regularly as your principal place of business or as a space where you meet clients in the normal course of business.11Internal Revenue Service. Topic No. 509 – Business Use of Home Exclusively means the space cannot double as a guest room or family area. A desk in the corner of a room where you also watch television does not qualify.
You choose between two methods. The simplified method deducts $5 per square foot, capped at 300 square feet and a $1,500 total. The actual expense method takes more work but often produces a bigger number: figure the business-use percentage of your home’s square footage and apply it to mortgage interest or rent, property taxes, insurance, utilities, and depreciation.12Internal Revenue Service. Publication 587 – Business Use of Your Home Under the actual method, the deduction is limited to the gross income from the business use of the home if it would otherwise produce a loss.
Vehicles
For 2026, the IRS standard mileage rate for business use of a vehicle is 72.5 cents per mile.13Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents Per Mile, Up 2.5 Cents That rate covers gas, maintenance, insurance, and depreciation; parking and tolls are added on top. If you own the vehicle, you have to choose the standard mileage rate in the first year of business use, but you can switch to actual expenses later. If you lease, you stick with whichever method you pick for the entire lease.
The actual expense method deducts gas, oil changes, repairs, tires, insurance, registration, and depreciation based on the business-use percentage of total miles. It demands detailed logs but can beat the mileage rate on expensive vehicles with high running costs.
Business Interest and Startup Costs
Interest on loans used for business purposes is generally deductible. Larger businesses run into a cap under Section 163(j) that limits the deduction to business interest income plus 30% of adjusted taxable income plus floor plan financing interest.14Internal Revenue Service. Questions and Answers About the Limitation on the Deduction for Business Interest Expense Small businesses that meet the gross receipts test under Section 448(c) are exempt from this cap altogether. Disallowed interest carries forward.
Startup costs are what you spend before the business opens, including market research, employee training, and travel to scout locations. You can deduct up to $5,000 of these costs in the year operations begin. That $5,000 phases out dollar-for-dollar once total startup costs exceed $50,000 and disappears at $55,000.15Office of the Law Revision Counsel. 26 USC 195 – Start-Up Expenditures Anything you cannot deduct immediately is amortized evenly over 180 months, starting the month you open. Organizational costs for forming a legal entity work the same way, so a new business can potentially write off up to $10,000 in year one across both categories.
What You Cannot Write Off
Some expenses feel business-related but are non-deductible by statute:
- Political contributions and lobbying, no matter how the outcome would affect your business.
- Fines and penalties paid to a government agency, including traffic tickets in a company vehicle and OSHA fines.
- Personal expenses, including commuting between home and your regular workplace, personal clothing you happen to wear to work, and personal meals. The home office deduction matters here because it can turn a trip from a qualifying home office to another business location into deductible travel rather than commuting.
- Business entertainment, including sporting event tickets, golf outings, and concert seats, has been non-deductible since 2018, even when clients attend.
Misclassifying any of these can trigger the 20% accuracy-related penalty on the underpaid tax.1Internal Revenue Service. Accuracy-Related Penalty
Records That Keep the Deduction
A deduction you cannot prove is a deduction you lose. The IRS requires records supporting every item of income, deduction, or credit on your return for the whole period of limitations, usually three years from the date you file.16Internal Revenue Service. How Long Should I Keep Records? Several situations extend that window:
- Six years if you fail to report income that exceeds 25% of the gross income shown on your return.
- Seven years if you claim a deduction for a bad debt or worthless securities.
- Indefinitely if you do not file a return or file a fraudulent one.
- At least four years for employment tax records, measured from the date the tax is due or paid, whichever is later.
Records tied to property you depreciate or amortize get their own timer. Keep those until the period of limitations expires for the year you sell or dispose of the asset, because you need them to figure gain or loss on the sale. Clean digital copies of receipts, invoices, contracts, and mileage logs kept from day one cost far less than reconstructing them under audit.