What Items Can You Deduct as a Business Expense?

You can claim business expense deductions for the ordinary and necessary costs of running your business, which reduces the income you pay tax on. That covers routine bills like rent, wages, and supplies, plus larger items such as equipment purchases, vehicle use, retirement plan contributions, and the business share of insurance and taxes. Each category has its own rules, limits, and record-keeping demands, and a few common costs (entertainment, commuting, federal income tax) don’t qualify at all.

The Ordinary and Necessary Test

To be deductible, an expense has to be both “ordinary” and “necessary.” Ordinary means it’s common and accepted in your line of work. Necessary means it’s helpful and appropriate for the business; it doesn’t have to be indispensable.¹ Compensation carries an extra condition: the pay must be reasonable for the services performed. A salary that far exceeds market rates for similar work can be partially disallowed.

The burden of proof is yours. The IRS can throw out any deduction you can’t back up with documentation showing the amount, the date, and the business purpose. Keep receipts, invoices, bank statements, and a short note tying the expense to your business. Sloppy records don’t just cost you the deduction; they can add penalties and interest on the underpayment that follows.

Everyday Operating Costs

Most recurring costs of keeping the business running are deductible in full in the year you pay them.

Salaries and wages, including bonuses and commissions, along with the employer’s share of Social Security, Medicare, and unemployment taxes, provided total pay is reasonable for the work performed.¹
Rent for office space, warehouses, or retail locations used for business, plus utilities like electricity, internet, phone, and water.
Office supplies and consumables such as paper, ink, postage, packaging, and software subscriptions.
Professional fees paid to accountants, lawyers, consultants, and bookkeepers for services connected to your business.
Advertising and marketing, including digital ads, website hosting, business cards, print ads, and promotional materials.

Payments to Independent Contractors

Payments to freelancers and independent contractors are deductible the same way employee wages are, but reporting differs. For 2026, you must file Form 1099-NEC for any contractor you pay $2,000 or more during the tax year, up from the prior $600 threshold.² Missing the filing doesn’t wipe out your deduction, but it can trigger its own penalties and invite IRS attention through the mismatch.

Travel, Meals, and Entertainment

This is the area the IRS watches most closely, because the line between business and personal spending gets thin.

Business Travel

Travel is deductible when you’re away from your “tax home” long enough that you need to stop for sleep or rest. Your tax home is the city or general area of your primary place of business, not necessarily where you live.³ Deductible costs include airfare, train tickets, rental cars, lodging, dry cleaning on the road, and related tips.

When a trip mixes business with personal time, only the business portion is deductible. Fly to a conference and add three vacation days, and the conference registration and hotel nights during the conference are deductible; the weekend at the beach isn’t. Whether the flight itself is deductible depends on the trip’s primary purpose.

Meals

Business meals are deductible at 50% of the cost, tax and tip included, as long as the meal isn’t lavish and is directly tied to business activity.³ You or an employee must be present, and there needs to be a genuine business discussion or relationship in play.

A big change took effect in 2026. Meals provided on business premises for the convenience of the employer, which were previously deductible, lost their deduction entirely under IRC §274(o). Employer cafeterias and regular on-site meals for staff are no longer deductible. Occasional overtime meals that qualify as a de minimis fringe benefit under §132 may still be 50% deductible, but only if they’re genuinely occasional and tied to overtime work.

Entertainment

Entertainment is not deductible. Client sporting events, concerts, and golf outings produce zero tax benefit. If you buy food and drinks at an entertainment event, those meal costs can still be 50% deductible, but only if they’re invoiced or receipted separately from the entertainment charges.³

Vehicle Use

If you use a personal vehicle for business, you deduct the business-use portion through one of two methods, and the choice can change your deduction substantially.

The standard mileage rate for 2026 is 72.5 cents per business mile.⁴ That single rate covers gas, oil, repairs, insurance, registration, and depreciation. To use it you have to choose it in the first year the vehicle is available for business use. You can’t switch to standard mileage after claiming actual expenses and depreciation on the same vehicle in a prior year.

The actual expense method requires you to track every cost of running the vehicle (fuel, maintenance, tires, insurance, registration, lease payments, depreciation) and deduct the business-use percentage. Drive the car 70% for business, deduct 70% of the costs.

Both methods demand a mileage log recording the date, destination, business purpose, and miles for each trip. This is the record the IRS asks for first in an audit, and it’s the one people most often skip. A phone app that logs trips automatically beats reconstructing a year of driving from memory.

Home Office

If you use part of your home exclusively and regularly as your principal place of business, or as a space where you meet clients, you can deduct a portion of your housing costs.⁵ The “exclusively” part is where people slip up. A guest bedroom that doubles as an office won’t qualify unless the business area is a clearly defined, dedicated space.

The simplified method gives you $5 per square foot of dedicated office space, up to 300 square feet, capping the deduction at $1,500 per year.⁵ No tracking of household bills, no depreciation calculation.

The actual expense method figures the percentage of your home used for business, usually by square footage, and applies that percentage to mortgage interest or rent, property taxes, utilities, homeowner’s insurance, and repairs. You also depreciate the business portion of the home itself. This usually produces a larger deduction, but requires more bookkeeping and can trigger depreciation recapture when you sell.

Equipment and Other Capital Purchases

When you buy equipment, furniture, vehicles, or other assets with a useful life beyond one year, you generally can’t deduct the full cost as an ordinary expense. You capitalize the cost and recover it through depreciation. Two provisions let most small businesses write off qualifying property in the year they buy it anyway.

Section 179 Expensing

Section 179 lets you deduct the full purchase price of qualifying equipment and software in the year it’s placed in service. For tax years beginning in 2026, the maximum Section 179 deduction is inflation-adjusted from the statutory base of $2,500,000 and phases out dollar-for-dollar once total qualifying property placed in service exceeds $4,000,000.⁶ The inflation-adjusted 2026 figures are approximately $2,560,000 and $4,090,000. One catch: the Section 179 deduction can’t exceed your taxable business income for the year, so it can’t create or increase a net loss.

Bonus Depreciation

Bonus depreciation gives an additional first-year deduction on qualifying property. Legislation signed in 2025 permanently restored the bonus depreciation rate to 100% for qualifying property acquired and placed in service after January 19, 2025.⁷ Bonus depreciation is applied after any Section 179 deduction and before regular depreciation.⁸ Unlike Section 179, bonus depreciation can create a net operating loss. Between the two, most small and mid-sized businesses can write off the entire cost of equipment purchases in the year of acquisition.

Startup and Organizational Costs

Expenses paid before your business officially opens are handled differently from ongoing costs. You can immediately deduct up to $5,000 in startup costs in the year the business begins, but that $5,000 allowance drops dollar-for-dollar once total startup expenses exceed $50,000.⁹ Anything above the immediate deduction is amortized over 180 months, starting with the month the business opens.

Startup costs include market research, scouting locations, launch advertising, pre-opening employee training, and travel to line up suppliers or distributors. Organizational costs for forming an LLC or corporation (filing fees, legal drafting of operating agreements) follow the same $5,000 immediate deduction and 180-month amortization under a parallel provision. Spend $53,000 launching a business and your first-year deduction is $2,000, with the remaining $51,000 spread over 15 years.

Retirement Plan Contributions

Contributions to qualified retirement plans are among the largest deductions available to small business owners, and they build long-term wealth at the same time.

SEP IRA: employer contributions can’t exceed the lesser of 25% of the employee’s compensation or $72,000 for 2026. Setup and administration are light. Employees can’t make their own salary deferrals into a SEP.¹⁰
Solo 401(k): available to self-employed people with no employees other than a spouse. You contribute as employee (up to $24,500 in elective deferrals for 2026) and as employer (up to 25% of compensation), with a combined cap of $72,000 excluding catch-ups. Age 50 and older adds $8,000; ages 60 through 63 get a higher catch-up of $11,250.¹¹
SIMPLE IRA: for businesses with 100 or fewer employees. Employees can defer up to $17,000 for 2026, with a $4,000 catch-up at 50 and older ($5,250 for ages 60–63). The employer either matches deferrals dollar-for-dollar up to 3% of compensation or makes a flat 2% nonelective contribution for all eligible employees.¹²¹³

Employer contributions and matches are deductible on the return where business income is reported. For sole proprietors, the deduction for your own contributions as owner appears on Schedule 1 of Form 1040, reducing adjusted gross income.

Taxes, Interest, and Insurance

Deductible Taxes

Taxes paid in the course of business are deductible: the employer’s share of Social Security and Medicare, state and local income or franchise taxes on business profits, real estate taxes on business property, and personal property taxes on business equipment. Federal income tax is never deductible.¹⁴

Self-employed people pay both the employer and employee portions of Social Security and Medicare, totaling 15.3% of net self-employment income. You can deduct the employer-equivalent half when calculating adjusted gross income.¹⁵ That deduction doesn’t cut your self-employment tax itself, but it does lower the income subject to regular income tax.

Business Interest

Interest on business debt is deductible, whether it’s a term loan, line of credit, equipment financing, or business credit card. Businesses with average annual gross receipts of $31 million or less over the prior three years are generally exempt from the business interest limitation that applies to larger companies.¹⁶ For most small businesses, interest is straightforwardly deductible without hitting a cap.

Insurance

Premiums for business insurance are fully deductible. Common types include general liability, commercial property, professional liability, business interruption, and workers’ compensation.

Health insurance gets special treatment for the self-employed. If you’re not eligible for an employer-sponsored plan through a spouse’s job or another source, you can deduct 100% of the premiums you pay for medical, dental, and vision coverage for yourself, your spouse, and your dependents.¹⁷ The deduction is limited to your net self-employment income from the business under which the plan is established, and it’s claimed on your personal return rather than on Schedule C.

Education and Professional Development

Training expenses are deductible when they maintain or improve skills you already use in your current business. A freelance web developer taking an advanced JavaScript course, or a plumber attending a code-compliance seminar, can deduct tuition, books, supplies, and related travel.¹⁸ Industry conferences, professional certifications, and continuing education required for a license all count.

The education can’t qualify you for a new trade or business. If a marketing consultant enrolls in law school, the tuition isn’t deductible as a business expense, however useful the degree might be. The distinction is between sharpening the skills you have and acquiring new professional credentials.

What You Cannot Deduct

A few common costs never make it onto a return.

Personal expenses, even when they happen during business hours. Commuting from home to a regular workplace, personal clothing that isn’t a uniform unsuitable for everyday wear, and personal meals all fail the test.
Government fines and penalties. Any amount paid to a government entity for violating a law is non-deductible, including traffic tickets, OSHA fines, environmental penalties, and tax penalties.¹⁹
Political contributions and lobbying. Donations to candidates, parties, or PACs are barred, as are lobbying expenses aimed at influencing legislation at any level of government.
Federal income tax, personal or corporate.¹⁴

The Hobby Loss Trap

If the IRS reclassifies your business as a hobby, every deduction disappears. The agency looks at whether you run the activity with genuine profit intent, weighing factors like whether you keep proper books, adjust methods to improve profitability, and depend on the income.²⁰ There’s a useful safe harbor: if your activity turns a profit in at least three out of five consecutive years, the IRS presumes it’s a legitimate business. Missing that benchmark doesn’t make it a hobby automatically, but it shifts the burden to you to prove profit motive some other way.

1
Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses
2
Internal Revenue Service. 2026 Publication 1099 – General Instructions for Certain Information Returns
3
Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses
4
Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents per Mile, Up 2.5 Cents
5
Internal Revenue Service. Simplified Option for Home Office Deduction
6
Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets
7
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
8
Internal Revenue Service. Publication 946 (2025), How To Depreciate Property
9
Office of the Law Revision Counsel. 26 USC 195 – Start-Up Expenditures
10
Internal Revenue Service. SEP Contribution Limits (Including Grandfathered SARSEPs)
11
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026
12
Internal Revenue Service. Retirement Topics – SIMPLE IRA Contribution Limits
13
Internal Revenue Service. Retirement Plans FAQs Regarding SIMPLE IRA Plans
14
Internal Revenue Service. Topic No. 503, Deductible Taxes
15
Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
16
Internal Revenue Service. 2025 Instructions for Schedule C (Form 1040)
17
Internal Revenue Service. 2025 Instructions for Form 7206
18
Internal Revenue Service. Topic No. 513, Work-Related Education Expenses
19
Internal Revenue Service. Transitional Guidance Under Sections 162(f) and 6050X
20
Internal Revenue Service. Know the Difference Between a Hobby and a Business