What You Can and Can’t Write Off as a Business Expense
Running a business means spending money to make money. The good news? Many of those expenses can reduce your tax bill. The not-so-good news? The IRS has specific rules about what counts as a legitimate write-off and what doesn’t, and getting it wrong can mean penalties, back taxes, or a stressful audit.
This guide breaks down the most common business expenses into two clear categories: what you can deduct and what you can’t. We’ve written it for sole proprietors, LLC owners, freelancers, independent contractors, and small S-Corp shareholders; the people who are often doing their own bookkeeping and need straight answers without the accounting jargon.
Table of Contents
The Golden Rule: “Ordinary and Necessary”
Before we get into the lists, you need to understand the IRS’s two-word test for any business deduction. An expense must be both:
- Ordinary: Common and accepted in your trade or industry.
- Necessary: Helpful and appropriate (though not necessarily indispensable) for running your business.
If an expense passes both parts of that test, it’s generally deductible. If it’s personal, lavish, extravagant, or unrelated to your trade, it won’t qualify… no matter how creatively you try to frame it.
What You Can Write Off
Home Office:
If you use part of your home regularly and exclusively for business, you can deduct a portion of your housing costs. The IRS offers two methods:
- Simplified method: Deduct $5 per square foot of your dedicated workspace, up to 300 square feet. That’s a maximum deduction of $1,500, with no complex calculations required.
- Regular method: Calculate the actual percentage of your home used for business, then apply that percentage to your rent or mortgage interest, utilities, insurance, repairs, and depreciation.
*Key Requirement: You must use the space regularly and exclusively for business. A kitchen table where you sometimes answer emails doesn’t count. A spare bedroom converted into a dedicated office does.*
Vehicle Expenses:
When you use your personal vehicle for business purposes (client meetings, deliveries, supply runs, travel between job sites) you can deduct those costs. Choose one of two methods:
- Standard mileage rate: Multiply your business miles by the IRS rate (check IRS.gov for the current year’s rate, as it adjusts annually for inflation). This single rate covers gas, oil, repairs, insurance, and depreciation.
- Actual expense method: Track and deduct the business-use percentage of all vehicle costs: fuel, maintenance, insurance, registration, lease payments, and depreciation.
Whichever method you pick, you’ll need a mileage log showing the date, destination, business purpose, and miles driven for every trip. The IRS requires you to record this documentation at or near the time of each trip, not reconstruct it from memory months later.
| 🚗 New for 2026: Vehicle Loan Interest Deduction The One Big Beautiful Bill Act introduced a deduction for interest paid on auto loans used for business vehicles—up to $10,000 per year through 2028. This is available on top of whichever mileage method you choose. |
Business Meals:
You can deduct 50% of meals with clients, prospects, or employees when you discuss business. To qualify, you need to document:
- The amount spent (keep the itemized receipt, not just the credit card slip)
- The date and location of the meal
- Who was present
- The specific business purpose or topic discussed
*Heads up: You can deduct 100% of company-wide events like holiday parties and summer picnics, as long as you invite the entire staff. However, starting in 2026, meals provided on the employer’s premises for the employer’s convenience (such as a company cafeteria) are generally no longer deductible under new rules in the One Big Beautiful Bill Act.*
Office Supplies, Software, and Subscriptions:
The everyday tools that keep your business running are deductible in the year you buy them. This includes items like:
- Paper, ink, postage, and shipping materials
- Computers, printers, phones, and peripherals
- Business software, cloud storage, and SaaS subscriptions
- Accounting and bookkeeping tools
- Industry-specific tools and equipment
For equipment purchases, two powerful provisions let you deduct large costs immediately rather than spreading them across multiple years:
- Section 179 expensing: Lets you immediately write off qualifying equipment and software purchases up to the annual limit (adjusted for inflation each year, check IRS.gov for the current cap). The deduction can’t exceed your taxable business income for the year.
- Bonus depreciation: The One Big Beautiful Bill Act restored 100% bonus depreciation for most qualifying property placed in service after January 19, 2025. This means you can deduct the full cost of eligible new and used equipment in the year you start using it.
Insurance Premiums:
Premiums you pay to protect your business are deductible. Common examples include general liability, professional liability (errors and omissions), commercial property, workers’ compensation, and business interruption insurance.
If you’re self-employed, you can also deduct 100% of the health insurance premiums you pay for yourself, your spouse, and your dependents. You take this deduction on your personal return as an adjustment to income, meaning you benefit from it even if you don’t itemize. Your business must establish the coverage, and you can’t deduct more than your net self-employment income.
Professional Services:
Fees paid to professionals who help you run or grow your business are deductible. This covers a wide range of services:
- Accountants, CPAs, and tax preparers
- Attorneys (for business-related legal work)
- Consultants and business coaches
- Freelancers and independent contractors you hire
- Bookkeeping and payroll services
Advertising and Marketing:
Spending money to attract customers is one of the most straightforward deductions. You can write off costs for website development, online advertising, social media marketing, business cards, print ads, signage, promotional materials, SEO services, and email marketing platforms.
Business Travel:
When you travel away from your tax home for business, you can deduct transportation (airfare, trains, rideshares), lodging, meals (at 50%), baggage fees, tips related to deductible expenses, and incidental costs like dry cleaning and business calls. The trip’s primary purpose must be business, and you’ll need to keep receipts and records showing the business reason for each expense.
Education and Professional Development:
Courses, workshops, conferences, certifications, and professional publications are deductible when they maintain or improve skills required in your current business. This includes registration fees, travel to conferences, and the cost of relevant books or online courses. However, education that qualifies you for a new career or meets minimum requirements for your current position is not deductible as a business expense.
Retirement Contributions:
Contributions to qualified retirement plans are often the single largest deduction available to self-employed individuals. Options include:
- Solo 401(k): Allows both employee and employer contributions. Combined contribution limits are among the highest of any retirement plan for self-employed individuals.
- SEP-IRA: Employer-only contributions of up to 25% of net self-employment income. You can establish and fund it as late as your tax filing deadline (including extensions).
- SIMPLE IRA: Available to businesses with 100 or fewer employees. Lower contribution limits, but includes an employer match.
The IRS adjusts contribution limits annually for inflation, so always verify current-year caps at IRS.gov or with your financial advisor.
Other Common Deductions Worth Knowing
- Rent and Utilities: For a dedicated business location (separate from your home office deduction).
- Business Interest: Interest on loans used for business purposes, subject to certain limitations.
- State and Local Business Taxes: Including sales tax collected, business license fees, and state income taxes attributable to business income.
- Startup Costs: Up to $5,000 in the first year for businesses with total startup costs of $50,000 or less (you amortize the rest over 15 years).
- Bad Debts: Amounts owed to you by customers that become uncollectible.
- Bank and Merchant Processing Fees: Credit card processing charges, bank service fees, and payment platform costs.
| 💰 The Qualified Business Income (QBI) Deduction: Pass-through business owners (sole proprietors, LLC members, S-Corp shareholders, and partners) can deduct a percentage of their qualified business income under Section 199A. The One Big Beautiful Bill Act made this deduction permanent and increased the rate from 20% to 23% for tax years beginning after December 31, 2025. Income thresholds and phase-out rules apply for certain service-based businesses. If your business is in a field like law, medicine, consulting, or financial services, the deduction may be reduced or eliminated above certain income levels. A tax professional can help you determine your eligibility. |
What You Can’t Write Off
This trips up many small business owners. These are expenses that feel like they should be deductible but aren’t; or are only partially deductible under limited circumstances.
Personal Expenses:
This is the most fundamental rule: personal expenses are never deductible, even if they happen to benefit your business indirectly. Your grocery bill, your gym membership, your Netflix subscription, your personal cell phone plan: none of these qualify unless you can clearly separate and document a business-use portion.
The mixed-use trap: You can partially deduct items like cell phones and internet that serve both personal and business purposes, but only the documented business-use percentage. You’ll need records showing how you determined the split.
Entertainment Expenses:
Since 2018, entertainment expenses have been completely non-deductible. This includes tickets to sporting events, concerts, and theater; golf outings, country club dues, and athletic club memberships; and entertainment facilities or events—even if business is discussed during the activity.
If you take a client to a ballgame and buy dinner at the stadium, the game tickets are not deductible. The meal may be 50% deductible if you can separate it on the receipt and document the business discussion.
Commuting Costs:
Your daily commute between home and your regular place of business is a personal expense. Gas, tolls, parking at your office, and transit passes for getting to and from your primary workplace are all non-deductible. This applies even if you take business calls during the drive.
Trips from your office to a client site, a second business location, or a temporary work assignment, however, are deductible business mileage.
Everyday Clothing:
Business attire (suits, dress shoes, professional clothing) is generally not deductible, even if you only wear it for work. The IRS’s standard is that clothing must be required for work and not suitable for everyday wear. Uniforms with company logos, hard hats, safety gear, and specialized protective equipment qualify. A nice blazer for client meetings does not.
Fines, Penalties, and Legal Violations:
Government-imposed fines and penalties are never deductible. Parking tickets, late tax payment penalties, OSHA fines, regulatory violations, and any settlement payments related to legal infractions cannot be written off; regardless of whether they occurred in the course of doing business.
Political Contributions and Lobbying:
Campaign contributions, donations to political parties, and lobbying expenses are not deductible. This includes payments to attend political fundraisers, contributions to PACs, and money spent trying to influence legislation even if the legislation directly affects your industry.
Land:
The purchase price of land cannot be deducted or depreciated. The IRS considers land a capital asset that doesn’t wear out. Buildings on the land can be depreciated, and certain land improvements with a limited useful life (fences, driveways, parking lots) may qualify for depreciation separately. But the land itself is a permanent capital investment.
Business Gifts Over $25 Per Recipient:
You can deduct business gifts, but only up to $25 per recipient per year. A $200 gift basket for your best client? You can write off $25 of it. Incidental costs like engraving, wrapping, and shipping don’t count toward the $25 limit, but the gift itself is capped.
Hobby Losses:
If the IRS determines that your activity is a hobby rather than a legitimate business, you cannot use losses from that activity to offset other income. Generally, an activity is presumed to be a business if it earns a profit in at least three of the last five years. If your “business” consistently loses money with no clear path to profitability, the IRS may reclassify it.
Other Common Non-Deductible Expenses:
- Federal income tax payments: You cannot deduct your own federal income taxes as a business expense.
- Charitable contributions (on Schedule C): Business owners can deduct charitable donations, but they go on Schedule A of your personal return, not your business return.
- Dues to social clubs: Country clubs, golf clubs, airline lounges, and similar memberships organized for recreation or socializing.
- Capital expenditures (without an election): Costs that create a long-term asset generally must be capitalized and depreciated over time rather than deducted immediately, unless Section 179 or bonus depreciation applies.
Documentation: The Make-or-Break Factor
A deduction is only as strong as the paperwork behind it. The IRS doesn’t require a specific format for your records, but you need enough documentation to prove three things: that the expense was paid, that it was for a business purpose, and what the amount was.
What to keep for every deductible expense:
- Receipts or invoices showing the vendor, date, amount, and what was purchased
- Proof of payment (bank statements, canceled checks, or credit card records)
- A note explaining the business purpose (especially for meals, travel, and vehicle use)
How long to keep records: The IRS generally recommends keeping business tax records for at least three years from the date you filed the return. If you underreported income by more than 25%, the window extends to six years. For records related to property or depreciation, keep documentation for as long as you own the asset plus three years after you dispose of it.
| 📄 Keep Your Receipts Organized Missing or incomplete documentation is the number one reason deductions get denied in an audit. Get in the habit of photographing receipts the same day, noting the business purpose, and filing them in a consistent system—whether that’s a cloud folder, a bookkeeping app, or a dedicated filing cabinet. If you need to generate professional invoices or receipts for your business, FormPros can help you create clean, accurate documents in minutes. |
Key Tax Law Updates to Watch
Tax law doesn’t stand still. The One Big Beautiful Bill Act, signed into law on July 4, 2025, introduced several changes that directly affect small business deductions. Here are the highlights most relevant to everyday business owners:
1) QBI deduction made permanent at 23%: The qualified business income deduction was set to expire at the end of 2025. It’s now permanent, and the rate increased from 20% to 23% for 2026 and beyond. A new minimum deduction of $400 applies for anyone with at least $1,000 in qualified business income.
2) 100% bonus depreciation restored: Full first-year expensing is back for most qualifying business property placed in service after January 19, 2025.
3) Section 179 limits increased: The cap was raised to $2.5 million (indexed for inflation going forward), with a phase-out starting at $4 million in total equipment purchases.
4) Vehicle loan interest deduction: A new deduction for interest on business vehicle loans, up to $10,000 annually, is available through 2028.
5) Employer-provided childcare credit expanded: The maximum credit increased significantly for businesses that provide childcare services to employees.
6) On-premises meals deduction eliminated: Starting in 2026, meals provided on the employer’s premises for the employer’s convenience are generally no longer deductible (with limited exceptions for restaurants and certain industries).
Quick-Reference Cheat Sheet
| Expense | Deductible? | Notes |
| Home office | ✓ Yes | Exclusive & regular use required |
| Business mileage | ✓ Yes | Log required; IRS rate adjusts yearly |
| Business meals | 50% | Must document business purpose |
| Office supplies | ✓ Yes | Fully deductible in year purchased |
| Equipment / software | ✓ Yes | Section 179 or bonus depreciation |
| Business insurance | ✓ Yes | Including self-employed health |
| Professional services | ✓ Yes | Accounting, legal, consulting |
| Advertising | ✓ Yes | Online, print, signage, etc. |
| Business travel | ✓ Yes | Transportation, lodging, meals at 50% |
| Retirement contributions | ✓ Yes | Solo 401(k), SEP, SIMPLE |
| Entertainment | ✗ No | Non-deductible since 2018 |
| Commuting | ✗ No | Home to office is personal |
| Everyday clothing | ✗ No | Must be unsuitable for daily wear |
| Fines / penalties | ✗ No | Government fines never deductible |
| Political donations | ✗ No | Including lobbying expenses |
| Business gifts | $25 max | Per recipient, per year |
| Personal expenses | ✗ No | Even if they help the business |
| Land purchases | ✗ No | Capital asset; not depreciable |
FAQs
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What qualifies as a business expense write-off?
A business expense qualifies as a write-off if it is both ordinary (common in your industry) and necessary (helpful and appropriate for running your business). The expense must be directly related to your trade or business and properly documented with receipts and a record of the business purpose.
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Can I write off meals as a business expense?
Yes, but only 50% of the cost. The meal must involve a business discussion, and you need to document the date, location, attendees, and business purpose. Company-wide events like holiday parties for all employees remain 100% deductible.
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Are entertainment expenses tax deductible?
No. Entertainment expenses such as sporting event tickets, concert tickets, golf outings, and country club dues have been non-deductible since 2018 under the Tax Cuts and Jobs Act (even if business is discussed during the activity).
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Can I deduct my home office on my taxes?
Yes, if the space is used regularly and exclusively for business. You can use the simplified method ($5 per square foot, up to $1,500) or the regular method, which deducts a percentage of your actual housing costs based on the size of your workspace.
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What business expenses are not tax deductible?
Common non-deductible business expenses include personal expenses, entertainment, daily commuting costs, everyday clothing, government fines and penalties, political contributions, lobbying costs, land purchases, and business gifts exceeding $25 per recipient per year.
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How long should I keep business expense records?
The IRS recommends keeping business tax records for at least three years from the date you filed the return. If you underreported income by more than 25%, keep records for six years. For property and depreciated assets, keep records for as long as you own the asset plus three years after disposal.
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What is the Section 179 deduction?
Section 179 allows business owners to immediately deduct the full cost of qualifying equipment, software, and certain property improvements in the year of purchase instead of depreciating them over several years. The deduction limit is adjusted annually for inflation and cannot exceed your taxable business income for the year.
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Can I deduct health insurance premiums if I'm self-employed?
Yes. Self-employed individuals can deduct 100% of health insurance premiums for themselves, their spouse, and their dependents. The deduction is taken as an adjustment to income on your personal return, so you benefit even if you don't itemize. The coverage must be established under your business.
