Paying taxes is a normal part of running a business, but paying more than you owe is not. Small business tax deductions let you subtract eligible business costs from your income, which lowers the profit you are taxed on. Knowing which deductions may apply, and keeping the records to support them, helps you file with confidence.
This guide explains how deductions work, which ones are common, and how to keep your records in order. It is general information, not tax advice, and it focuses on federal rules. For the official details, the IRS explains each topic in IRS Publication 334, Tax Guide for Small Business.
What Are Small Business Tax Deductions?
A tax deduction is an amount you subtract from your business income before your tax is calculated. Deductions reduce your taxable income. A tax credit is different, because a credit reduces the tax itself. A $1,000 deduction does not cut your tax by $1,000. The savings depend on your tax rate.
Your business structure also matters. Sole proprietors and single-member LLCs that have not elected corporate treatment generally report business income and expenses on Schedule C. Corporations, partnerships, and S corporations report differently. This guide mainly describes the Schedule C situation.
What Makes an Expense Deductible?
Most business deductions follow the same basic tests.
- Ordinary and necessary. An ordinary expense is common and accepted in your type of business. A necessary expense is helpful and appropriate for your business. It does not have to be essential.
- Business purpose. The cost must relate to running your business, not your personal life.
- Right timing. When you deduct an expense depends on your accounting method. Under the cash method, you generally deduct an expense in the year you pay it. Under the accrual method, you generally deduct it in the year it is incurred. Our guide to cash basis vs. accrual accounting explains the difference.
- Proof. You need records that show what you paid, when, and why.
If you want a system for capturing these costs during the year, see our guide on how to track and manage small business expenses.
Common Small Business Tax Deductions
The business expenses chapter of Publication 334 covers many categories. These are the ones most small business owners meet first.
Rent
Rent you pay for an office, shop, or storage space used in your business is generally deductible.
Employee Pay and Payroll Taxes
Wages and salaries you pay to employees are generally deductible, as are the employer share of payroll taxes. An owner’s own draw as a sole proprietor is not treated as wages, so it is not a deduction.
Insurance
Many business insurance premiums are deductible. Some types of premiums are not, so check each policy before you count it.
Interest
Interest on money you borrowed for business purposes, such as a business loan, is generally deductible. Interest on personal loans is not.
Business Taxes
Certain taxes you pay because of your business, such as employment taxes and real estate or personal property taxes on business property, may be deductible. Federal income tax itself is not.
Legal and Professional Fees
Fees paid to lawyers, accountants, and other professionals for business matters are generally deductible. Publication 334 also addresses tax preparation fees. If you are deciding whether to hire help, see our guide to the small business tax accountant.
Vehicle Expenses
If you use a vehicle for business, you can generally deduct either the standard mileage rate or your actual vehicle costs. The IRS standard mileage rate was 70 cents per business mile for 2025 and is 72.5 cents per business mile for 2026. Commuting between home and your regular workplace is not deductible business travel. Keep a mileage log with the date, miles, and purpose of each trip.
Travel and Meals
Costs of traveling for business, such as transportation and lodging, may be deductible. Deductions for business meals are generally limited to 50% of the cost. For example, if you spend $1,000 on qualifying business meals, you can generally deduct $500.
Home Office
If you use part of your home for business, you may qualify for the home office deduction, whether you own or rent. The IRS sets two basic requirements:
- You use part of your home regularly and exclusively for business.
- Your home is your principal place of business.
If the space is merely appropriate and helpful for your business, it does not qualify. You can calculate the deduction with the regular method, which uses actual expenses, or with the IRS simplified option. The regular method uses Form 8829 for the self-employed. The details are in IRS Publication 587, Business Use of Your Home.
Equipment and Depreciation
When you buy equipment or other property that lasts more than a year, you generally recover its cost through depreciation over time. Two rules can speed that up:
- Section 179. For 2025, the maximum Section 179 deduction is $2.5 million, reduced when the cost of qualifying property placed in service exceeds $4 million.
- Bonus depreciation. The IRS notes a 100% additional first-year depreciation deduction for certain qualified property acquired after January 19, 2025.
These limits can change from year to year, so confirm the current figures before you buy. Depreciation is reported on Form 4562.
Business Bad Debts
In some situations, an unpaid customer debt can be deducted as a business bad debt. The rules depend on your accounting method. A business that uses the cash method generally cannot deduct unpaid invoices it never counted as income.
Deductions Beyond Regular Business Expenses
Some deductions are not business expenses, but they can still lower your tax.
- One-half of self-employment tax. Self-employment tax is 15.3% of net earnings (12.4% Social Security plus 2.9% Medicare). You can deduct one-half of it as an adjustment to income.
- Self-employed health insurance. Eligible self-employed owners may deduct health insurance premiums, with conditions. The IRS uses Form 7206 for this deduction.
- Qualified business income (QBI) deduction. The IRS says the 20% QBI deduction is now permanent for qualified active trades or businesses. Income thresholds and other limits apply, and not every business qualifies.
A Simple Example
This is a hypothetical, simplified example. Maya is a sole proprietor who runs a design business. In one year, she has $90,000 in revenue and these deductible expenses:
- Office rent: $12,000
- Software subscriptions: $1,200
- Business insurance: $1,800
- Advertising: $3,000
- Business mileage: 4,000 miles × $0.725 = $2,900
Her total deductions are $20,900. Her net profit before any other adjustments is $90,000 − $20,900 = $69,100.
This example does not include self-employment tax, the QBI deduction, or other adjustments. You can see how revenue, expenses, and profit fit together in our guide to the profit and loss statement for small business.
Expenses You Generally Cannot Deduct
Publication 334 lists expenses that do not qualify as business deductions. Common examples include:
- Personal expenses. Groceries, personal clothing, and household bills are not business costs.
- Mixed-use costs. If you use a phone or vehicle for both business and personal reasons, you can generally deduct only the business portion.
- Commuting. Travel between home and your regular workplace is personal.
- Federal income tax. Income tax you pay is not a business expense.
An activity that is not carried on to make a profit, such as a hobby, is treated differently from a business.
Records to Keep for Small Business Tax Deductions
Good records are what make a deduction defensible. Keep:
- Receipts and invoices
- Bank and credit card statements
- Mileage logs
- Contracts and agreements
- Purchase records for equipment
Using a separate business bank account keeps business spending in one place and makes records much easier to sort. Regular bookkeeping helps you catch missing receipts before tax time.
How long you keep records depends on the situation. The IRS explains that you generally keep records that support an item on your return until the period of limitations for that return runs out. In general, that means 3 years. It is 6 years if you did not report income that is more than 25% of the gross income shown on your return, and 7 years if you claim a loss from worthless securities or a bad debt deduction. Employment tax records should be kept for at least 4 years. For the full list, see the IRS guidance on how long to keep records.
Common Mistakes With Small Business Tax Deductions
- Mixing personal and business spending in one account
- Deducting expenses without a receipt or other proof
- Deducting 100% of meals instead of the allowed portion
- Claiming a home office that is not used exclusively for business
- Estimating mileage instead of keeping a log
- Assuming state tax rules match federal rules, since states can differ
When to Talk to a Tax Professional
Deduction rules depend on your business structure, your accounting method, and your income. A tax professional can confirm which deductions apply to you and how to claim them. Common questions include choosing between depreciation methods, deciding whether your home office qualifies, and handling a business loss.
Conclusion
Small business tax deductions come down to a few habits: spend on ordinary and necessary business costs, keep your business and personal money separate, and document everything. Learn the main categories, check the current IRS limits before large purchases, and keep your records for the full retention period. Doing this consistently with your small business tax deductions means less stress at tax time and fewer surprises..
Frequently Asked Questions
What are the most common small business tax deductions?
Common deductions include rent, employee pay, insurance, business loan interest, professional fees, vehicle costs, business travel, and part of business meals. Depreciation on equipment and the home office deduction may also apply.
Can I deduct expenses if my business lost money?
Deductions can create a business loss, but loss rules and limits apply. An activity also needs a genuine profit motive to be treated as a business. A tax professional can explain how a loss affects your situation.
Can renters claim the home office deduction?
Yes. The IRS says the home office deduction is available to both homeowners and renters, as long as the space meets the regular and exclusive use requirements and is your principal place of business.
How long should I keep business tax records?
In general, keep records that support your return for at least 3 years. Some situations require longer, such as 6 or 7 years, and employment tax records should be kept for at least 4 years.
Do I have to itemize to claim business deductions?
Business expenses reported on Schedule C reduce your business profit, so they are separate from the standard deduction or itemized deductions on your personal return.