Small-business tax deductions, or write-offs, decrease your taxable income. This can lower your business’s tax bill.
If you plan to claim deductions, make sure to keep detailed records. Doing so throughout the year can help you avoid IRS audits. Accounting software can help automate this process.
Here are 24 small-business tax deductions that can help you save money.
1. Startup and organizational costs
2. Cost of goods sold
3. Home office
4. Qualified business income
5. Utilities
6. Insurance
7. Business property rent
8. Auto expenses or mileage
9. Equipment and machinery
10. Office supplies and furniture
11. Software and payment processing fees
12. Advertising and marketing
2. Cost of goods sold
3. Home office
4. Qualified business income
5. Utilities
6. Insurance
7. Business property rent
8. Auto expenses or mileage
9. Equipment and machinery
10. Office supplies and furniture
11. Software and payment processing fees
12. Advertising and marketing
13. Business meals
14. Travel expenses
15. Interest
16. Bad debt
17. Taxes
18. Employee pay
19. Employee benefits programs
20. Employee gifts
21. Contract labor
22. Legal and professional fees
23. Education
24. Tips
14. Travel expenses
15. Interest
16. Bad debt
17. Taxes
18. Employee pay
19. Employee benefits programs
20. Employee gifts
21. Contract labor
22. Legal and professional fees
23. Education
24. Tips
Most apply to sole proprietorships, corporations, LLCs and partnerships. But we also recommend finding a small-business tax advisor to double-check your eligibility.
What’s new with business tax deductions in 2026?
The passage of the "big, beautiful bill" in July 2025 changed several tax laws for business owners. Here's a rundown of the biggest updates.
- Permanent QBI deduction. Sole proprietorships, partnerships, S corporations and certain LLCs can continue to deduct up to 20% of their qualified business income. Previously, the deduction was supposed to expire following the 2025 tax year.
- No tax on tips. Self-employed business owners who receive tips can now deduct them.
- Higher Section 179 expense limit. This deduction limit rose from $1.22 million in 2024 to $2.5 million in 2025 and $2.56 million in 2026. Section 179 lets you immediately deduct qualifying equipment purchases as opposed to depreciating them over time.
- Ability to immediately deduct R&D expenses. Businesses no longer need to amortize research and development expenses.
- Higher interest deduction limit. Businesses can now factor depreciation and amortization into their adjusted taxable income calculation. This increases how much they can claim in business interest deductions.
- Bonus depreciation. Businesses can deduct the entire cost of property bought after Jan. 19, 2025.
Are you overpaying in taxes?
NerdWallet Small Business helps you maximize tax savings and save up to $15,000 with our partner Xendoo's year-round tax services.
1. Startup and organizational costs
Who it applies to: Businesses with startup expenses from before they became operational.
Deduction amount: You may be able to write-off up to $10,000 immediately. But it depends on how much you spent.
- If you spent less than $50,000 in startup or organizational costs, respectively. You can deduct up to $5,000 in each for your first year of operation. Then, you amortize (or evenly spread out) the remaining costs over 180 months.
- If you spent more than $50,000 (but less than $55,000) in either category. Those maximums phase out dollar-for-dollar. For instance, if you spent $52,000 on startup costs, you could take an immediate $3,000 deduction (5,000 - 2,000). Then, you’d amortize the remaining $49,000 (52,000 - 3,000) over 180 months.
- If your expenses exceed $55,000 in either category. You lose that immediate deduction. Instead, you need to amortize the entire expense over 180 months.
Examples of startup costs:
- Advertising.
- Market research.
- Consulting.
- Employee training.
Examples of organizational costs:
- Legal services for forming a corporation or LLC.
- Accounting services.
- Document drafting.
Limitations: Typically, organizational costs don’t apply to sole proprietorships. And you can only deduct startup costs if your business actually opens. Expenses from after you open your doors don’t qualify as startup costs.
🤓 Nerdy Tip
Unsure if an expense qualifies for a deduction? The IRS says every business expense you deduct must be “both ordinary and necessary.” That means it’s a common expense in your industry and helpful to your business. 2. Cost of goods sold
Who it applies to: Businesses that resell or manufacture items.
Deduction amount: Up to 100%. You’ll need to value your inventory at the beginning and end of each tax year to figure your cost of goods sold.
Examples of what can factor into cost of goods sold:
- Raw materials.
- Items that you resell.
- Direct labor (for manufacturing products you sell).
- Storage.
- Packaging.
Limitations: Cost of goods sold excludes indirect expenses for things like marketing and legal assistance. See our explainer on the cost of goods sold for more tips on what to include while calculating it.
Additionally, personal service businesses typically can’t take this deduction.
3. Home office
Who it applies to: Entrepreneurs who have dedicated offices in their living space.
Deduction amount: $5 per square foot (up to $1,500). You can also calculate it as the percentage of space your home office occupies multiplied by all qualifying home expenses.
Examples:
- Rent or mortgage payments.
- Mortgage interest.
- Utilities.
- Home insurance.
- Repairs and maintenance.
Calculation methods:
1. The simplified method: Deduct $5 per square foot of office space up to $1,500.
2. The regular method: Multiply the percentage of space your home office occupies by your total qualified home expenses. For instance, let’s say your monthly home expenses add up to $3,500. And your home office occupies 200 square feet of your 2,000 square foot home. Since your home office takes up 10% of your home (200 / 2,000), you’d deduct $350 (3,500 * 0.1).
Limitations: To qualify, you must use the office regularly and exclusively for business purposes.
4. Qualified business income
Who it applies to: Most sole proprietorships, partnerships and S corporations. Certain LLCs.
Deduction amount: Up to 20% of your qualified business income.
Examples of what factors into qualified business income:
- Net amount of “qualified items of income, gain, deduction and loss” from qualified businesses, according to the IRS.
- Deductible portion of self-employment tax.
- Deductible portion of self-employed health insurance.
- Deductions for retirement plan contributions.
Limitations: This deduction typically isn’t available to C corporations. Additionally, the percentage you can deduct varies depending on how much you make.
In 2026, for example, you qualify for the full 20% deduction if you make less than $201,751 in taxable income. See our article on the qualified business income deduction for more details on who qualifies.
Capital gains and losses, dividends and interest income don’t count toward qualified business income.
LLCs are only eligible if they file taxes as a partnership, S corp or sole prop.
5. Utilities
Who it applies to: Entrepreneurs who run their business out of a brick-and-mortar location or rented office space.
Deduction amount: Up to 100%.
Examples:
- Gas and electricity.
- Trash and recycling.
- Internet and phone.
- Water and sewage.
Limitations: You must use the space regularly and exclusively for business purposes. If you run your business from a home office, see the home office deduction.
6. Insurance
Who it applies to: Businesses that pay insurance premiums.
Deduction amount: Up to 100%.
Examples of eligible insurance premiums:
- Business interruption.
- Overhead.
- Group medical for employees.
- Fire, theft or flood.
- Business auto.
Limitations: Not every policy is eligible. For instance, you can’t deduct insurance premiums for loss of earnings due to sickness or disability. The same generally goes for your life insurance policy. See the IRS’ list of nondeductible premiums for more details.
7. Business property rent
Who it applies to: Businesses that operate out of rented properties.
Deduction amount: Up to 100%.
Examples:
- Rented office space.
- Rented retail space.
- Rented workspaces.
- Rented warehouses for production.
Limitations: Business owners can’t deduct these expenses if they plan to receive equity in the property. You may also be ineligible if your landlord is a close relative and is giving you a deal. If you run your business out of a home office, see the home office deduction for more information.
8. Auto expenses or mileage
Who it applies to: Entrepreneurs who drive for business purposes.
Deduction amount: 72.5 cents per mile driven for business use or up to 100% of business auto expenses.
Examples:
- Mileage driven for business purposes.
Or:
- Business vehicle purchases.
- Business vehicle maintenance and repair.
- Business vehicle insurance and registration.
- Business vehicle parking fees.
- Business vehicle garage rental.
Calculation methods:
1. Calculate actual expenses. This means you deduct the actual expenses related to operating and maintaining your business vehicle. If the business purchased the vehicle during the same tax year, you might have to depreciate its value. That means you spread the deductions out over multiple years.
Let’s say you use the car for business and personal purposes, though. In this case, you need to figure out what percentage of your mileage went toward business travel. Then, you multiply that percentage by the associated vehicle expenses.
2. Use standard mileage rate. The IRS’ standard mileage rate for self-employed individuals and businesses in 2026 is 72.5 cents per mile. For example, if you drove 2,000 miles over the tax year for work purposes, you’d deduct $1,450 (2,000 * 0.725).
Limitations: You can’t use the standard mileage rate in certain instances. For example, if you operate five or more vehicles at the same time, you’ll need to calculate your actual expenses to deduct them.
9. Equipment and machinery
Who it applies to: Businesses that buy equipment and/or machinery.
Deduction amount: Up to 100%. But you usually need to depreciate equipment you plan to use for more than a year. See our depreciation explainer for more information on calculating this value.
However, the OBB expanded the list of equipment that qualifies for immediate 100% deductions. For more details, see our article on how Section 179 works.
Examples:
- Office equipment, like printers.
- Business computers.
- Heavy machinery.
Limitations: You can only depreciate business equipment if you own it and it has a determinable useful life. You must also expect it to last for more than a year.
Your Section 179 deductions cannot exceed $2,560,000 in 2026. This applies to expenses you deduct immediately as opposed to depreciating over time.
10. Office supplies and furniture
Who it applies to: Businesses that use office supplies and furniture to support their operations.
Deduction amount: Up to 100%.
Examples:
- Paper.
- Boxes.
- Pens.
- Staples.
- Chairs.
- Desks.
Limitations: If any of your supplies are useful for more than a year and qualify as capital assets, you must depreciate them instead of immediately taking the full deduction.
Are you overpaying in taxes?
NerdWallet Small Business helps you maximize tax savings and save up to $15,000 with our partner Xendoo's year-round tax services.
11. Software and payment processing fees
Who it applies to: Businesses that accept card payments and/or pay for software for business purposes.
Deduction amount: Up to 100%.
Examples:
- Accounting software.
Limitations: If you also use the software for personal reasons, you can’t deduct 100% of the cost. Let’s say you use a photo editing software subscription just 60% of the time for business purposes. Then you’d only deduct 60% of its cost.
12. Advertising and marketing
Who it applies to: Entrepreneurs that use advertising and marketing services and/or software to promote their business.
Deduction amount: Up to 100%.
Examples:
- Billboards.
- Business cards.
- Email marketing.
- Freelance design work.
- Web development.
Limitations: Like other deductions, these costs must directly relate to your business. And in case of an audit, you should be able to prove it.
» MORE: Best small-businesses apps
13. Business meals
Who it applies to: Businesses that meet with clients over a meal and/or provide meals for employees.
Deduction amount: 50% of meal costs.
Examples:
- Dinners with clients.
- Employee office meals.
- Meals for you and/or your employees during business travel.
Limitations: Meals shouldn’t be excessively fancy. Plus, you and/or an employee must be present for them. You should also purchase them on their own. In other words, you shouldn’t pay for meals on the same receipt as, say, entertainment or other expenses.
14. Travel expenses
Who it applies to: Entrepreneurs who travel for business purposes by car, bus, train or plane.
Deduction amount: Up to 100%.
Examples:
- Airfare.
- Tolls.
- Taxis and other ground transportation.
- Lodging.
- Baggage and shipping.
- Laundry while traveling.
- Tips for any of the above expenses.
Limitations: To qualify as travel, you or your employee must exit the city or area where you conduct business. You must also be away from your tax home for longer than a full workday.
15. Interest
Who it applies to: Businesses that have taken out loans. The business loan interest deduction can also apply to business credit card debt and interest on business vehicle loans.
Deduction amount: Up to 100%.
Examples:
- Interest on business loans.
- Interest on business credit card debt.
- Interest on business vehicle loans.
Limitations: You must be legally liable for the debt and have a “debtor/creditor” relationship with your lender. Some business owners may not qualify for a full deduction. Complete Form 8990 to calculate how much you’re eligible for. If you also use your car for personal purposes, for example, you can only deduct a portion of interest on its loan payments.
16. Bad debt
Who it applies to: Businesses that lent money to an employee or vendor without receiving it back.
Deduction amount: Up to 100%.
Examples of debt that could turn bad:
- Loans to clients, suppliers, distributors and employees.
- Credit sales to customers.
- Business loan guarantees.
Limitations: You have to prove that it was business debt rather than personal debt. You must also have included the amount in your gross income.
17. Taxes
Who it applies to: Businesses that pay federal, state, local and/or foreign taxes.
Deduction amount: Up to 100%.
Examples:
- State and local income tax or state and local sales tax (but not both).
- Real estate tax.
- Employment tax (e.g., your share of FICA, FUTA and state unemployment taxes).
- Excise tax.
- Fuel tax.
Limitations: You have to choose between deducting income tax or sales tax. You cannot deduct both. Additionally, you can only deduct 50% of your self-employment tax.
18. Employee pay
Who it applies to: Business owners with employees other than themselves.
Deduction amount: Up to 100%.
Examples:
- Hourly pay.
- Salaries.
- Bonuses and awards.
- Vacation and sick pay.
- Employee expense reimbursements.
Limitations: To qualify, the pay must be reasonable and for services rendered. This deduction does not apply to sole proprietors, partners and LLC members. The IRS does not consider these individuals “employees.”
19. Employee benefits programs
Who it applies to: Businesses that provide benefits for their employees.
Deduction amount: Up to 100%.
Examples:
- Health plans.
- Education assistance.
- Dependent care assistance.
- Life insurance.
- Adoption assistance.
- Qualified retirement plan accounts.
- Self-employed individuals’ retirement contributions (in most cases).
Limitations: There are deduction caps on certain benefit programs. For example, you can’t deduct more than $5,250 per year in education assistance costs.
20. Employee gifts
Who it applies to: Businesses that provide gifts to employees.
Deduction amount: Up to $25 per year, per employee.
Examples:
- Tangible items, like flowers.
- Gifts for anniversaries, birthdays or holidays.
Limitations: Gift cards and cash are compensation, not gifts. Additionally, you generally don’t count costs for engraving or shipping.
21. Contract labor
Who it applies to: Businesses that hire contractors or freelancers.
Deduction amount: Up to 100%.
Examples of when you might contract out labor:
- For a one-off marketing project.
- For interior design.
- For running a security audit.
Limitations: To be eligible, you must issue Form 1099 to any contract worker receiving $600 or more from you in a given tax year.
22. Legal and professional fees
Who it applies to: Businesses that hire lawyers and/or accounting professionals.
Deduction amount: Up to 100%.
Examples:
- Accountant fees.
- Tax prep and filing fees.
- Legal fees for establishing your business entity.
Limitations: You can’t typically write off legal costs associated with acquiring business assets.
23. Education
Who it applies to: Self-employed individuals with work-related education expenses.
Deduction amount: Up to 100%.
Examples:
- Courses that improve skills required for your job.
- Certifications the law or your employer requires for your job.
- Related research, tuition and textbook costs.
Limitations: The education cannot qualify you for an entirely new business or trade. It also can’t fulfill the minimum education requirements of your current position.
24. Tips
Who it applies to: Self-employed individuals who earn tips as part of their work.
Deduction amount: 100%, up to $25,000.
Examples of occupations that involve tips:
- Chef.
- Musician.
- Cleaner.
- Electrician.
- Plumber.
- Personal service workers.
- Tutors.
- Massage therapists.
Limitations: Your deduction cannot exceed $25,000 or your net income. It doesn’t apply if your adjusted gross income is more than $150,000 (single filer) or $300,000 (joint filer).
Where do you claim small-business tax deductions?
The tax forms you use to claim small-business tax deductions vary depending on your business’s structure. Here’s a breakdown:
- Sole proprietorships: Schedule C (Form 1040).
- Partnerships: Form 1065.
- C corporations: Form 1120.
- S corporations: Form 1120-S.
LLC isn’t an official tax classification. Instead, the IRS typically taxes single-member LLCs as sole proprietorships and multi-member LLCs as partnerships.
What’s the difference between a tax deduction and a tax credit?
Tax deductions decrease your taxable income, whereas tax credits decrease your tax bill. Both minimize how much you pay in taxes — just in different ways.
Let’s say you’re a sole proprietor with an income of $110,000. You take $7,000 in tax deductions, which brings your taxable income to $103,000. This bumps you down to a lower tax bracket (where you owe 22% vs. 24% in federal income taxes).
Without tax credits, you’d owe $22,660 (0.22 * 103,000) in federal income taxes. But let’s say you actually qualify for $2,000 in tax credits. That would bring your tax bill down to $20,660 (22,660 - 2,000).
