Understanding which expenses are deductible—and how to document them—keeps more money in your business.
A deduction reduces your taxable business income, which reduces the tax you owe. The key is understanding what qualifies, keeping good records, and knowing what does not qualify. Here are the most common deductible expenses for small businesses.
Home office: If you use a portion of your home regularly and exclusively for business, you may deduct a share of your housing costs—rent, utilities, insurance, and repairs—based on the square footage of the office relative to your home. The space must be used exclusively for business; a guest bedroom that doubles as an office does not qualify. You can use either the simplified method (a flat rate per square foot, up to a cap) or the actual-expense method (calculating the precise percentage).
Vehicle expenses: If you drive for business—delivering goods, visiting clients, traveling between job sites—you can deduct either the actual costs of operating the vehicle (gas, maintenance, insurance, depreciation) or the standard mileage rate set by the IRS each year. Keep a mileage log documenting the date, destination, purpose, and miles for each business trip. Commuting from home to your regular workplace is not deductible.
Equipment and supplies: Computers, software, tools, office supplies, and furniture used for the business are deductible. Larger purchases can be depreciated over time or, in many cases, expensed immediately under Section 179, which allows you to deduct the full cost in the year of purchase up to an annual limit.
Professional services: Fees paid to your accountant, lawyer, consultant, and bookkeeper are deductible as business expenses. This includes the cost of tax preparation for the business return (though not the personal portion of your individual return).
Insurance: Business insurance premiums—general liability, professional liability, workers' compensation, commercial property—are deductible. Personal insurance, including health insurance for yourself, is handled differently (self-employed individuals may deduct health insurance premiums as an adjustment to income, not a business expense).
Education and marketing: Training that maintains or improves skills needed in your current business is deductible. Marketing and advertising—website hosting, business cards, online ads, signage—are fully deductible.
The golden rule of deductions is documentation. A credit card statement showing a charge is not enough by itself—the IRS wants to know what the expense was for. Keep receipts and note the business purpose. And remember: an expense must be 'ordinary and necessary' for your trade or business to qualify—personal expenses are never deductible, even if you pay for them from a business account.
This article is general educational information and is not tax advice. Deduction rules, limits, and thresholds change. A consultation can help you confirm what applies to your specific situation.
This article is general educational information and is not legal, accounting, tax, or investment advice. Rules, limits, and thresholds change. Insurance products and availability vary by state, carrier, underwriting, and licensing. Coverage is not effective until approved and issued by the carrier. Consult our office for guidance specific to your situation.