Common Small-Business Tax Deductions

beginner6 min read · updated 2026-06-20

Common Small-Business Tax Deductions

A deduction lowers the income you pay tax on. If your business nets $80,000 and you have $20,000 of legitimate deductible expenses, you are taxed on $60,000 — not $80,000. The IRS standard for an expense to be deductible is that it must be "ordinary and necessary" for your trade or business (an ordinary expense is common and accepted in your field; a necessary expense is helpful and appropriate). This guide walks the deductions most small businesses actually use, where each one lives on the return, and how to claim it without overreaching.

Education, not advice. The numbers below reflect current IRS guidance as of the last-updated date. Rates and limits change every year — verify against the official IRS pages cited before you file, and run anything non-obvious past a CPA.

The deductions most small businesses use

1. Home office

If you use part of your home regularly and exclusively as your principal place of business, you can deduct it. There are two methods:

• Simplified method: 5 per square foot, up to 300 square feet — a maximum of 1500 per year. No detailed records required.
• Regular (actual expense) method: Deduct the business-use percentage of rent/mortgage interest, utilities, insurance, and depreciation, calculated on Form 8829.

"Exclusively" is the trap most people miss — a desk in a corner of a room you also use personally generally does not qualify. See IRS Topic no. 509.

2. Vehicle / mileage

You can deduct business driving (not commuting) two ways, and you pick one per vehicle:

• Standard mileage rate: For 2026 the business rate is 0.725 per mile (it was 0.70 per mile in 2025). Multiply business miles by the rate.
• Actual expense method: Deduct the business-use share of gas, repairs, insurance, registration, and depreciation.

Keep a contemporaneous mileage log (date, miles, purpose). Note: if you take a Section 179 deduction on the vehicle, you generally must use actual expenses going forward.

3. Equipment and software (Section 179 / depreciation)

Big purchases like computers, machinery, furniture, and off-the-shelf software are normally depreciated over several years. Section 179 lets you instead expense the full cost the year you place it in service, up to a generous cap — the limit is 2500000 for qualifying property. Most small businesses never approach the cap; the value is the timing — write it off now instead of over five years.

4. Supplies, software subscriptions, and dues

Ordinary consumables and recurring tools — printer paper, shipping materials, SaaS subscriptions you use to run the business, professional/trade association dues. These go in the relevant Schedule C expense lines (supplies, other expenses).

5. Professional services and contractors

Fees you pay to accountants, attorneys, consultants, and freelancers are deductible. If you pay any unincorporated contractor $600 or more in a year, you generally must issue a Form 1099-NEC — keep their W-9 on file.

6. Marketing and advertising

Website hosting, ads, design, printed collateral, and promotional costs are fully deductible business expenses.

7. Business insurance and bank/merchant fees

Liability, professional, and property insurance premiums; plus business bank account fees and the processing fees Stripe/Square/PayPal take out of each sale.

8. Health insurance (self-employed)

Self-employed people with a net profit can often deduct health insurance premiums for themselves and their family as an above-the-line adjustment — not on Schedule C, but it still lowers taxable income.

9. Retirement contributions

Contributions to a SEP-IRA, SIMPLE IRA, or Solo 401(k) are deductible and are one of the largest legitimate levers a profitable owner has.

10. Qualified Business Income (QBI) deduction

A pass-through deduction of up to 20% of qualified business income for eligible sole proprietors, partnerships, and S-corps. You take it whether or not you itemize. Income limits and a "specified service" carve-out apply at higher incomes — this is the one most worth a CPA conversation.

How to claim them: step-by-step

• Pick your entity's form. Most sole proprietors and single-member LLCs report business income and deductions on Schedule C attached to Form 1040. Partnerships and S-corps file their own returns (1065/1120-S) that flow to your personal return.
• Separate business from personal — first. Open a dedicated business bank account and card. Commingled accounts are the single biggest reason deductions get disallowed in an audit.
• Track everything as you go. Use bookkeeping software (or a clean spreadsheet) and categorize every transaction monthly. Reconstructing a year of receipts in April is how deductions get missed.
• Keep the documentation. Receipts, invoices, mileage logs, and a record of business purpose. The burden of proof is on you, not the IRS.
• Map each expense to its Schedule C line. Categories like advertising, car expenses, contract labor, supplies, and "other expenses" each have a line. The Schedule C instructions define what belongs where.
• Handle the special-method items separately. Home office (Form 8829 or the simplified worksheet) and depreciation/Section 179 (Form 4562) have their own forms that feed into Schedule C.
• Don't forget the above-the-line items. Self-employed health insurance, half of self-employment tax, and retirement contributions are taken on Schedule 1, not Schedule C.
• Apply the QBI deduction last. It's calculated on Form 8995/8995-A after your business net income is final.
• Review with a professional before filing. A one-hour CPA review often pays for itself by catching a missed deduction or stopping an aggressive one before it becomes an audit problem.

What NOT to deduct

• Commuting from home to a regular workplace (business trips between work sites are fine).
• Personal expenses dressed up as business — meals with no business purpose, personal-use portions of a vehicle, clothing that is wearable day-to-day.
• The full cost of mixed-use items — deduct only the business-use percentage.
• Anything you can't document. If you wouldn't want to explain it to an auditor with a receipt in hand, leave it off.

The principle to remember

Good deductions are not about being clever — they're about catching every ordinary, necessary, well-documented expense you already incurred. The owners who keep the most are not the most aggressive; they're the most organized. Clean books all year beat a frantic March every time.