Small Business Tax Deductions: What Owners Can Write Off

Most lists of small business deductions for taxes stop at the names. This one adds the rule that governs each item, the 2026 figures where a figure exists, and the line where the deduction is claimed, because those three things decide whether a write-off survives an exam. The lines cited are from the 2025 Schedule C, the form a sole proprietor or single-member LLC files; partnerships and S corporations claim the same costs on Form 1065 or Form 1120-S, and the differences are noted where they matter.

The rule behind every deduction: ordinary and necessary

IRC 162(a) allows “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business” (26 U.S.C. 162). Ordinary means common and accepted in your line of work; necessary means helpful and appropriate, not indispensable. Three limits sit on top of that rule. A cost that buys something lasting, such as equipment or a building, is capitalized and recovered through depreciation rather than deducted at once. Personal costs are never deductible, and a cost that is partly personal is deductible only for the business share. And a handful of costs have their own statute, section 274 for meals and travel, section 280A for the home, section 162(l) for health insurance, which override the general rule.

The small business tax deduction list, with the rule and the line

Home office: the simplified method or the regular method

Section 280A disallows most costs of a home, then carves out a portion “exclusively used on a regular basis” as the principal place of business, as a place to meet clients or customers, or as a separate structure (IRC 280A(c)(1)). A home office used for the administrative or management activities of the business counts as the principal place of business if there is no other fixed location where you conduct substantial administrative or management work. Two ways to figure the amount:

• Simplified method. Multiply the square feet used for business, up to 300, by $5, for a maximum of $1,500 (Publication 587; Schedule C instructions). You choose it year by year on a timely filed original return, and the choice for that year is irrevocable. No depreciation is claimed and no Form 8829 is needed.
• Regular method. Apply the business percentage of the home to rent or mortgage interest, utilities, insurance, repairs and depreciation on Form 8829. The deduction cannot exceed the gross income from the business use of the home less the other business expenses (IRC 280A(c)(5)); the excess carries to the next year in which actual expenses are used.

Employees get nothing here. Publication 587's flowchart sends an employee straight to “no deduction,” because IRC 67(h) allows no miscellaneous itemized deduction, which is where unreimbursed employee expenses fall, for tax years beginning after December 31, 2017; P.L. 119-21 struck the December 31, 2025 end date and moved the rule from subsection (g) to (h) (26 U.S.C. 67). An S corporation owner is an employee, so the route is a reimbursement under an S corp accountable plan. Renting the home to the business for meetings is a different rule, covered in the Augusta rule.

Vehicles: the 2026 standard mileage rates or actual expenses

The standard mileage rate for 2026 is 72.5 cents per mile of business use under Notice 2026-10, and Announcement 2026-11 raised it to 76 cents for expenses paid or incurred on or after July 1, 2026, with the earlier rate still applying before that date. Parking and tolls are added on top. The alternative is actual expenses (fuel, insurance, repairs, depreciation or lease payments) times the business-use percentage. Either way the deduction fails without records: IRC 274(d) requires adequate records or sufficient corroborating evidence of the amount, the time and place, and the business purpose for listed property, which includes passenger automobiles (26 U.S.C. 274). A dated mileage log is the record that satisfies it. Heavier vehicles and the section 179 caps are in section 179 vehicles.

Meals at 50%, no entertainment, travel with records

Food and beverages are deductible only if the expense is not lavish or extravagant and the taxpayer or an employee is present (IRC 274(k)), and then only 50% of the amount is allowed (IRC 274(n)). Entertainment, amusement and recreation are not deductible at all (IRC 274(a)(1)), so a client dinner is a 50% meal while the game tickets that follow it are zero. The Schedule C instructions put meals on line 24b and tell you to keep entertainment off the form entirely.

Travel away from home overnight is deductible under IRC 162(a)(2): transportation, lodging, and meals at 50%. Section 274(d) again governs the proof, so keep the dates, destination, cost and business reason for each trip. The standard meal allowance can replace meal receipts whether you are an employee or self-employed, but Publication 463 is clear that there is no standard lodging amount: the lodging deduction is your actual cost (Publication 463).

Owner benefits: health insurance and retirement contributions

A self-employed owner deducts health insurance premiums for medical care under IRC 162(l). The deduction cannot exceed the earned income from the business the plan is established under, and it is not allowed for any month the owner is eligible to participate in a subsidized health plan of an employer of the owner, the owner's spouse, a dependent or a child under 27 (IRC 162(l)(2)). It is claimed on Schedule 1 (Form 1040), line 17 (2025 Schedule 1), so it lowers adjusted gross income but not self-employment tax. For a more-than-2% S corporation shareholder the premiums run through the W-2 first; that route is in how S corp owners deduct health insurance.

Retirement plan contributions for employees are a Schedule C, line 19 expense. The owner's own contribution is an adjustment on Schedule 1, line 16. Publication 560 gives the 2026 limits: a SEP contribution of up to 25% of compensation (20% of net earnings from self-employment for the owner), capped at $72,000, and a compensation limit of $360,000 (Publication 560). The plan-by-plan comparison, including the solo 401(k) and cash balance options, is in retirement plans for business owners.

People and premises: wages, payroll taxes, rent, insurance, fees, advertising, bad debts

• Wages. IRC 162(a)(1) allows “a reasonable allowance for salaries or other compensation for personal services actually rendered.” Schedule C, line 26 takes wages net of any employment credits claimed on the same pay. S corporations report officer compensation on Form 1120-S, line 7 and other wages on line 8 (Form 1120-S instructions).
• Employer payroll taxes. The Schedule C instructions for line 23 list Social Security and Medicare taxes paid to match employee withholding, federal unemployment tax, and state unemployment fund contributions as deductible taxes. The employee's own withheld share is part of wages, not a separate deduction.
• Rent. IRC 162(a)(3) covers rentals for property used in the business in which the taxpayer has no equity. Rent paid to yourself or a related entity must be at a fair rate.
• Insurance, professional fees, advertising. Liability, property, workers' compensation and malpractice premiums (line 15), attorney and accountant fees for the business (line 17), and advertising (line 8) are ordinary and necessary expenses. Legal fees to acquire an asset or to start the business are capitalized or treated as startup costs instead.
• Bad debts. IRC 166 allows a deduction for a debt that becomes wholly worthless in the year (26 U.S.C. 166), but only for amounts that were included in income. Publication 334 is direct: a cash-method business “can't take a bad debt deduction for amounts owed to you that you have not received and can't collect if you never included those amounts in income” (Publication 334).

Equipment: depreciation, section 179 and bonus depreciation

Property with a useful life beyond the year is depreciated on Form 4562. Two elections speed that up. Section 179 lets a business expense the cost of qualifying property placed in service during the year, up to $2,560,000 for tax years beginning in 2026, reduced dollar for dollar once purchases pass $4,090,000, and limited to the taxable income of the business (Rev. Proc. 2025-32; 26 U.S.C. 179). Bonus depreciation under IRC 168(k) is 100% of the adjusted basis of qualified property acquired after January 19, 2025 (26 U.S.C. 168), with no taxable income limit. The rules, what qualifies and how the two interact are in the section 179 deduction and bonus depreciation.

Two items that are not ordinary expenses: startup costs and the QBI deduction

Costs paid before the business opens are not section 162 expenses because there was no business yet. IRC 195 allows up to $5,000 of them in the first year, reduced once total startup costs pass $50,000, with the rest amortized over 180 months (26 U.S.C. 195); the mechanics and a worked example are in how to deduct startup costs. The qualified business income deduction under IRC 199A is not a business expense at all: it is a deduction of up to 20% of qualified business income taken on the owner's Form 1040 after the business has computed its profit (26 U.S.C. 199A), and it is covered in the QBI deduction.

A short illustration

The home office choice is worth $1,400 in this case, which is typical when rent is high relative to the office size. The regular method costs more time: Form 8829, and depreciation on an owned home, which Publication 587 notes cannot be excluded from gain when the home is later sold.

Records that hold up

Every deduction is only as good as its proof. For travel (meals on the road included), gifts and listed property such as cars, section 274(d) sets the standard: adequate records or sufficient corroborating evidence of the amount, time, place and business purpose, and Publication 463 adds that a record made at or near the time carries more weight than one prepared later. For everything else, the receipt, the invoice, the bank record and a note of the business purpose are enough. Publication 583 puts the general retention period at three years after the return is filed, seven years for a bad debt deduction, and, for assets, until the limitations period runs out for the year you dispose of them (Publication 583). A deduction that turns on timing, on the choice between two methods, or on an election is the kind of decision Forward Tax Planning settles before year end, with your CPA. Linked to this list: the year-round tax strategies list.

Sources: 26 U.S.C. 162, trade or business expenses (including 162(l), health insurance of self-employed individuals); 26 U.S.C. 274, disallowance of certain entertainment, etc., expenses; 26 U.S.C. 280A, business use of home; 26 U.S.C. 67, miscellaneous itemized deductions (67(h)); 26 U.S.C. 166, bad debts; 26 U.S.C. 179, election to expense certain depreciable business assets; 26 U.S.C. 168, accelerated cost recovery system (168(k)); 26 U.S.C. 195, start-up expenditures; 26 U.S.C. 199A, qualified business income; IRS, 2025 Instructions for Schedule C (Form 1040); IRS, 2025 Schedule C (Form 1040); IRS, 2025 Schedule 1 (Form 1040); IRS, Publication 587 (2025), Business Use of Your Home; IRS, Publication 334 (2025), Tax Guide for Small Business; IRS, Publication 560 (2025), Retirement Plans for Small Business; IRS, Publication 463 (2025), Travel, Gift, and Car Expenses; IRS, Publication 583 (Rev. December 2024), Starting a Business and Keeping Records; IRS, Notice 2026-10, 2026 standard mileage rates; IRS, Internal Revenue Bulletin 2026-29, Announcement 2026-11 (rates from July 1, 2026); IRS, Rev. Proc. 2025-32, 2026 inflation adjustments (section 179); IRS, 2025 Instructions for Form 1120-S. Figures and rules checked against these sources on September 26, 2026. This is general information, not tax advice for your situation. Tax services are provided by licensed tax professionals under a separate engagement agreement. BEG does not provide tax advice.