Business expenses you can deduct: a working list

What makes an expense deductible?

A business can deduct expenses that are both ordinary and necessary in carrying on its trade or business. Ordinary means common and accepted in your line of work. Necessary means helpful and appropriate, not indispensable. The cost must also be reasonable in amount, and it must belong to the business rather than to your personal life. Where something is used for both, only the business share is deductible.

Two practical points come before the list:

• You need records. A deduction you cannot support with a receipt, invoice or statement can be disallowed.
• Deductions only help where there is US taxable income. A foreign owner whose LLC has no US taxable income gains nothing from US deductions. See whether foreign-owned US LLCs pay US tax.

Everyday running costs

Paying people

• Employees' wages and payroll taxes are deductible, along with benefits the business provides.
• Payments to contractors are deductible. Payments above the IRS reporting threshold to US contractors usually need a Form 1099-NEC.
• Owner's draws are not deductible. In an LLC taxed under the default rules, what you take out is not an expense. See how to pay yourself from an LLC.

Home office

You can deduct part of your home costs if you use a specific area regularly and exclusively for business, and it is your principal place of business or a place where you meet clients. A spare bedroom used only as an office qualifies. A kitchen table does not. Two methods are available:

• Simplified: $5 per square foot of office space, up to 300 square feet, so at most $1,500 a year.
• Regular: the business percentage of actual costs such as rent or mortgage interest, utilities, insurance and repairs, plus depreciation for owners. It is worked out on Form 8829 by sole proprietors.

Full rules and a worked example are in the home office deduction.

Vehicle costs

Driving for business, such as visiting clients or suppliers, is deductible. Commuting between home and a regular place of work is not. You can use one of two methods:

• Standard mileage rate: for 2026, 72.5 cents a mile for business driving from January 1 to June 30, and 76 cents a mile from July 1 after the IRS raised the rate mid-year. Parking and tolls are added on top.
• Actual expenses: the business share of fuel, repairs, insurance, registration and depreciation.

Either way, keep a mileage log with dates, destinations, business purpose and miles. See standard mileage vs actual expenses.

Travel, meals and entertainment

• Business travel away from your tax home overnight is deductible: transport, lodging, and incidental costs.
• Business meals are generally 50% deductible when they are not lavish and the owner or an employee is present, such as a meal with a client or while travelling.
• Entertainment, such as event tickets or golf, is not deductible, even with a client.
• Gifts to clients are deductible only up to $25 per recipient per year.

The full rules, with percentages and records, are in meals, travel and entertainment.

Equipment and other long-lived assets

Computers, machinery, furniture and vehicles last longer than a year, so they are normally depreciated. Two rules let most small businesses deduct them in the year they start using them:

• Section 179 expensing: for tax years beginning in 2026, up to $2,560,000, reduced dollar for dollar once qualifying property placed in service in the year exceeds $4,090,000.
• Bonus depreciation: 100% for qualifying property acquired after January 19, 2025, made permanent by the 2025 tax law.

Deducting everything at once is not always best. If income is low this year and expected to rise, spreading the deduction may save more. The deduction is claimed on Form 4562.

The form used is Form 4562: depreciation and Section 179.

The choice between the two methods is explained in Section 179 vs bonus depreciation.

Startup costs

Costs of investigating and setting up a business before it opens, such as market research and pre-opening advertising, can be deducted up to $5,000 in the first year, reduced when total startup costs exceed $50,000. The rest is spread over 180 months. Organizational costs of forming an LLC taxed as a partnership or a corporation follow a similar rule.

See start-up and organizational costs.

Health and retirement costs for owners

• Health insurance: self-employed owners can generally deduct premiums for themselves and their family, for months when they were not eligible for an employer's plan.
• Retirement contributions: contributions to a SEP IRA or Solo 401(k) are deductible within their annual limits.

These are claimed on the owner's personal return, not as business expenses in the books.

See health insurance for the self-employed and SEP IRA vs Solo 401(k).

Never deductible

• Fines and penalties paid to a government, including tax penalties.
• Federal income tax.
• Political contributions and most lobbying costs.
• Entertainment.
• Personal living expenses, including everyday clothing, even if worn to work.
• Commuting.

Records that support your deductions

Keep receipts and invoices, bank and card statements, a mileage log, and a note of the business purpose for meals and travel. Keep them for at least as long as the IRS can examine the return, generally three years from filing, and longer for assets you depreciate.

This guide is general information. It is not tax or legal advice for your situation.