Whether you’re just starting your business or have been running it for years, understanding what you can deduct is key to maximizing your tax savings.
Business Tax Deductions: A General Guide for Entrepreneurs & Small Business Owners
Optimize Your Tax Savings
Keep More of What You Earn
Running your own business offers many rewards: flexible hours, control over your client base, and the satisfaction of building something on your own terms. But with that flexibility comes the responsibility of managing your own tax obligations — which can feel overwhelming if you’re used to a traditional W-2 paycheck.
As an employee, taxes were withheld automatically, and a simple W-2 summarizes your income each year. As a business owner, you now face different filing requirements, additional forms (like Schedule C, 1120S, 1065, etc.), and the need to actively track deductible business expenses.
At Red Oak CPAs, we bring over 10 years of experience helping entrepreneurs, professionals, and small business owners navigate the complexities of business taxation. Our goal is to simplify the process so you can focus on running your business, while we help ensure you’re optimizing your tax benefits.
Below is a practical overview of deductible business expenses to help you make informed decisions and minimize your tax liability.
Common Deductible Business Expenses
Banks are notorious for sneaky add-on fees for maintenance, monthly statements, and certain transactions. Luckily, you can write these (and any other bank fees) off.
Meetings are always more fun with refreshments, so bring on the coffee and danishes. Business meeting expenses are deductible.
Balancing work and family is tough. Childcare costs aren’t eligible to be deducted from your business income, but thankfully, you can get a break with the Dependent Care Tax Credit which allows a maximum of 35% of eligible childcare expenses to be deducted.
Wages and salary paid to your employees are deductible expenses.
Premiums paid toward policies that benefit your business are typically deductible. This includes liability, property, workers’ compensation, and business income insurances.
If you consult with a lawyer, accountant, bookkeeping, or other professional to keep your business running, you can deduct the cost of these services.
Any interest paid on business loans is deductible. This includes interest from bank loans, property loans, and credit cards.
Money paid out to subcontractors qualifies as a tax deductible expense. You’ll need to request a W-9 from your subcontractors so you can provide them with a form 1099.
Do you use your vehicle for business purposes? You can deduct a percentage of your vehicle ownership and maintenance. If your vehicle is used 100% for your business, you can deduct the entire cost of ownership and maintenance.
Education undertaken to improve the skills needed in your current profession are deductible. However, education undertaken to qualify you for another job is not.
For example, an MBA could be a business deduction since it would enhance the skills already obtained. On the other hand, a hair stylist who decides to become a certified Life Coach can’t write-off the cost of the certification course.
Home Office
Do you use your home office exclusively for business? You may be eligible for the home office deduction.
To qualify, you must meet IRS criteria for “exclusive use.” Here are some examples of the exclusive use requirement:
- You use part of your home as your principal place of business on a regular basis.
- You use part of your home to meet with clients and/or customers in the normal course of running your business.
- You have a separate structure that’s not attached to your home that you regularly use in connection with your business.
- You use part of your home to regularly store products and inventory for purposes of being sold.
You can’t deduct business expenses for any part of your home that you use for both business and personal purposes. So if your home office is also used as a guest room or for storage of personal items, you don’t meet the “exclusive use” requirement.
Home Office Expenses
The home office deduction lets you write off part of your household expenses if you use a dedicated space regularly and exclusively for your business.
- Sole proprietors (Schedule C filers): deduction is taken directly on your personal return.
- S corporation shareholder-employees: expenses are reimbursed through an accountable plan.
For Sole Proprietors:
You may deduct home office expenses directly on your personal tax return using one of two methods:
Actual Expense Method
Deduct a percentage of eligible home expenses (mortgage interest, rent, utilities, property taxes, insurance, repairs, etc.) based on the square footage used for business. Reported on Form 8829.
Simplified Method
Deduct $5 per square foot of your home office, up to 300 square feet (maximum $1,500).
For S Corporation Owners:
Home office deductions aren’t claimed on your personal return. Instead, your S corporation can reimburse you for eligible home office expenses through an accountable plan. This allows the corporation to deduct the expense and exclude it from your taxable income.
- Expenses may include rent or mortgage interest, utilities, property taxes, insurance, and repairs.
- Reimbursements must be properly calculated, documented, and supported.
Have you been eyeing that adorable rose gold and pink stapler for months? Go for it! Office supplies such as paper, ink, folders, pens, and (yay!) staplers are deductible.
A professional website is a must in today’s business world. Luckily, you can deduct site expenses including design, hosting, and maintenance costs.
Trying to improve your health without losing time on the job? A standing desk is an excellent way to do so and is an acceptable tax deduction.
If you use a business computer, tablet, or laptop valued at $2,500 or less, you can elect to deduct 100% of the purchase cost in a single year, or you can choose to take a depreciation deduction over the lifetime of your device.
Do you hire a service to clean your home, including your home office? You can deduct the appropriate percentage of this cost.
Do you use CRM services like Dubsado or Asana to manage projects and communicate with clients? These qualify as deductions.
If you’re serving coffee to clients or staff, it’s a write-off. But if you’re sipping your Nespresso while working alone in your home office? No. Sorry.
You can elect to deduct 100% of the purchase cost of office furniture in a single year, or you can choose to take a depreciation deduction over the furniture’s lifetime. Some expenses may be eligible for accelerated depreciation.
Real estate taxes, mortgage interest, and insurance costs are partially deductible.
BONUS: Did you know you can claim the home office tax deduction regardless of what type of home you reside in? A traditional home, an apartment, and even a houseboat qualify!
Auto
If you use your personal vehicle for business purposes, part of your auto expenses may be deductible. Sole proprietors and single-member LLCs typically deduct these expenses directly on their tax return. S corporation shareholder-employees, on the other hand, generally need to have these expenses reimbursed through an accountable plan in order for the business to deduct them properly. Learn more about accountable plans.
To claim a deduction, you’ll need to keep a mileage log that tracks your miles driven, dates of business trips, destinations, and the business purpose for each trip. Apps like MileIQ can make tracking easier.
The IRS allows two ways to calculate the deduction:
- Actual Expense Method: Calculate the business-use percentage of your total vehicle expenses, including gas, oil changes, repairs, insurance, depreciation, and loan interest.
- Standard Mileage Rate: Multiply your business miles by the IRS mileage rate. You can always find the current rate on the IRS website.
Auto Expenses
If you use your personal vehicle for business purposes, a portion of your auto expenses may be deductible.
For sole proprietors and single-member LLCs, these expenses are typically deducted directly on your business tax return (Schedule C).
For S corporation shareholder-employees, vehicle expenses should be reimbursed through an accountable plan to be properly deducted by the business.
Use a mileage log to track your business miles. Calculate your percentage of business use to determine how much of your monthly payment is tax deductible.
Use a mileage log to track your business miles. Calculate your percentage of business use to determine what percentage of your loan interest is tax deductible.
Your car insurance premium is tax deductible. Make sure you keep excellent records that demonstrate business use of your vehicle.
Oil changes, repairs, tires, air filter replacement, and other general car maintenance tasks are tax deductible.
Do you need to rent a car during a business trip? Rental cars are tax deductible when used specially for business travel.
BONUS: The average taxpayer loses 13 hours and overpays by $2,000 when DIY-ing their income tax return compared to taxpayers who seek professional help.
Travel
You can deduct travel expenses paid in connection with a temporary work assignment away from your tax home (the city where your main place of business is located).
This includes travel expenses for conventions, conferences, and seminars so long that you can show your attendance benefits your business.
Travel Expenses
If your business travel requires you to be away from your home overnight your hotel costs are deductible.
Rideshare fees and rental car costs necessary during your business travel are deductible.
Unlike the 50% deduction limitation on meals when meeting with clients, food and drink consumed while traveling away from your home for business travel are 100% deductible. You may benefit from taking a deduction for the per diem rates for meals while away for business.
Travel expenses for conventions, conferences, and seminars are deductible. Just make sure you can prove how they benefit your business.
There’s nothing worse than getting nickeled and dimed by an airline. Thankfully, those pesky checked bag fees are tax deductible.
You can deduct 100% of the cost of a plane ticket purchased to get you to your business trip destination.
BEWARE of mixing business with pleasure! If your family is traveling with you, your deduction may be limited to the portion of the travel expenses allocated to you.
Medical Deductions
Medical expenses can be a significant financial burden for self-employed business owners. Fortunately, the IRS allows certain health insurance premiums to be deductible, but the rules depend on your business structure.
For sole proprietors and single-member LLCs, you may deduct 100% of your health insurance premiums on your personal tax return, as long as you are not eligible for coverage through an employer plan (including your spouse’s employer). This includes medical, dental, vision, qualified long-term care, Medicare premiums, and health plans purchased through the state marketplace.
For S corporation shareholder-employees who own more than 2% of the company, the rules are a bit different. The S corporation must include the cost of your health insurance premiums on your Form W-2 as taxable wages (box 1 only — not subject to Social Security or Medicare tax). Once properly reported on your W-2, you’re allowed to take a self-employed health insurance deduction for those premiums on your personal return, assuming you’re otherwise eligible.
👉 If you’re unsure how to handle your S corporation health insurance reporting, reach out to us — we can help ensure it’s set up correctly.
Medical Deductions
Self-employed individuals may deduct 100% of their health insurance premiums on their personal tax return, as long as they are not eligible for coverage through an employer plan (including a spouse’s employer). This includes medical, dental, vision, qualified long-term care, Medicare premiums, and marketplace health plans.
For S corporation shareholder-employees who own more than 2% of the company, premiums must first be included on Form W-2 as taxable wages (Box 1 only). After proper reporting, the shareholder may then claim the self-employed health insurance deduction on their personal return.
If you’re covered under a qualifying high-deductible health plan, an HSA allows you to contribute pre-tax dollars to pay for medical expenses. Contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are also tax-free.
For sole proprietors and single-member LLCs, HSA contributions are deducted directly on your personal tax return.
For S corporation shareholder-employees who own more than 2% of the company, the S corporation must include any employer HSA contributions as taxable wages on your Form W-2 (Box 1 only — not subject to Social Security or Medicare taxes). After proper reporting, you can still claim the personal HSA deduction on your individual return, subject to the annual limits.
The annual HSA contribution limits may change each year. You can find the current limits on the IRS website: IRS HSA Contribution Limits (Publication 969).
BEWARE of mixing business with pleasure! If your family is traveling with you, your deduction may be limited to the portion of the travel expenses allocated to you.
Retirement Planning
Contributing to a retirement plan is one of the most effective ways to reduce taxable income while building long-term savings. The best plan for your business often depends on your income, how many employees you have, and your overall savings goals.
Retirement Planning
A simple retirement plan that’s often a good starting point for new business owners. Contributions may be tax-deductible depending on your income and participation in other retirement plans. Annual contribution limits apply.
A good option for businesses with employees. Allows both employee salary deferrals and employer matching contributions, with higher contribution limits than a Traditional IRA.
Designed for self-employed business owners or small businesses. SEP IRAs allow larger contributions based on a percentage of net business income, with higher annual limits than most other plans.
Ideal for self-employed individuals or business owners with no employees (other than a spouse). Allows for both employee salary deferrals and employer profit-sharing contributions, often resulting in higher total contribution limits than SEP or SIMPLE IRAs.
For businesses with multiple employees, a traditional 401(k) allows employees to contribute salary deferrals, and employers can make matching or profit-sharing contributions. These plans offer flexibility but involve additional administrative and compliance requirements.
Because contribution limits may change each year, you can find the most current retirement plan limits directly on the IRS website:👉 IRS Retirement Plan Contribution Limits
BONUS: Retirement planning is one part of your total wealth plan. Speak with your financial advisor to select the best retirement plan to meet your needs.
Not-Deductible Expenses
There are exceptions to every rule, including what expenses you’re allowed to deduct…these are expenses the IRS has ruled are not-deductible
Not-Deductible Expenses
including travel to/ from your home to/ from your primary place of business.
including memberships to social clubs.
paid for yourself if you’re taxed as a sole proprietor, partnership, or S-Corporation.
including late tax payment penalties and parking tickets.
including business clothing that doubles as street or evening wear, hair & nail services, gym memberships, etc.
whether it’s “donated” or for an unpaid invoice for service for cash-basis taxpayers.
Frequently Asked Questions
Any expense that is both ordinary and necessary that is incurred in the process of running a business.
No. Clothing deducted for business must be required for your employment and cannot be acceptable for daily wear. For example, nurse scrubs are deductible, but yoga pants aren’t. Why? Because athleisure wear is commonly worn in public for everyday activities. If nobody is going to give you “side eye” for your outfit in public, then it’s probably not tax deductible.