Quick Reference: 25 Small Business Tax Deductions
| Deduction | Deductibility | Key Limit / Rule |
|---|---|---|
| Employee wages & salaries | 100% | Must be ordinary, necessary, reasonable, and paid by year-end |
| Employer payroll taxes (FICA, FUTA, SUI) | 100% | Business tax expense; employee share not deductible by employer |
| Rent / commercial lease | 100% | Must be arm's-length; can't own the property you're renting from yourself |
| Business insurance premiums | 100% | GL, workers' comp, E&O, commercial auto, cyber — all deductible |
| Marketing & advertising | 100% | Direct business promotion; sponsorships with no business connection = not deductible |
| Professional services (CPA, legal) | 100% | Business-related legal and accounting fees; personal legal fees are not deductible |
| Software & subscriptions | 100% | SaaS tools, business apps, annual licenses — deduct in year paid (cash basis) |
| Office supplies | 100% | Supplies consumed during year; capitalize equipment over $2,500 unless Section 179 elected |
| Utilities (business) | 100% | Electric, gas, water, internet at business location |
| Bank fees & merchant processing | 100% | Monthly bank fees, ACH fees, Square/Stripe processing fees |
| Business loan interest & MCA factor cost | 100% | Interest on business loans; MCA factor cost deductible under IRC §163 |
| Vehicle (standard mileage) | 70¢/mile | 2026 standard rate: 70 cents per business mile. Log every trip. |
| Vehicle (actual expense) | Business % | (Gas + insurance + maintenance + depreciation) × business use %. More complex, potentially higher. |
| Home office (simplified) | $5/sq ft | Max 300 sq ft = $1,500/year max. Regular and exclusive business use required. |
| Home office (actual) | Business % | % of home used for business × (rent + utilities + insurance + depreciation). Form 8829. |
| Business meals | 50% | Business purpose required. Document who, purpose, date, place, amount. NOT entertainment. |
| Travel (flights, hotels) | 100% | Primarily for business. Mixed business/personal: pro-rate. Keep all receipts. |
| Equipment (Section 179) | 100% in year 1 | 2026 limit: $1.22M. Phase-out above $3.05M in purchases. Must be placed in service during year. |
| Bonus depreciation | 40% in 2026 | TCJA phase-down: 40% in 2026. Was 100% in 2022. Used for property not qualifying for Section 179. |
| SEP-IRA contributions | 100% | Up to 25% of compensation or $70,000 (2026), whichever is less. Contribute until tax filing deadline + extensions. |
| Solo 401(k) contributions | 100% | Employee: $23,000 (2026) + $7,500 catch-up if 50+. Employer: up to 25% of compensation. Total: $70,000. |
| SIMPLE IRA contributions | 100% | Employee: $16,500 (2026). Employer: required 2% contribution or 3% matching. For businesses with 100 or fewer employees. |
| Self-employed health insurance | 100% | Premiums for owner + spouse + dependents. Cannot deduct if eligible for employer plan through a spouse. |
| Startup costs | Up to $5,000 yr 1 | First $5,000 deducted in year 1 (if total startup costs under $50K). Remainder amortized over 180 months. |
| Business education | 100% | Continuing education, professional development, trade publications that maintain or improve current business skills. |
| Entertainment | 0% | Completely non-deductible since TCJA 2017. Sports tickets, concerts, golf — even with clients. |
| Commuting (home to office) | 0% | Personal commute is never deductible. Business travel FROM office is deductible. A dedicated home office can change this. |
| Owner personal draws | 0% | Owner draws/distributions are not deductible business expenses — they are equity reductions. Owner W-2 salary IS deductible. |
The Deductions That Require the Most Documentation
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70¢per mile
Vehicle — Standard Mileage Method (2026)
Track every business mile: date, destination, purpose, odometer start/end. Mileage log apps (MileIQ, Everlance, TripLog) make this easy. Standard rate for 2026: 70 cents per mile (IRS updates annually). Cannot use standard mileage if you've used actual expense method on the same vehicle in a prior year or claimed Section 179 on it.
2026 Standard Rate: $0.70/mile. Annual example: 15,000 business miles = $10,500 deduction. Required records: date, destination, business purpose, miles driven. Mileage log essential. -
%of home
Home Office Deduction
Simplified method: $5 × square footage of office space, max 300 sq ft = max $1,500/year. Simple, no depreciation recapture risk. Actual expense method: Calculate business-use % (office sq ft ÷ total home sq ft). Apply that % to all home expenses: rent or mortgage interest, utilities, insurance, and home depreciation. Requires Form 8829. Often larger than simplified but triggers depreciation recapture if you sell the home.
Simplified: max $1,500/yr. Actual: must be "regular and exclusive" business use. Required: floor plan sketch, measurements of office and total home, receipts for all home expenses. -
50%deductible
Business Meals
Business meals are 50% deductible when: (1) the meal has a genuine business purpose, (2) the business is discussed, (3) you or an employee is present, and (4) it's not lavish or extravagant. Entertainment (concerts, sporting events, golf with clients) is 0% deductible — completely eliminated by TCJA 2017. Don't deduct entertainment as meals.
50% deductible in 2026. The temporary 100% restaurant meal deduction (2021–2022) has expired. Required: receipt + who attended + business purpose discussed + date and place. Keep with bookkeeping. -
100%deductible
Business Travel
Travel away from your tax home for business is 100% deductible: flights, hotels, car rental, taxi/Uber, 50% of meals while traveling. Must be primarily for business — if a trip is primarily personal with business on the side, only the business days' expenses are deductible. Document itinerary and business purpose for each day.
100% for transportation and lodging; 50% for meals while traveling. No "luxury" limitation (but be reasonable). Required: receipts, itinerary, business purpose for each leg. Keep boarding passes, hotel folios. -
100%deductible
Retirement Plan Contributions
SEP-IRA: Contribute up to 25% of net self-employment income or $70,000 (2026), whichever is less. Easiest to set up. Contribute until tax filing deadline + extensions. Solo 401(k): Employee contribution $23,000 (2026) + $7,500 catch-up if 50+; employer contribution up to 25% of compensation; total cap $70,000. More flexible but requires plan documents. SIMPLE IRA: For businesses with up to 100 employees. Employee contribution $16,500 (2026); employer required 2% or 3% matching.
SEP-IRA: max $70,000 (2026). Solo 401(k): max $70,000 total. SIMPLE IRA: max $16,500 employee + employer match. Required: plan document, contribution records, Form 5500-EZ (Solo 401k over $250K). -
100%in year 1
Equipment — Section 179
Deduct the full cost of qualifying equipment in the year it's placed in service rather than depreciating it over 5–7 years. Applies to: machinery, vehicles (with limits), computers, furniture, off-the-shelf software. Cannot create a net loss from Section 179 (deduction limited to business taxable income). 2026 limits: $1.22M deduction limit; begins phasing out at $3.05M in total equipment purchases.
2026: $1.22M deduction limit. Phase-out above $3.05M in equipment placed in service. Required: purchase receipt, date placed in service, Form 4562. -
100%deductible
MCA Factor Cost (Merchant Cash Advance)
The cost of a merchant cash advance — the difference between what you received and what you repay — is generally deductible as a business financing expense under IRC Section 163. Example: receive $50,000, repay $67,500 total → $17,500 deductible financing cost spread over the repayment period. This is one of the least-known small business deductions. Ask your CPA how to record it (it belongs as "interest/financing expense" in your P&L, NOT as the entire repayment amount).
Full factor cost deductible as business interest/financing expense. Required: MCA contract showing advance amount, payback amount, and repayment schedule. -
$5Kyear 1
Startup Costs
Costs incurred before your business opens can be deducted: legal fees for formation, market research, advertising before opening, training employees before launch. If total startup costs are under $50,000: deduct up to $5,000 in year 1, amortize the rest over 180 months. If total startup costs are over $50,000: the $5,000 first-year deduction phases out dollar-for-dollar. Over $55,000 in startup costs: deduct nothing in year 1 — all must be amortized.
Up to $5,000 in year 1 (if total startup costs under $50K). Remainder: amortize over 180 months. Required: receipts for all pre-opening costs, date business officially opened.
The QBI Deduction — Pass-Through Business Owners Only
Pass-through business owners (sole proprietors, partnerships, S-Corps, LLCs taxed as pass-through entities) may deduct up to 20% of qualified business income (QBI). This is one of the most valuable deductions for small businesses that are profitable. For 2026: income limitations apply above $197,300 (single) / $394,600 (married filing joint). Above those thresholds, the deduction may be limited or eliminated for "Specified Service Trades or Businesses" (SSTBs: law, accounting, consulting, healthcare, financial services). Non-SSTB businesses above the threshold face W-2 wage and depreciable property limitations. This deduction appears on Schedule A (Form 1040) and reduces overall taxable income — it is NOT a business expense. Consult your CPA to calculate your QBI deduction accurately.
What's Not Deductible (Common Mistakes)
- Entertainment — zero deductibility since Tax Cuts and Jobs Act of 2017. No exceptions for client entertainment, regardless of business discussed.
- Political contributions — 0% deductible. No exception.
- Personal expenses mixed with business — only the business portion is deductible. Gym membership: 0% (even if it helps you be a better business owner). Cell phone: business % only.
- Owner draws from pass-through entity — distributions are not wages and are not deductible. Owner W-2 salary (in S-Corp) or guaranteed payment (in partnership) are deductible business expenses.
- Fines and penalties paid to government — 0% deductible. IRS penalties, OSHA fines, zoning violations, parking tickets.
- Commuting from home to your principal place of business — personal commute is 0% deductible. Establishing a home office as your principal place of business can change this for trips to client sites.
- Lobbying expenses — generally not deductible, with narrow exceptions for work related to local government issues that directly affect the business.
Frequently Asked Questions
- Is the MCA factor cost (merchant cash advance fees) tax deductible?
- Yes. The factor cost of a merchant cash advance — the difference between the total repayment amount and the advance received — is generally deductible as a business interest/financing expense under IRC Section 163. For example: if you receive $50,000 and repay $67,500, the $17,500 difference is a deductible financing cost spread over the repayment period. This should be recorded in your bookkeeping as an interest/financing expense, NOT as the full repayment amount (which would be a mix of principal reduction and financing cost). Consult your CPA for the exact treatment applicable to your situation.
- What is the home office deduction and how do I calculate it?
- The home office deduction is available to self-employed individuals who use part of their home regularly and exclusively for business. Two methods: (1) Simplified — $5 per square foot, maximum 300 sq ft = $1,500/year maximum. No depreciation recapture when you sell. (2) Actual expense — business use percentage (home office sq ft ÷ total home sq ft) applied to rent or mortgage interest, utilities, insurance, and home depreciation. Requires Form 8829. The actual method often produces a larger deduction but triggers depreciation recapture on home sale. Employees working from home since 2018 cannot use this deduction — only business owners and self-employed individuals.
- Can I deduct business meals in 2026?
- Yes — at 50%. Business meals are 50% deductible in 2026 when: there is a genuine business purpose, the meal is not lavish or extravagant, and you or an employee is present. You must document: who attended, business purpose discussed, date, place, and amount. The 100% restaurant meal deduction from 2021–2022 has expired — the rate is back to the standard 50%. Entertainment expenses (sporting events, concerts, golf, theater) are 0% deductible since the Tax Cuts and Jobs Act of 2017 — regardless of whether business is discussed.