Understanding Business Deductions: What You Can and Can’t Claim
When it comes to running a business, every dollar counts—and that includes tax time. One of the best ways to reduce your taxable income and keep more of your hard-earned money is by taking full advantage of business deductions. But understanding what you can and can’t claim can be tricky.
Claiming the right deductions can significantly lower your tax bill, but making incorrect claims can trigger audits or lead to penalties. This guide breaks down business deductions clearly, so you can file with confidence and maximize your savings.
What Is a Business Deduction?
A business deduction is an expense that the IRS allows you to subtract from your business income, reducing the total amount of income that’s subject to taxation. In other words, deductions lower your taxable profit.
To be deductible, an expense must be:
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Ordinary – Common and accepted in your industry.
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Necessary – Helpful and appropriate for your business.
If the expense meets these two criteria, there's a good chance it qualifies as a deduction.
Top Business Deductions You Can Claim
Here are some of the most common—and most valuable—business deductions that small business owners can claim.
1. Home Office Deduction
If you use part of your home exclusively for business, you may qualify for this deduction.
You can deduct:
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A percentage of your rent or mortgage
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Utilities and internet
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Property taxes
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Home insurance
There are two ways to claim it: simplified method or actual expense method. The simplified method allows $5 per square foot (up to 300 square feet).
2. Business Use of Your Vehicle
If you use your personal car or a business-owned vehicle for work purposes, you can deduct related expenses.
You can deduct:
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Mileage (using the IRS standard rate)
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Gas and oil
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Repairs and maintenance
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Insurance
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Lease payments
Keep detailed mileage logs or use tracking apps like MileIQ or Everlance.
3. Rent or Lease Payments
Renting office space, warehouses, or equipment for your business is fully deductible.
You can deduct:
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Monthly lease or rent payments
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Office furniture or equipment rentals
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Co-working space fees
4. Salaries and Wages
If you have employees, the wages, salaries, bonuses, and commissions you pay are deductible.
Also deductible:
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Employer-paid benefits (health insurance, retirement plans)
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Payroll taxes (Social Security, Medicare)
5. Utilities and Office Expenses
Everyday costs of running your office or workspace are fully deductible.
This includes:
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Electricity, water, and heating
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Internet and phone services
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Office supplies (pens, paper, printers)
Even software subscriptions like Adobe, Microsoft 365, or Zoom can be deducted.
6. Marketing and Advertising
Promoting your business is an essential cost and fully deductible.
Examples include:
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Website design and hosting
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Paid ads (Google, Facebook, etc.)
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Business cards and flyers
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Branding services
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Social media management tools
7. Travel and Meals
Business-related travel is deductible, as long as it’s not for personal leisure.
You can claim:
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Flights and hotels
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Car rentals and taxis
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50% of business meal costs (with a client or while traveling)
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Conference or seminar fees
Be sure to keep receipts and document the purpose of each trip.
8. Professional Services
If you hire outside experts, their fees are tax-deductible.
This includes:
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Accountants and bookkeepers
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Attorneys
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Marketing consultants
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Freelancers and contractors
As long as the service is used strictly for business purposes, it qualifies.
9. Insurance Premiums
Business insurance helps protect your company and is fully deductible.
Common deductible policies:
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General liability insurance
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Property insurance
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Workers' compensation
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Professional liability (E&O)
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Cybersecurity insurance
10. Depreciation
If you buy assets for your business (like computers, furniture, or machinery), you can’t usually deduct the full cost immediately. Instead, you deduct it over time through depreciation.
The IRS allows various depreciation methods (including bonus depreciation and Section 179), which can help you recover costs faster.
What You Can’t Deduct
Not all expenses are deductible, even if they seem business-related. Here are common costs that the IRS generally does not allow:
1. Personal Expenses
You can’t deduct expenses that are for personal use, even if they occasionally benefit your business. That includes:
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Personal groceries
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Family vacations
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Personal clothing (unless it’s a uniform required for work)
2. Political Contributions and Lobbying
Donations to political campaigns or money spent on lobbying activities are not deductible—no matter how much they align with your business interests.
3. Entertainment Expenses
As of 2018, the IRS no longer allows deductions for most entertainment expenses. For example:
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Tickets to sporting events
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Nightclubs or concerts
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Rounds of golf with clients
Note: Meals with clients are still 50% deductible, as long as business is discussed.
4. Fines and Penalties
Any fines or penalties paid to the government—like traffic tickets, OSHA fines, or tax late fees—are not deductible.
5. Gifts Over $25
You can deduct business gifts, but the limit is $25 per person, per year. Anything over that amount is not deductible, regardless of how valuable the gift may be.
How to Stay Compliant and Organized
Keeping accurate records and staying compliant with IRS guidelines will help you claim the maximum deductions without running into trouble.
Tips for success:
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Use accounting software (QuickBooks, Wave, Xero)
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Separate personal and business accounts
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Keep digital copies of receipts
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Track mileage and travel expenses with apps
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Hire a tax professional for guidance
Final Thoughts: Claim Wisely, Save More
Knowing what you can and can’t claim as a business deduction can significantly reduce your tax bill. Smart recordkeeping, honest reporting, and a little tax-savvy can go a long way in helping you maximize your deductions while staying compliant.
Remember: When in doubt, consult with a tax advisor or CPA who understands the specifics of your business. A professional can help you navigate the gray areas and make sure you're not leaving money on the table—or taking risks you shouldn't.
Would you like a downloadable checklist of all allowed deductions for small businesses? I can create one for you!
