Small business tax deductions: what you can claim, what people miss, and the records to keep

Every dollar of legitimate business expense you deduct reduces the profit you're taxed on, which for a self-employed person means less income tax and less self-employment tax. Most owners claim the obvious ones. The savings that get missed are the less obvious ones, and the ones that need a little paperwork to stand up.

This guide covers the deductions that matter most for small businesses, with the 2026 figures, and the records you need for each. Your accountant makes the final call on what applies to you, but knowing the list means you'll keep the right evidence all year.

The rule behind every deduction

The IRS allows a business to deduct expenses that are both ordinary, meaning common and accepted in your line of work, and necessary, meaning helpful and appropriate for the business. They don't have to be essential. A graphic designer's design software is ordinary and necessary. A family holiday isn't, however you describe it.

Two other rules shape most deductions. Personal expenses aren't deductible, and where something is used for both, only the business share counts. And some costs can't be deducted all at once, but must be spread over several years, although recent rules let small businesses write off most equipment immediately.

The everyday deductions

These are the costs of running the business, and most go straight onto your profit and loss:

• Software and subscriptions, from accounting software to design tools.
• Advertising and marketing, including ads, your website and hosting.
• Contractors and freelancers you pay to do work for the business.
• Professional fees, such as your accountant and attorney.
• Rent for an office, studio or workshop.
• Insurance for the business, such as liability or professional cover.
• Supplies and materials used up in the business.
• Phone and internet, for the business share of use.
• Bank fees, payment processing fees and interest on business loans.
• Education that maintains or improves skills used in your current business.

Most of these are straightforward. The key is recording them as you go, with a receipt, so nothing is lost by year end. Our guide to small business bookkeeping covers a simple monthly routine.

The deductions people miss

Start-up costs

Money you spent before the business opened, such as research, market testing, travel to meet suppliers, or advertising before launch, isn't lost. You can elect to deduct up to $5,000 of start-up costs in the year the business begins, plus up to $5,000 of organizational costs such as the fees to form an LLC or corporation. Each $5,000 is reduced by the amount your total costs in that category exceed $50,000. Whatever you can't deduct up front is spread over 180 months from the month the business began.

The home office

If part of your home is used regularly and exclusively for business, you can deduct it. The IRS's simplified method allows $5 per square foot, up to 300 square feet, for a maximum of $1,500. The regular method instead deducts the business share of your actual home expenses, such as rent or mortgage interest, utilities and insurance, and can be larger, at the cost of more records.

The word that matters is "exclusively." A desk in the corner of a room the family also uses doesn't qualify. A spare room used only as an office does.

Business mileage

If you use your own car for business, you can deduct either the actual costs of running it, for the business share, or a standard rate per business mile. For 2026, the IRS set the business rate at 72.5 cents per mile from January 1 to June 30, and raised it to 76 cents per mile from July 1 to December 31.

Commuting from home to a regular workplace doesn't count. Driving to clients, suppliers, the bank or a second work site generally does. Keep a log with the date, miles, and business purpose of each trip, since the deduction depends on it.

Equipment

Computers, cameras, machinery, furniture and vehicles last more than a year, so in principle they're depreciated over several years. In practice, small businesses can usually deduct them in the year of purchase.

• Section 179 lets a business deduct the cost of qualifying equipment in the year it's placed in service, up to $2,560,000 for tax years beginning in 2026. That limit is reduced once total equipment bought in the year exceeds $4,090,000, which won't affect most small businesses.
• Bonus depreciation of 100% applies to qualifying property acquired after January 19, 2025, made permanent by the 2025 tax act.
• The de minimis safe harbor lets many small businesses deduct items costing up to $2,500 each, per invoice or item, as an expense rather than an asset, if they elect it and treat such items consistently.

Which to use, and whether to deduct everything now or spread it, is a planning question for your accountant. Writing off a large purchase in a low-profit year can waste deductions you'd value more later.

Health insurance and retirement

Self-employed people can often deduct the health insurance premiums they pay for themselves and their family, within limits, as an adjustment to income. Contributions to retirement plans for the self-employed, such as a SEP IRA or a solo 401(k), are also deductible within each plan's limits. These are some of the largest deductions available to a small business owner, and they're easy to forget in the first year.

Half of your self-employment tax and the QBI deduction

Two deductions come automatically from your tax return rather than from your expenses. You deduct half of your self-employment tax in working out your adjusted gross income. And many owners of sole proprietorships, partnerships, LLCs and S corporations can deduct up to 20% of their qualified business income, a deduction the 2025 tax act made permanent. Your tax software or accountant calculates both, but they explain why your tax bill is lower than a simple percentage of profit would suggest.

Deductions with special rules

Meals

You can generally deduct 50% of the cost of a business meal, if you or an employee is there and it isn't lavish or extravagant. Note who you met and the business purpose on the receipt.

Entertainment

Entertainment, such as concert or sports tickets for clients, generally isn't deductible at all, even when business is discussed.

Gifts

Business gifts are deductible up to $25 per person per year. A $100 gift to a client counts as $25.

Travel

Travel away from home for business, such as flights, hotels and half of meals, is deductible. A trip that mixes business and leisure needs care, and IRS Publication 463 sets out the rules.

A worked example

A freelance designer working from a 200-square-foot spare room in 2026 might claim, among other expenses:

• Home office: 200 × $5 = $1,000 under the simplified method.
• Mileage: 1,500 business miles from January to June at 72.5 cents, and 1,500 from July to December at 76 cents, for $2,227.50.
• Meals: $1,200 of client meals, of which 50% is deductible, so $600.
• A new laptop: $2,000, which can typically be deducted in full this year.

Those four items alone reduce taxable profit by about $5,800, before the everyday expenses, health insurance and retirement contributions. For someone paying self-employment tax and income tax, that's roughly $1,500 or more in tax saved, depending on their tax bracket.

The records that make deductions stick

A deduction is only as good as the evidence behind it. For expenses, the IRS expects records that show the payee, the amount, proof of payment, the date and a description showing the business purpose. Receipts, invoices, card and bank statements all count. Mileage needs a log. Meals need a note of who and why. The home office needs measurements and, under the regular method, the home expense bills.

Keep these records for at least three years from when you file, and longer in some cases. Our bookkeeping guide covers the IRS's record-keeping periods in detail.

Mistakes that cost owners money or trouble

• Claiming personal expenses. The family phone plan, personal meals or a car used mostly for personal driving, claimed in full.
• A home office that isn't exclusive. It's one of the most common reasons a home office deduction fails.
• No mileage log. Reconstructing a year of trips from memory rarely holds up.
• Forgetting start-up costs because they were paid before the business had an account.
• Missing health insurance and retirement contributions, which are often the largest deductions of all.

Once you know your deductions, you can estimate your profit, and with it your quarterly tax payments. Our guide to quarterly estimated taxes covers how much to pay and when.