Building Your Business Business Taxes How To Claim Tax-Deductible Business Expenses Many business expenses can be deducted dollar for dollar By William Perez William Perez Twitter William Perez is a tax expert with 20+ years of experience advising on individual and small business tax. He has written hundreds of articles covering topics including filing taxes, solving tax issues, tax credits and deductions, tax planning, and taxable income. He previously worked for the IRS and holds an enrolled agent certification. learn about our editorial policies Updated on September 7, 2022 In This Article View All In This Article "Ordinary and Necessary" Expenses Commonly Deducted Expenses Gifts to Customers or Clients Promotional Gifts Meals and Entertainment Expenses Transportation Expenses Home Office Expenses Nondeductible Business Expenses How to Deduct Business Expenses © Thomas Barwick / Stone / Getty Images. Every business should seek to take advantage of special tax deductions offered for expenses they incur. Whether you're self-employed or running your own business entity, the Internal Revenue Service may allow you to deduct most of your business costs—including many dollar-for-dollar deductions. Costs qualify as deductions if they're "ordinary and necessary" in your trade or business. Learn more about which expenses qualify and how to deduct them. Key Takeaways Businesses can deduct expenses that are "ordinary" and "necessary" (typical to the industry).Common deductions include accounting and advertising fees, equipment rentals, and employee benefits.Business meals are still partially tax-deductible, although general entertainment deductions were removed in 2018. What Business Expenses Can I Deduct? According to the IRS, "ordinary" means that most others who work in the same business or trade also commonly pay for these things. "Necessary" means that whatever you spent money on assists you in doing business. In fact, you might not be able to do business and earn money if you didn't make these expenditures. For example, textbooks and teaching supplies would be both ordinary and necessary if you work as a tutor. However, buying a pet guinea pig for your workspace might not be, at least if you can't convince the IRS that the pet is a teaching tool. Even then, you might run into a problem with the "ordinary" part of the equation, at least without the assistance of a good tax professional. Note You can still get a tax break for paying expenses that aren't deductible dollar for dollar. Commonly Deducted Expenses The most common fully deductible business expenses include: Accounting fees Advertising Bank charges Commissions and sales costs Consultation expenses Continuing professional education costs Contract labor costs Credit and collection fees Delivery charges Dues and subscriptions Employee benefit programs Equipment rentals Factory expenses Insurance Interest paid Internet subscriptions, domain names, and hosting Laundry Legal fees Licenses Maintenance and repairs Office costs and supplies Pension and profit-sharing plans Postage Printing and copying expenses Professional development and training fees Professional fees Promotion Rent Salaries, wages, and other compensation Security Small tools and equipment Software Supplies Telephone Trade discounts Travel Utilities Gifts to Customers or Clients Not all expenses are fully deductible, even if they're ordinary and necessary, and gifts made to your customers or clients fall into this category. You can only claim a percentage of these costs. They're deductible up to $25 per person. For example, you could only claim a deduction for $25 if you show your appreciation to your best client with a $100 bottle of bourbon. The other $75 is on you and your kind heart. However, you could deduct the whole expense if you give them a $20 bottle of wine instead because this is under the $25 limit. The caveat: Be wise with your gratitude. Promotional Gifts Not all gifts are considered gifts for tax purposes. Some of these costs can be considered promotional. This is typically the case with items that cost $4 or less. They're fully deductible up to $4 each as long as they bear your business name and you distribute a lot of them, such as pens you might offer to anyone who signs a contract with you. Meals and Entertainment Expenses It used to be that you could deduct up to 50% of entertainment costs that were directly related to conducting business—such as throwing a lavish holiday party and inviting your clients. The Tax Cuts and Jobs Act (TCJA) eliminated this tax code provision in 2018, but there are still some deductions for meals. You can deduct 50% of business meals if you take those clients out to dinner individually. You—or at least one of your employees—must be present and must conduct business in some way with a consultant, client, customer, or other business contacts. The meal can't be over-the-top extravagant. So if you take that same client to dinner and order a $100 bottle of bourbon to enjoy with the meal instead of giving them the bottle as a gift, your deduction doubles from $25 to $50—half the purchase price. And you can deduct half the cost of the meal and the tip, too. Automobile and Transportation Expenses You can deduct the portion of your automobile and transportation expenses equivalent to the miles you drove for business purposes during the tax year. Note This doesn't include travel costs if you must visit another city or location—that's a separate category and it's fully deductible. Transportation costs are those you incur in the daily course of doing business. Your business miles must be separated from your personal miles. This can admittedly get complicated, so it's beneficial to keep a log, either in your smartphone or on a notepad stashed in your glove compartment. Here's an example. You run your business from home and you drive 20 miles each way to service a client's computer system. Then you make a side trip of five miles to pick up some dinner on your return trip home. Technically, you must subtract 10 miles—assuming the meal pickup was five miles each way—from the total 50 miles you drove on that outing. So, 40 of your miles are tax-deductible. You can't add on that other 10. The Standard Mileage Rate vs. Actual Expenses Now you have a choice to make. The IRS allows you to either deduct your actual costs incurred in driving those miles, or you can deduct the standard mileage rate of 58.5 cents in 2022 (the rate is adjusted annually). Note The standard mileage rate tends to change a little annually because it's indexed to inflation. Those 40 miles you drove to service the computer system would shave $23.40 off your business income using the standard mileage rate—40 miles times 58.5 cents for each of them. But you should do a little more math to determine if claiming your actual costs would result in a greater deduction. Your deduction would equal 50% of your actual auto expenses if you drove 30,000 miles during the year overall, and if 15,000 of those miles were business-related—15,000 is half of 30,000. These costs include things such as depreciation, auto loan interest, fuel, maintenance, insurance, and registration. Or you could simply deduct $8,775, or 15,000 miles times 58.5 cents. You'd want to use whichever method works out to more tax savings. Home Office Expenses You can also claim a deduction for expenses incurred in maintaining a home office, and the rules are similar to those that apply to auto and transportation costs. You have to separate business and personal use. You can only deduct the portion of the expenses that are associated with the area of your home that you use exclusively for business. For example, you can claim a deduction for the square footage of the space where you actually work, not the entire room, if the room does double duty as your child's playroom. But if you dedicate an entire extra bedroom to your work and do nothing else in that room, the entire room's percentage of your home is tax deductible. The space must also be your principal place of business. This doesn't mean that you can't leave to make house calls to customers or clients, but you must actually run your business from this home location. The Home Office Deduction Simplified Method The home office expense deduction is an either/or decision as well. The IRS also gives you a choice between two options. One is to use the simplified method and simply claim $5 for each square foot of your home that's devoted to your business. This method caps out at 300 square feet, however, so it might not be beneficial if your work area is larger than this. Home Office Expenses—Actual Overall Costs Your other choice is to deduct a percentage of the actual overall costs of maintaining your home. The percentage would be equal to the percentage of your home that you use for business purposes. For example, your entire home might be 2,500 square feet. You've converted the garage to an office space, and it comprises 375 square feet. That works out to 15% of your home's space. You could claim a $6,300 home office deduction if the total costs of maintaining your home for the entire year were $42,000—15% of $42,000. You'd get only a $1,500 deduction, or $5 for 300 square feet, if you used the simplified method, given that you'd have to leave 75 square feet on the table because of the 300-square-foot cap and you have relatively high household expenses. Note Your actual expenses include rent or mortgage, insurance, utilities, repairs, and maintenance made solely to your office space. They also include depreciation if you own your home rather than rent. Again, calculate the deduction both ways to determine which works out best based on your personal circumstances. Most taxpayers find that the percentage method is more advantageous. Nondeductible Business Expenses Some business costs are never deductible even though they might be directly related to your trade or profession. These include bribes and kickbacks—which are usually illegal to begin with—and contributions to political parties or candidates. Dues and membership fees you might pay for social clubs aren't deductible, nor are lobbying expenses, penalties, and fines. Note Publication 535 on the IRS website offers more in-depth information on non-deductible expenses. How to Deduct Business Expenses You must complete and file Schedule C with your tax return to itemize your business costs and calculate how much business income is left over after you deduct them. The resulting number from Schedule C is then entered on line 3 of Schedule 1 of Form 1040. This is your taxable income from your business. The total of Schedule 1, which is found on line 9, then transfers to line 8 of Form 1040. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning! Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Internal Revenue Service. "Publication 535: Business Expenses," Page 3. Internal Revenue Service. "Income & Expenses 8." Internal Revenue Service. "IRS Issues Guidance on Tax Cuts and Jobs Act Changes on Business Expense Deductions for Meals, Entertainment." Internal Revenue Service. "Publication 463, Travel, Gift, and Car Expenses." Internal Revenue Service. "IRS Issues Standard Mileage Rates for 2022." Internal Revenue Service. "Publication 587, Business Use of Your Home." Internal Revenue Service. "Simplified Option for Home Office Deduction."