Business expenses that are tax-deductible

For a business cost to be deductible on your return, the law sets one core rule: the expense must be ordinary and necessary.

• An ordinary expense is common and accepted in your trade or industry.
• A necessary expense is helpful and appropriate for your business (it doesn't have to be indispensable).

If an expense is partly business and partly personal, you must split it —the personal portion is never deductible. Here are the main categories.

1. Employee costs and benefits

• Pay: wages, salaries, commissions and bonuses for actual services (must be reasonable). You can't deduct your own salary or personal withdrawals.
• Fringe benefits: health and accident plans, educational and adoption assistance, group-term life insurance.
• Pension plans: contributions to employee retirement or profit-sharing plans (SEP, SIMPLE).
• Contract labor: payments to independent contractors for services.

2. Vehicle and transportation

If you use your car or truck for business, you can deduct operating and maintenance costs by one of two methods:

• Standard mileage rate: a fixed rate per business mile (for example, 67¢/mile in 2024 and 70¢/mile in 2025 —always confirm the current year's rate). Choose it in the first year the vehicle is used for business.
• Actual expenses: gas, oil, repairs, tires, insurance, registration and depreciation.

Commuting between home and your main workplace is personal and not deductible. Tolls and parking for business can be deducted separately. See how miles are split between business and personal use.

3. Travel and meals

• Business travel away from your tax home that requires an overnight stay: airfare, taxis, baggage, lodging, business calls, laundry.
• Business meals: generally 50% deductible when with a client or business contact, or while traveling. Not lavish; you or an employee must be present.

4. Business use of home

If you use part of your home exclusively and regularly as your principal place of business or to meet clients, you may deduct a share of mortgage/rent, taxes, insurance and utilities —by the regular method (percentage of home used) or the simplified method ($5/sq ft, up to 300 sq ft). See how the home office deduction is calculated.

5. Operations, insurance and taxes

• Rent/lease of equipment, vehicles or business property.
• Insurance: fire, theft, flood, liability, malpractice, workers' comp, business interruption.
• Taxes and licenses: state gross-income tax, property tax, employer payroll taxes.
• Utilities for business premises (working from home, you can't deduct the base residential phone line, but you can deduct extra business charges).

6. Professional fees and interest

• Legal and professional services directly related to the business (accountants, attorneys, tax prep).
• Interest on business debts (loans, business credit cards). Personal-loan interest isn't deductible.

7. Capital purchases, depreciation and bad debts

• Depreciation: assets lasting more than a year (buildings, machinery, furniture) are recovered over time (MACRS) or deducted under Section 179. See the depreciation and Section 179 guide.
• De minimis safe harbor: you may expense items up to $2,500 per item/invoice ($5,000 with applicable financial statements).
• Bad debts: if you can't collect money owed, you may claim a deduction —only if it was previously included in income.

Non-deductible expenses

The responsibility to prove a deduction is entirely yours: keep receipts, invoices and canceled checks, and for travel, meals, gifts and vehicle use keep detailed logs (estimates aren't valid). See burden of proof and record-keeping.