What business expenses can I deduct as a small business in the US?
US small businesses can deduct any ordinary and necessary expense paid or incurred in carrying on a trade or business. Common deductions include rent, wages, supplies, insurance, professional fees, marketing, vehicle costs, and home office expenses.
Detailed Explanation
The Internal Revenue Code allows businesses to deduct ordinary and necessary expenses incurred in carrying on a trade or business. Section 162 is the primary authority: an expense is deductible if it is both ordinary (common in your industry) and necessary (appropriate and helpful for your business). Understanding what qualifies, and equally what does not, prevents both over-claiming and under-claiming.
Core categories of deductible expenses
Rent and office expenses: - Office or studio rent - Coworking space memberships - Utilities for your office (electricity, internet, phone) - Office supplies and equipment under $2,500 (see Section 179 for larger items)
Compensation and professional services: - Wages and salaries for employees (reported on W-2) - Payments to independent contractors (reported on 1099-NEC if over $600) - Employee benefits (health insurance, retirement plan contributions) - Legal fees related to your business - Accounting and bookkeeping fees - Consulting fees
Marketing and advertising: - Paid advertising (Google, Meta, print) - Website design and hosting - Marketing software subscriptions (email platforms, CRM) - Business cards, brochures, branded materials
Technology and software: - Software subscriptions used for business - Computer equipment (see Section 179 for immediate expensing) - Cloud services, storage, productivity tools - Mobile phone costs (business-use portion only)
Insurance: - Business liability insurance - Professional liability / errors and omissions insurance - Workers' compensation insurance - Business property insurance
Travel and vehicle: - Business travel: flights, hotels, ground transportation when away from your tax home overnight on business - Vehicle costs: either actual expenses (fuel, insurance, depreciation) apportioned for business use, or the standard mileage rate (67 cents per mile for 2024) - You cannot deduct commuting from home to your regular place of business
Meals: - Business meals with clients, customers, or employees (50% deductible if business is discussed) - Meals while traveling for business (50% deductible) - Entertainment (sporting events, concerts, theater) is generally not deductible since the 2017 Tax Cuts and Jobs Act
Education and professional development: - Courses, certifications, and training directly related to your current business - Industry conferences and seminars - Professional subscriptions and publications - Note: expenses for education required to qualify for a new career are NOT deductible
Section 179 expensing
Section 179 allows businesses to immediately deduct the full cost of qualifying business equipment and software in the year of purchase, rather than depreciating it over several years. For 2024, the Section 179 deduction limit is $1,220,000. The deduction phases out dollar-for-dollar once you place over $3,050,000 in qualifying property in service. Qualifying property includes machinery, equipment, computers, and business vehicles.
Bonus depreciation
For 2024, 60% bonus depreciation is available on qualifying property (down from 100% in prior years, phasing out by 20 percentage points per year). Unlike Section 179, bonus depreciation can create a net operating loss, which can be carried forward.
Home office deduction
If you use part of your home regularly and exclusively for business, you may deduct home office expenses using either: - Simplified method: $5 per square foot of dedicated home office space, up to 300 square feet ($1,500 maximum) - Regular method: Calculate the percentage of your home used for business (home office square footage divided by total home square footage) and apply that percentage to mortgage interest, rent, utilities, insurance, and depreciation
The home office must be your principal place of business and must be used regularly and exclusively for business.
What is not deductible
- Personal expenses (your personal cell phone, personal clothing, personal travel)
- Commuting costs from home to your regular place of business
- Capital expenditures not covered by Section 179 or bonus depreciation (must be depreciated)
- Political contributions
- Fines and penalties paid to government
- Amounts paid for illegal activities
- Meals and entertainment without adequate documentation
Source: IRS Business Expenses (Publication 535)
Real-World Examples
Freelancer claiming home office and vehicle
A freelance copywriter works from a dedicated 200 sq ft home office (total home: 1,500 sq ft). Using the regular method, 13.3% of home expenses are deductible. She also drives 8,000 business miles per year. In 2024: home office deduction = 13.3% of $24,000 (mortgage interest, utilities, insurance) = $3,192. Vehicle deduction at 67 cents/mile = $5,360.
S-Corp using Section 179 for equipment
A photography studio purchases $45,000 of camera equipment and $15,000 of editing computers in 2024. Using Section 179, they deduct the full $60,000 in the current year rather than depreciating over 5 years. At a combined federal and state marginal rate of 30%, this generates an immediate tax saving of $18,000 compared to the first year's depreciation deduction.
Common Mistakes to Avoid
- Claiming 100% of a vehicle for business without tracking mileage or documenting business-purpose trips — the IRS requires a contemporaneous mileage log, not a year-end estimate.
- Deducting entertainment expenses (concerts, sporting events) since the 2017 Tax Cuts and Jobs Act eliminated the entertainment deduction — only 50% of business meals remain deductible.
- Using the home office deduction for a home office that is used for personal purposes (homework, TV watching) — the space must be used regularly and exclusively for business.
- Not keeping adequate receipts and documentation for meals — the IRS requires the business purpose, attendees, and amount for each meal deduction.
Frequently Asked Questions
What is the standard mileage rate for 2024?
The IRS standard mileage rate for business use of a personal vehicle is 67 cents per mile for 2024 (up from 65.5 cents in 2023). You can use this rate instead of tracking actual vehicle expenses (fuel, insurance, depreciation). You must track your business miles with a contemporaneous log. You cannot use the standard rate if you have previously claimed MACRS depreciation or Section 179 on the vehicle.
What is the Section 179 deduction limit for 2024?
The Section 179 deduction limit for 2024 is $1,220,000. The limit phases out dollar-for-dollar above $3,050,000 in qualifying property placed in service during the year. Section 179 cannot create a net operating loss — the deduction is limited to your business taxable income. Unlike bonus depreciation, Section 179 can be applied selectively to chosen assets.
Can I deduct startup costs for a new business?
Yes. Startup costs (costs incurred before the business opens) can be deducted up to $5,000 in the first year of business. The remaining amount is amortised over 180 months. The $5,000 deduction phases out once total startup costs exceed $50,000. Organisational costs (forming a corporation or LLC) have a similar $5,000 first-year deduction with 180-month amortisation.
Are health insurance premiums deductible for self-employed people?
Yes. Self-employed individuals (sole proprietors, partners, S-Corp shareholders who own 2% or more of the company) can deduct 100% of health insurance premiums (including dental and long-term care) paid for themselves, their spouse, and dependents. This deduction is taken on Schedule 1 of Form 1040, not Schedule C, and reduces AGI without needing to itemise. You cannot deduct premiums for months you were eligible for employer-subsidised health insurance.
Practical Tips
- Keep a mileage log app running on your phone from the first day of business — reconstructing a year of business trips at tax time is inaccurate and creates audit risk.
- Document all business meals at the time they occur: who attended, the business purpose, and the location. A photo of the receipt with a note is sufficient.
- Review Section 179 before year end each year to decide whether to accelerate equipment purchases into the current tax year to reduce your taxable income.
- Separate personal and business finances with a dedicated business bank account and credit card — commingled accounts create substantiation problems and make deductions harder to defend.
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