What Business Expenses are Tax Deductible? A Small Business Guide

By Ben Witters, CPA

Owning a small business comes with a wide range of operating expenses, from rent and software subscriptions to marketing and professional services. The good news is that many of these costs may be tax deductible, which can lower your taxable income and improve your overall cash flow. Understanding what qualifies—and what doesn’t—can make a meaningful difference in how much you ultimately pay in taxes. In this guide, we’ll break down what business expenses are tax deductible, explain how deductions impact your bottom line, and share practical tips to help you stay organized.

1) What a Tax Deduction Means for Your Bottom Line

A tax deduction reduces your taxable income, not your tax bill dollar-for-dollar.

‍Example:

• Business income: $100,000

• Deductible expenses: $20,000

• Taxable income: $80,000

You don’t receive the $20,000 back—you simply don’t pay tax on it. If your combined federal and state tax rate is 30%:

• A $1,000 deduction saves about $300 in taxes

• You still spent $1,000

• Your net cost is $700

2) What Counts as a Deductible Expense?

In general, a business expense must be ordinary and necessary for your business. That means it’s common in your industry and directly related to operating your business. If an expense is partly personal and partly business, only the business portion is deductible.

3) So What Can I Actually Deduct?

• ‍Office Costs
  Rent, utilities, office supplies, furniture, and even a home office (if used exclusively for business).

• Equipment & Software
  Computers, phones, business software, website hosting, and other tech tools.

• Marketing & Advertising
  Online ads, print materials, branding, and website design.

• Travel & Vehicle Use

• Business-related flights, hotels, rental cars, and mileage (not daily commuting).

• Professional Services
  Accountants, lawyers, consultants, and tax preparation fees.

• Insurance
  Business insurance policies and, in some cases, self-employed health insurance.

• Employee & Contractor Costs
  Wages, contractor payments, payroll taxes, and employee benefits.

• Education & Training
  Courses or certifications that improve skills related to your business.

‍ 4) ‍So What’s Not Deductible?

Personal expenses, fines, political contributions, everyday clothing (unless it’s a required uniform) and commuting costs are generally not deductible.

‍Additionally, you can only deduct HALF of business-related meals. Capital expenses such as equipment and machinery can’t usually be deducted all at once (unless eligible for special depreciation rules), and owner draws in sole proprietorships aren’t deductible either.

‍ 5) Recordkeeping Best Practices

In case of an audit, detailed records make all the difference. To support your deductions:

• Keep receipts and invoices

• Use accounting software to track expenses

• Maintain separate business bank accounts from personal accounts

• Document the business purpose of major expenses‍ ‍

Every business is unique, so it’s wise to consult a qualified tax professional to ensure you’re claiming all eligible deductions while remaining compliant. Interested in hiring a bookkeeper? Click here to meet Ben and explore what his accounting team can offer.

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