What Counts as a Deductible Business Expense?

As a small business owner, managing your expenses isn’t just about keeping the lights on; it’s about maximizing your profits and staying tax-compliant. One of the easiest ways to reduce your tax burden is by understanding what qualifies as a deductible business expense.

Whether you’re a freelancer, entrepreneur, or established small business, this guide will help you identify which costs can be written off, avoid common mistakes, and implement good record-keeping practices.

What Is a Deductible Business Expense?

According to the IRS, a deductible expense must be both:

• Ordinary: Common and accepted in your industry

• Necessary: Helpful and appropriate for your business

In other words, if it supports your operations and is typical for businesses like yours, it may qualify. For example, a photographer might deduct camera equipment and editing software, while a contractor might deduct tools and protective gear.

Common Deductible Business Expenses

Checklist of deductible business expenses for small businesses

Here’s a list of everyday business costs that are generally deductible:

1. Office Supplies and Equipment

• Paper, pens, and other stationery

• Computers, tablets, monitors, and printers

• Software and subscriptions (e.g., Microsoft 365, QuickBooks)

2. Rent and Utilities

• Office rent or coworking space fees

• Utilities like electricity, water, phone, and internet at your business location

3. Business Travel and Transportation

• Flights, hotels, and transportation for business trips

• 50% of business meal costs while traveling

• Car rentals and mileage (more on mileage in next week’s post!)

4. Professional Services

• Accountants, bookkeepers, attorneys, consultants

• Fees paid to independent contractors or freelancers

5. Marketing and Advertising

• Social media ads, Google ads, and traditional advertising

• Website development, hosting, branding, and promotional materials

6. Insurance Premiums

• General liability insurance

• Professional liability (errors and omissions)

• Workers’ compensation policies

7. Health Insurance

Health insurance premiums are deductible under certain conditions and can vary based on your business structure:

• If you’re self-employed and not eligible for an employer-sponsored plan, you can typically deduct premiums for yourself, your spouse, and dependents.

• If your business provides health insurance to employees, the premiums are generally fully deductible.

8. Cell Phone and Internet Expenses

If you use your personal phone or home internet for business:

• Cell phone: Deduct the percentage used for business (e.g., 60% of your bill if 60% of your usage is work-related)

• Internet: Deduct a portion based on business use, especially if you’re working from home or running an online-based business.

Keep a log or documentation of how you determine your business-use percentage, and avoid double-dipping if you already include these in a home office deduction.

Frequently Overlooked Deductions

Beyond the basics, here are some expenses that often go unclaimed:

Home Office Deduction

If you work from home and use a specific space exclusively for business, you may qualify for a home office deduction. Expenses that can be used include a portion of your rent or mortgage, utilities, and repairs specific to that space.

Depreciation

Big-ticket items, such as business vehicles, machinery, or furniture, lose value over time. You can deduct this loss in value through depreciation, spreading the cost out over several years.

Education and Training

Classes, workshops, or certifications that improve your business skills are deductible, including includes industry conferences or continuing education courses relevant to your work.

Interest on Business Loans or Credit

Interest paid on business credit cards, loans, or lines of credit is typically deductible, provided the funds were used for business purposes.

Best Practices for Record-Keeping

Accurate records are key to maximizing deductions and avoiding issues with the IRS. Here’s what we recommend:

• Keep receipts and documentation for every deductible expense

• Separate business and personal accounts to make tracking easier

• Use reliable bookkeeping tools like QuickBooks or other accounting software

• Reconcile and review your books regularly (monthly is ideal)

A Word About IRS Audits

Claiming business deductions responsibly is perfectly legal, but going overboard or being careless can trigger an audit. Protect yourself by:

• Only deducting expenses that have a clear business purpose

• Documenting every deduction thoroughly

• Working with a professional to double-check your approach

Final Thoughts on Deductible Business Expenses

Understanding what counts as a deductible business expense can help you make smarter financial decisions, lower your tax bill, and keep more of what you earn. However, every business is unique, and it’s essential to tailor your deductions to your specific circumstances.

I work with small business owners every day who want to feel more in control of their finances—without the stress or confusion. If you’re unsure whether you’re tracking things correctly or if you think you might have missed some deductions, I’d be happy to help.

Let’s Make Sure Your Expenses Are Working for You

Even though the main tax season has passed, it’s never too late to get your books in order or to correct missed deductions through an amended return. More importantly, tracking these expenses properly throughout the year makes tax time a whole lot easier (and less expensive).

At Pilot Management Group, we specialize in helping small businesses stay organized, compliant, and prepared with custom bookkeeping solutions and year-round support.

Schedule a free consultation to discover how we can help you track, categorize, and optimize your deductible expenses.