Tax Deductions for Small Business: What You Can Write Off in 2026
Every dollar you deduct is a dollar the IRS can’t tax. That makes tax deductions for small business owners the fastest way to lower your bill. Most owners still miss some. They don’t know what counts, or they can’t prove an expense when it’s time to file.
This guide covers the write-offs that matter, the rules behind them, and the records you need. If you run a business in Brooklyn or anywhere in New York, we flag the local rules too.
What counts as a business tax deduction?
The IRS has one test: the expense must be ordinary and necessary.
- Ordinary means businesses like yours commonly pay it.
- Necessary means it helps your business earn money. It doesn’t have to be essential.
A deduction lowers your taxable income. A credit lowers your tax bill directly. They’re different tools, and you want both.
Here’s how a deduction works. Say your business earns $100,000 in profit and you have $20,000 in deductions. You pay tax on $80,000. At a 25% rate, that’s $5,000 saved.
Everyday deductions most small businesses can claim
These are the expenses you already pay. You just need to track them.
Rent and utilities
Rent for an office, studio, shop, or storage space is deductible. So are the electric, gas, water, and internet bills tied to that space. Pay them from your business account so the paper trail is clean.
Software, equipment, and supplies
Accounting software, project tools, website hosting, printers, paper, and office furniture all count. If you need it to run your business day to day, you can usually deduct it. Larger purchases follow the depreciation rules covered below.
Advertising and marketing
Google and Facebook ads, a website, business cards, signage, sponsorships tied to your business, and email tools are all deductible. The money you spend to find customers lowers your taxable income.
Professional fees
You can deduct what you pay your lawyer, bookkeeper, and tax preparer. Yes, that includes our fees.
Bank and merchant fees
Monthly account fees, wire fees, and overdraft charges are deductible. So are the fees Stripe, Square, and PayPal take from your deposits. Those fees hide inside your payouts, and owners miss them all the time. Pull an annual fee statement from each platform.
Business insurance
General liability, property, professional liability, and workers’ compensation premiums are all deductible.
Phone and internet
Deduct the business share of your cell phone and internet. If you use your phone 60% for work, deduct 60%. Write down how you arrived at the number.
Deductions for payroll and people
Wages and contractor payments
You can deduct wages you pay employees and fees you pay contractors. But you need the paperwork. Collect a W-4 from every employee. Collect a W-9 from every contractor before you pay them. You’ll file 1099-NEC forms for contractors above the IRS threshold. That threshold changes, so confirm the current number with us before January.
Payroll gets messy fast. A full-service payroll provider keeps your filings on time.
Employee benefits
Health coverage, retirement plan matches, education assistance, and similar benefits are deductible. Some also earn you tax credits. A new retirement plan, for example, can qualify for a startup credit.
Paying family members
You can pay your spouse or kids to work in your business and deduct the wages. The work must be real, the pay must be reasonable, and you must keep time records. The IRS looks hard at this one.
Vehicle, travel, and meal deductions
Vehicle expenses
You have two ways to deduct a vehicle you use for work:
- Standard mileage rate. Multiply your business miles by the rate the IRS sets each year.
- Actual expenses. Deduct the business share of gas, repairs, insurance, and lease payments.
Both methods need a mileage log with the date, destination, miles, and business purpose of every trip. No log, no deduction. Commuting from home to your regular workplace never counts.
Business travel
Flights, hotels, and local transportation for a business trip are deductible. Mixed trips need math. If you spend five days at a conference and five days on vacation, you deduct the conference days only.
Business meals
You can deduct 50% of meals with clients, vendors, or partners when you discuss business. Write the name of the person and the topic on the receipt. Entertainment, like concert tickets or golf outings, is not deductible.
Big-ticket deductions that save the most
These take more planning. They also save the most.
Section 179 and bonus depreciation
Normally you spread the cost of equipment over several years. Section 179 lets you deduct the full cost of qualifying equipment, machinery, and vehicles in the year you buy them, up to an annual limit. Bonus depreciation can cover what’s left. Section 179 can’t create a loss beyond your business income, so timing matters.
The qualified business income (QBI) deduction
If you run a sole proprietorship, partnership, LLC, or S corporation, you may deduct up to 20% of your qualified business income. Income limits apply. Service businesses like accounting, law, and consulting face tighter limits at higher income levels. Your entity type and how you pay yourself change the result.
The home office deduction
You can deduct part of your home costs if you use a space regularly and exclusively for your business. You have two options:
- Simplified method: $5 per square foot, up to 300 square feet.
- Regular method: Deduct your business percentage of rent or mortgage interest, utilities, and insurance.
A spare bedroom that doubles as a guest room doesn’t qualify. A desk in your living room doesn’t either. Employees working from home can’t claim this deduction.
Retirement contributions
A Solo 401(k) or SEP IRA lets you put large amounts away and deduct the contribution. For many owners, this is the biggest deduction available. Plan deadlines differ, so decide before year-end, not in April.
Self-employed health insurance
If you pay your own health insurance premiums, you can deduct them for yourself, your spouse, and your dependents. The deduction can’t exceed your business profit.
Half of your self-employment tax
You pay 15.3% self-employment tax on your net earnings. You get to deduct half of it. Most tax software handles this, but check that yours did.
Startup and organizational costs
New business? You can deduct up to $5,000 of startup costs and up to $5,000 of organizational costs in your first year. You deduct the rest over 15 years. Market research, licenses, and legal fees to form your LLC all qualify.
Business loan interest
Interest on business loans and business credit cards is deductible. Principal is not. If your payment is $2,000 and $520 is interest, you deduct $520.
Cost of goods sold
If you make or resell products, you deduct what those products cost you once you sell them. That includes materials, direct labor, and storage. COGS depends on accurate inventory counts, so your bookkeeping has to be tight.
Tax Deductions for Small Business Owners in New York
Federal rules are only half the picture. New York adds its own.
- NYC Unincorporated Business Tax (UBT). NYC charges this tax to many sole proprietors and partnerships. The UBT you pay is itself a deductible business expense.
- Pass-through entity tax (PTET). New York lets partnerships and S corporations pay state income tax at the entity level. That can create a federal deduction for tax paid to the state. The election has deadlines and trade-offs, so don’t guess.
- Sales tax. If you collect sales tax in NYC, you need to file on time. Filing late costs far more than any deduction saves.
New York rules change often. Ask a local small business accountant in New York before you rely on any of this.
What You Can't Deduct
Some expenses never qualify, no matter how you label them:
- Personal expenses (groceries, your own clothing, family vacations)
- Commuting costs
- Fines and penalties
- Loan principal payments
- Your own owner’s draws
- Personal income taxes
- Client entertainment
Mixing personal spending into business deductions is the fastest way to trigger an audit.
Keep records the IRS will accept
A deduction you can’t prove is a deduction you’ll lose. Build these habits:
- Open a separate business bank account and use it for business only.
- Save every receipt. Photograph paper ones.
- Log your mileage as you drive, not at year-end.
- Note the business purpose on meals and travel.
- Reconcile your books monthly.
- Keep records for at least three years after you file. Keep asset records longer.
Clean books also make tax season faster and cheaper. If yours are behind, catch-up bookkeeping gets you current before you file.
Mistakes That Cost Small Businesses Money
- Rounding numbers. Round figures like $5,000 for “supplies” look made up. Use real totals.
- Treating workers wrong. Calling an employee a contractor to skip payroll taxes invites penalties.
- Claiming 100% business use on a car or phone you also use personally.
- Missing the entity question. The wrong structure can cost you thousands in self-employment tax every year.
- Waiting until April. Most of the best strategies, including retirement plans and equipment purchases, need action before December 31.
If you already got an IRS notice, don’t ignore it. Talk to us first.
Get Every Deduction You've Earned
You don’t need to memorize the tax code. You need someone who knows it, tracks your numbers, and tells you straight what you can claim and what you can’t.
Black Ink Tax and Accounting Services handles your tax preparation, bookkeeping, payroll, and year-round planning from our Brooklyn office. We’ll find the deductions you’re missing and keep you clear of the ones that draw IRS attention.
Ready to keep more of what you earn?
Contact Black Ink Tax and Accounting Services today to learn more about the tax deductions.
Frequently Asked Questions
No. The IRS allows deductions only for expenses that are ordinary and necessary for operating your business. Costs such as advertising, software subscriptions, insurance, and professional services may qualify. Personal purchases are not deductible simply because you paid for them using a business bank account.
Yes. A small business can generally deduct legitimate operating expenses even if it hasn't generated a profit. However, expenses incurred before business operations begin may be treated as startup costs. Eligible businesses can generally deduct up to $5,000 in qualifying startup costs when operations begin, subject to IRS limitations.
Yes. Self-employed business owners may qualify for the home office deduction whether they rent or own their home. The workspace generally must be used regularly and exclusively for business. The simplified method allows $5 per qualifying square foot, up to 300 square feet, for a maximum deduction of $1,500 annually.
You can deduct eligible business-related driving expenses, even if you also use the vehicle personally. The IRS standard business mileage rate is 72.5 cents per mile for January through June 2026 and 76 cents per mile for July through December. Alternatively, eligible taxpayers can use actual vehicle expenses. Personal driving and ordinary commuting don't qualify.
Yes, qualifying equipment may be eligible for immediate expensing through Section 179 or 100% bonus depreciation. Under current federal rules, eligible property acquired and placed in service after January 19, 2025, may qualify for full bonus depreciation. Eligibility depends on the equipment, purchase date, business use, and applicable limitations.
Only the qualifying interest portion of a business loan payment is generally deductible. Repayment of the loan principal does not reduce taxable business profit. However, equipment or other qualifying assets purchased using borrowed funds may separately qualify for depreciation or immediate expensing under IRS rules.
Yes. A legitimate business expense may still be deductible when paid using a personal credit card or bank account. What matters is the business purpose of the purchase, not which account paid for it. Maintain supporting documentation and accurately record the transaction in your business bookkeeping.
Generally, no. Most qualifying business meals are only 50% deductible. The meal must have a legitimate business purpose, be reasonable in cost, and include the taxpayer or an employee. Entertainment expenses are generally nondeductible, even when clients attend. Separately stated qualifying meal expenses may still be deductible.
Yes. Eligible owners of sole proprietorships, partnerships, and S corporations may qualify for a deduction of up to 20% of qualified business income (QBI), in addition to ordinary business expense deductions. The QBI deduction applies after calculating qualifying net business income and is subject to income thresholds and other limitations.
Yes. The IRS can disallow deductions that you cannot adequately substantiate. Paper receipts are not always required, but you must maintain reliable records showing the amount, date, and business purpose of expenses. Digital receipts, invoices, bank records, and mileage logs can help support eligible deductions.