What Business Expenses Are Deductible?

A business expense is deductible if it’s both ordinary and necessary for your trade or business. The IRS defines an ordinary expense as one that’s common and accepted in your field, and a necessary expense as one that’s helpful and appropriate for your business (IRS Pub. 334). That covers most everyday costs, like advertising, supplies, insurance, rent and professional fees. Personal costs aren’t deductible, some costs are only partly deductible (most business meals are limited to 50%), and big purchases are often deducted over several years instead of all at once.

The rules below are the IRS’s general rules for sole proprietors and single-member LLCs that file Schedule C. Figures are for the 2026 tax year unless noted.

The “ordinary and necessary” test

By the IRS definition, a necessary expense only has to be helpful and appropriate for the business. A graphic designer’s font license and a dog walker’s leashes both pass easily.

Things that are partly business and partly personal take more care. Publication 334 says to separate the personal part from the business part, because the personal part is generally not deductible. Its example is a van driven 20,000 miles in a year, 16,000 of them for business: you can claim only 80% of the cost of operating it as a business expense (IRS Pub. 334).

Common deductible expenses

Schedule C groups deductible costs into expense lines. These are some of the categories on the 2025 form, the version filed in 2026 (IRS):

Category	Schedule C line
Advertising	8
Car and truck expenses	9
Commissions and fees	10
Contract labor	11
Insurance (other than health)	15
Legal and professional services	17
Office expense	18
Rent or lease	20a, 20b
Repairs and maintenance	21
Supplies	22
Taxes and licenses	23
Travel and deductible meals	24a, 24b
Utilities	25
Wages	26
Other expenses	27b (itemized in Part V)

Publication 334 adds a few conditions for specific categories (IRS Pub. 334):

• Rent is deductible only if it’s for property you use in your business.
• Taxes you can deduct are those directly attributable to the business. Federal income tax is not deductible.
• Interest is deductible on business debts you’re legally liable for. Interest on a personal loan doesn’t go on Schedule C.
• Insurance premiums related to the business, such as liability coverage, are generally deductible.

What you can’t deduct

Publication 334’s list of expenses a business can’t deduct includes (IRS Pub. 334):

• Personal, living and family expenses
• Entertainment expenses
• Charitable contributions
• Political contributions and lobbying expenses
• Dues to certain clubs
• Bribes and kickbacks

The Schedule C instructions add that you can’t deduct fines or penalties paid to a government for violating any law (IRS). Business gifts are capped at $25 per person per year (IRS Pub. 463).

Meals and travel

In general, you can deduct only 50% of business-related meal expenses, and only if you or your employee is present and the food or drinks aren’t lavish or extravagant. Entertainment expenses are generally nondeductible (IRS Pub. 463). On Schedule C, travel goes on line 24a and deductible meals on line 24b (IRS).

Home office

You can deduct part of your home’s costs if you regularly use a specific area of your home only for your trade or business. Publication 587 calls these the exclusive use and regular use tests. The space also generally has to be your principal place of business, a place where you meet clients or customers, or a separate structure (IRS Pub. 587). A spare room that’s also the guest room doesn’t pass the exclusive use test.

There are two ways to figure the deduction:

• The simplified method allows $5 per square foot of the space, for up to 300 square feet (IRS). That works out to a maximum of $1,500.
• The regular method uses a share of your actual home expenses, figured on Form 8829 (IRS).

Publication 587 also limits the deduction to the gross income from the business use of your home, reduced by business deductions that aren’t related to the home (IRS Pub. 587).

Car and truck expenses

Driving between home and your main place of work is commuting, and the IRS says you can’t deduct commuting expenses no matter how far you live from your regular workplace (IRS Pub. 463). Deductible trips include getting from one workplace to another, visiting clients or customers, and going to a business meeting away from your regular workplace (same source).

You can deduct either your actual costs or a standard rate per business mile, plus business parking and tolls (IRS Pub. 334). If you own the vehicle and want the standard rate, you have to choose it in the first year the car is available for business use (IRS).

The 2026 rate changed partway through the year:

Business miles driven	Standard mileage rate
January 1 to June 30, 2026	72.5 cents per mile
July 1 to December 31, 2026	76 cents per mile

The IRS first set 72.5 cents for all of 2026 in a December 2025 news release (IRS). In Announcement 2026-11, published in July, it raised the rate to 76 cents for miles on or after July 1, 2026, citing higher fuel prices (IRS; IRS). The announcement is the newer source, so you need to know which half of the year your business miles fall in. Publications 334 and 463 are the 2025 editions and show the 2025 rate of 70 cents, which doesn’t apply to 2026 driving.

Equipment and other big purchases

Property you’ll use for more than a year, like a computer or a vehicle, generally isn’t deducted all at once. You spread the cost over more than one tax year through depreciation (IRS Pub. 334). There are several exceptions:

• Under the de minimis safe harbor, you can deduct tangible property costing up to $2,500 per item or invoice ($5,000 if you have an applicable financial statement) in the year you buy it (IRS Pub. 334).
• Under section 179, for tax years beginning in 2026, you can deduct up to $2,560,000 of qualifying property, reduced once the property you place in service that year exceeds $4,090,000 (IRS Pub. 946).
• For bonus depreciation, the 2025 tax law (P.L. 119-21) reinstated the 100% special depreciation allowance for certain qualified property acquired and placed in service after January 19, 2025 (same source).

Choosing among these affects your taxes in later years too, so a tax professional can help if you’re buying expensive equipment.

Startup costs

Costs of investigating or creating a business before it opens are startup costs. You can elect to deduct up to $5,000 of them in the year the business begins. That $5,000 shrinks dollar for dollar once your total startup costs go over $50,000, and whatever you can’t deduct right away is deducted evenly over 180 months, starting with the month the business begins (26 U.S.C. § 195; IRS).

Keep the records to back it up

If the IRS questions a deduction, your records are what support it. The IRS says supporting documents should show the payee, the amount, proof of payment and the date (IRS). See how to track business expenses for a simple system, then report your side hustle income and see how expenses turn gross profit into net profit.