A List of Tax Deductible Business Expenses
Small business owners often ask the same question at tax time: what business expenses are tax-deductible, and which costs should stay off the tax return?
A business expense is a cost paid to run, manage, or grow a business. Office supplies, rent expense, professional fees, business insurance premiums, travel expenses, software, payroll, and certain vehicle expenses will often all fall into that category.
For assistance with ongoing monthly bookeeping services, including determining what business expenses are tax deductible, reach out to C.E. Thorn, CPA, PLLC. Our Raleigh small business accountants work with local clients to support their tax preparation and tax filing so they remain compliant while making the most of the deductions available to their business.
Table of Contents
The Golden Rule: Ordinary and Necessary Business Expenses
Most business deductions come back to one IRS standard: the expense must be ordinary and necessary.
- Ordinary means the cost is common in your line of work.
- Necessary means it is helpful and appropriate for your business, even if it is not absolutely required.
Identifying Business vs Personal Expenses
A local contractor buying tools, a consultant paying for bookkeeping software, or a retailer paying rent for business property may all have ordinary and necessary business expenses.
A personal vacation, personal meals, or household costs that have no direct business purpose would not qualify.
In some cases, expenses may be considered mixed-use. A phone, vehicle, or home office may serve both personal and business purposes. In those cases, only the business portion may be deductible when filing your small business taxes.
Deductible Business Expense Categories
Deductible small business expenses depend on the business structure, industry, and how the cost is used. A sole proprietor filing Schedule C may claim business expense deductions differently than an S corporation, partnership, or C corporation. However, a majority of deductible small business costs will fall into the categories below.
Office Supplies, Software, and Operating Expenses
Everyday operating costs are usually considered deductible when used for business purposes. Smaller equipment and office assets may also qualify under the de minimis safe harbor, which allows a business to deduct qualifying tangible property purchases of up to $2,500.
These deductions may include:
- Office supplies
- Postage and printer ink
- Software subscriptions
- Bookkeeping tools
- Telephone and internet services
- Small office equipment
- Qualifying business assets under the de minimis safe harbor
Office Rent, Lease Payments, and Home Office Expenses
Commercial rent expense is generally deductible when the space is used for business income. A home office deduction has stricter rules, and rent paid on a home cannot be deducted unless the space is used regularly and exclusively for business.
These deductions may include:
- Business-use portion of repairs and related expenses
- Office rent
- Warehouse, retail, studio, or storage rent
- Equipment lease payments
- Business property lease payments
- Qualifying home office expenses
- Business-use portion of utilities
- Business-use portion of mortgage interest
Travel Expenses and Long-Distance Business Trips
Business travel may be deductible only when the trip is ordinary, necessary, away from your tax home, and a long enough duration to require an overnight stay
Temporary assignments lasting less than one year, conventions, and conferences may qualify when they directly benefit the business.
These deductions may include:
- Convention or conference-related travel costs
- Airfare, train fare, or other transportation expenses
- Rental cars, taxis, and rideshare costs
- Parking and tolls
- Lodging
- Baggage fees
- Business meals while traveling
Business Meals and Entertainment
Business meals and entertainment expenses are treated differently for tax filing purposes. Many standard client meals are limited to a 50% deduction, while company-wide employee events, like holiday parties, may be 100% deductible.
These deductions may include:
- Employee picnics or similar staff events, often 100%
- Client meals connected to business discussions, usually 50%
- Meals during business travel, usually 50%
- Meals provided during qualifying business meetings
- Company-wide employee holiday parties, often 100%
Vehicle Expenses and Mileage Records
Business owners may deduct qualifying costs tied to operating a business vehicle.
These deductions may include:
- Standard mileage for business driving
- Fuel
- Maintenance costs
- Repairs
- Insurance premiums
- Registration fees
- Lease payments
- Depreciation
- Parking and tolls for business trips
Mileage records should include the date, destination, miles driven, and business purpose.
Employee Wages, Salaries, and Benefits
Employee compensation can be deductible when it is ordinary, reasonable, and directly tied to the business.
Health insurance premiums and other employee benefits may also reduce taxable income for small businesses.
These deductions may include:
- Certain fringe benefits
- Wages and salaries
- Bonuses and commissions
- Vacation pay
- Employer payroll taxes
- Health insurance premiums
- Retirement plan contributions
- Employee education costs
Retirement Plans and Contributions
Retirement plans can support tax savings while helping business owners and employees save for the future.
Contributions may lower the business’s taxable income when the plan is properly set up and funded.
These deductions may include:
- Other qualifying retirement plan contributions
- SEP IRA contributions
- SIMPLE IRA contributions
- 401(k) employer contributions
- Profit-sharing contributions
Professional Fees, Insurance Premiums, and Bank Fees
Professional services and required business coverage are common deductible business expenses.
These costs are usually easier to support when invoices, policies, and payment records are kept with tax records.
These deductions may include:
- Business licenses and regulatory fees
- CPA and accounting fees
- Legal fees
- Bookkeeping fees
- Consultant fees
- Tax preparation costs
- General liability insurance
- Workers’ compensation insurance
- Professional liability insurance
- Bank fees
- Payment processing fees
Marketing, Advertising, and Charitable Contributions
Marketing and advertising expenses tend to be deductible when they promote the business and its services.
For CPA guidance with charitable contributions and determining what businesses expenses are tax deductible, contact C.E. Thorn, CPA, PLLC. We assist small business client in the Raleigh area.
These deductions may include:
- Qualifying corporate charitable contributions
- Website updates
- SEO services
- Paid digital ads
- Print ads and mailers
- Signage
- Sponsorships
- Email marketing
- Promotional materials
Startup Costs and Organizational Costs
Startup costs are paid before the business opens, while organizational costs are tied to forming a corporation or partnership.
A business may be able to deduct up to $5,000 in startup costs in the first year, with the deduction reduced when total startup costs exceed $50,000, and remaining costs generally amortized over 15 years.
These deductions may include:
- Partnership or corporate organizational costs
- Market research
- Pre-opening advertising
- Employee training
- Certain professional fees
- Business formation costs
A List of Common Tax Deductible Business Expenses
| Expense category | Common treatment | Records to keep |
| Office supplies and software | Often fully deductible | Receipts, invoices, subscriptions |
| Commercial rent and lease payments | Often fully deductible | Lease, payment history |
| Home office expenses | Limited to qualifying business-use space | Square footage, bills, business-use notes |
| Business meals | Often 50% deductible | Receipt, attendees, business purpose |
| Employee events | May be 100% deductible | Invoice, event details |
| Business vehicle costs | Mileage or actual expense method | Mileage log, fuel, repairs, insurance |
| Professional fees | Often fully deductible | Invoices, engagement letters |
| Business insurance | Often fully deductible | Policies, premium statements |
| Startup costs | Special limits may apply | Formation records, invoices, launch costs |
North Carolina and Raleigh Business Tax Regulations
North Carolina business deductions depend partly on how the business is structured:
- Sole proprietors and single-member LLCs: Usually report business income and expenses on Schedule C.
- Partnerships and multi-member LLCs: Typically pass deductions through to owners.
- S corporations: Report deductions on the business return and issue K-1s to shareholders.
- C corporations: Claim deductions at the corporate level.
North Carolina Corporate Income Tax Rate
For tax year 2026, North Carolina’s corporate income tax rate is 2.00%. Under current law, the rate is scheduled to phase down to 0% for tax years beginning after 2029.
State Rules and Local Write-Offs
North Carolina does not allow every federal deduction on the state return. For example, employees generally cannot deduct unreimbursed employee business expenses on their North Carolina individual income tax return.
For Raleigh small business owners, common write-offs include startup costs, office rent, utilities, business travel, meals, vehicle expenses, professional fees, software, and business insurance premiums. The key is keeping accurate financial records that show details such as the amount of the expense, when it was paid, who the vendor was, and what the purpose of the expense was for.
Speak with a Raleigh Tax Professional Before You File
C.E. Thorn, CPA, PLLC helps Raleigh business owners with small business accounting, tax preparation, tax planning, and financial reporting. If you'd like assistance with ongoing monthly accounting services, including determining what business expenses are tax deductible, contact our Raleigh CPAs at 919-420-0092 or fill out the form below.
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