23 must-use tax breaks for small businesses

Running a small business requires constant attention to cash flow and daily operations. The pressure is real: most owners (54%) skipped or reduced their own pay at least once in the past year to cover bills or payroll. While your primary focus is on growth, dedicating time to your tax strategy ensures you keep more of your hard-earned revenue.

Knowing which tax breaks apply to you can significantly reduce your tax liability and provide more capital to reinvest in your goals.

Let’s break down 23 of the most impactful tax deductions and write-offs available for the 2026 tax year. We’ll cover what you can deduct, specific limits for this year, and examples of how these breaks work in practice.

1. Startup costs

Amount: Up to $5,000

If 2026 was your first year in business, you can deduct up to $5,000 in startup costs. These are expenses incurred before your doors officially opened, such as:

• Market research and site scouting
• Legal fees for incorporating
• Employee training
• Advertisements for the grand opening

You can take the full $5,000 deduction if your total startup costs are $50,000 or less. If your costs exceed $50,000, the deduction begins to phase out dollar-for-dollar. Once your startup costs reach $55,000, the immediate deduction is no longer available, and costs must be amortized over 15 years.

2. Home office

Amount: Depends on the method you use

Small business owners who work from home or have a dedicated home office can take this deduction. The home office tax deduction amount depends on the percentage of the home you use for business purposes. There are two methods for determining your home office deduction:

Simplified method

This method is the easiest for home office deductions. You can deduct $5 per square foot of your home office space, but only up to $1,500.

Your home office deduction for the simplified method is:

Square feet of your home office x $5

So, even if your home office is over 300 square feet ($5 x 300 square feet = $1,500), you can only take $1,500 as a deduction.

Regular method

The regular method is a bit more complicated, but it also means you can deduct more expenses. With the regular home office deduction, you’ll need to keep track of all your home expenses. This includes the cost of home repairs, upkeep, rent, and utilities.

For this method, your allowable deduction would be:

(Square feet of your home office / total home square feet) x home expenses

For example, say your home office is 300 square feet, and your home is 1,500 square feet. Your total home expenses for the year were $10,000. Your deduction using this method would be $2,000.

3. Retirement plan contributions

Amount: Varies by the plan you have

Contributing to a retirement account helps secure your future while acting as a significant business write-off. For 2026, the IRS has increased contribution limits to account for inflation, and new "super catch-up" rules are now in effect for specific age groups.

4. Depreciation

Amount: up to 100% of the depreciation expense

Depreciation allows you to write off the cost of large assets over their useful life. This typically applies to equipment, vehicles, and machinery.

Under current tax laws, bonus depreciation and Section 179 allow many businesses to deduct the full purchase price of qualifying equipment in the year it’s in use, rather than spreading it out over many years.

5. Health insurance

Amount: 100%

Small businesses can deduct the full cost of health insurance premiums paid for employees. Generally, you must pay at least 50% of your employees' premiums to qualify for this as a business expense.

If you are self-employed, you can deduct 100% of the health insurance premiums you pay for yourself, your spouse, and your dependents. This is an adjustment to income on your personal return, meaning you do not need to itemize to claim it.

6. Meals

Amount: 50% or 100%

​​The deductibility of meals depends on the nature of the event.

• 100% deductible: Company-wide social events, such as holiday parties or summer picnics.
• 50% deductible: Business meals with clients, prospects, or during travel.

To qualify for the 50% deduction, the meal must be business-related, the cost must not be lavish, and you or an employee must be present. Entertainment expenses, such as concert tickets or sporting events, remain nondeductible.

7. 1099 deductions

Amount: 100%

Small business owners or self-employed individuals also have 1099 tax deductions. These 1099 write-offs can reduce your tax liability, whether you’re an owner or a freelancer.

If you hire a contractor or freelancer, you can deduct the entire cost. Say you pay a freelancer $1,500 for work on your website. The entire $1,500 is fully tax-deductible.

8. Travel

Amount: 100%

If you need to travel out of town for business, the cost of getting to and from your destination is tax-deductible. Lodging expenses are also 100% tax-deductible.

Travel tax deductions include:

• Plane tickets
• Hotels
• Rental car costs
• Parking fees
• Cost of taxis or ride-sharing

The primary purpose of your trip must be business. You may engage in leisure activities on the trip, but business must be the main reason for the trip. You should also keep records of your business travel expenses, including receipts, invoices, or other documents showing your expenses.

9. Gifts

Amount: Up to $25 per person

Gifts for clients or employees are deductible, but the IRS limits this to $25 per person per year. This limit does not apply to promotional items like branded pens or bags, provided they cost $4 or less.

10. Bad debt

Amount: 100%

If your business is unable to collect a debt, such as an uncollectible account receivable or a loan to a supplier, you can write it off. To claim this deduction, you must be able to show that you previously included the amount in your business income or that you intended the transaction to be a loan and not a gift.

11. Education

Amount: 100%

The IRS offers tax breaks for small businesses that pay for education expenses. To qualify for the education deduction, costs must add value to the business and improve or maintain necessary skills.

Tax deductions examples for valid education expenses include:

• Classes
• Workshops
• Seminars
• Publication subscriptions
• Books

However, general education courses unrelated to the business or an employee's role typically won't qualify for this small business tax deduction. You may also deduct the cost of work-related education expenses if you’re a self-employed individual.

12. Auto expenses

Amount: 100% or percent of vehicle usage

Small business owners can deduct auto expenses, even if it’s their own car. If the vehicle is solely for business use, all costs are tax-deductible. If it’s for business and personal activities, the standard mileage rate or actual expenses method will determine the deduction amount.

Standard mileage rate

The standard mileage rate is the simplest method. You track your business miles and multiply them by the IRS rate.

For 2026, the standard mileage rate is $0.725 per mile. Example: If you used your personal vehicle to drive 5,000 miles for business in 2026, your deduction would be $362.50 (5,000 miles x $0.725).

Actual expenses

Under this method, you track all vehicle-related costs (insurance, fuel, maintenance, and registration). Your deduction is the total expense multiplied by the percentage of business use.

Calculation: Total vehicle expenses x (business miles / total miles)

New for 2026: Car loan interest deduction

Under the One Big Beautiful Bill Act, there is a new No Tax on Car Loan Interest provision. While business-related interest has always been deductible, this new law allows a deduction for personal interest on a car loan for the first time in decades.

The benefit: If you use your car for both business and personal use, you can now deduct the personal portion of your loan interest (up to $10,000) as a personal deduction, while the business portion remains a business expense.

Eligibility: To qualify for the personal portion, the vehicle must have undergone final assembly in the United States.

13. Taxes

Amount: 100%

Any business-related taxes you pay are tax-deductible. This includes taxes you pay for payroll, such as Social Security and Medicare taxes.

Other examples include:

• State and local income tax
• Sales tax for business purchases
• Real estate tax for business property

Note that certain business taxes are not tax-deductible, including estate and gift taxes, as well as federal income taxes.

14. Child care

Amount: 0%

Direct childcare expenses are not deductible business expenses. However, the IRS offers the Employer-Provided Child Care Tax Credit. If you pay for or provide childcare for your employees, you may receive a tax credit of 25% of the qualified expenses, up to $150,000 per year.

15. Charitable contributions

Amount: Generally 60%

There are tax breaks for small businesses that make charitable contributions.

Small business owners can deduct:

• Up to 100% of charitable contributions if it's on their personal taxes. Small business owners who run sole proprietorships, partnerships, or limited liability companies (LLCs) can take advantage of this.
• Up to 25% of the contribution is deductible if the business operates as a corporation.

16. Marketing and advertising

Amount: 100%

​​Business marketing costs for small businesses are fully tax-deductible. This includes expenses for campaigns to generate or retain customers.

Examples of deductible advertising costs include:

• Ads on social media platforms
• Newspaper and TV ads
• Sponsoring events or conferences

To claim the deductions, business owners must keep records of all marketing expenses, including receipts, invoices, and payments, to verify the costs.

17. Rent and utilities

Amount: 100%

Payments for your office space, warehouse, or storefront are fully deductible. This also applies to the utilities required to run those spaces, such as electricity, heat, and water. Note that if you are renting with an option to buy, the IRS may view those payments as purchase installments rather than rent.

18. Subscriptions

Amount: 100%

Subscriptions you have as part of your business are 100% tax-deductible. This includes subscription software services, trade publications, and online resources necessary for your business.

Common software subscriptions that your business can deduct include:

• Project management tools
• Cloud storage
• Accounting software

Most business subscriptions are ordinary and necessary costs of operating a company. They can include membership dues as well.

19. Interest

Amount: 100% (with limits)

The interest your business pays on debt, such as loans or credit cards, is tax-deductible. Your business must be legally liable for the debt.

Small business exemption

For the 2026 tax year, the "small business" exemption threshold has increased. Businesses with average annual gross receipts of $32 million or less over the prior three years can deduct 100% of their business interest expenses without limitation.

Interest deduction limit

For businesses exceeding the $32 million threshold, the deduction for business interest expense is generally limited to the sum of:

• Business interest income
• 30% of your Adjusted Taxable Income (ATI)
• Floor plan financing interest (typically for vehicle or equipment dealerships)

Improved 2026 calculation (EBITDA)

Starting in 2025 and continuing through 2026, the law has restored a more favorable calculation for ATI. You may now add back deductions for depreciation, amortization, and depletion when calculating your 30% limit. This typically allows capital-intensive businesses to deduct significantly more interest than in previous years (2022–2024).

Example: Say your business has an adjusted taxable income of $100,000 (after adding back depreciation) and pays $40,000 in interest. Your deduction limit is $30,000 ($100,000 x 30%). The remaining $10,000 in interest is not lost; it can be carried forward indefinitely to be used in future tax years.

20. Salaries and wages

Amount: 100%

Small business owners can deduct the entire cost of paying employees. This includes salaries, wages, bonuses, and benefits. However, salaries must be reasonable and ordinary.

To qualify for deducting employee compensation costs and to comply with 2026 federal reporting requirements, small business owners must properly document all payments. Under the "No Tax on Overtime" rules, employers have a mandatory obligation to track and report "qualified overtime compensation" so that employees can receive their federal tax deduction.

Detailed records must be kept for:

• Hours worked: Specifically distinguishing between regular hours and FLSA-mandated overtime hours.
• Pay rates: Identifying the "premium" portion of overtime (the 0.5x portion of the 1.5x time-and-a-half rate).
• W-2 reporting: For the 2026 tax year, employers must report total qualified overtime premiums on the new Form W-2 (specifically using Box 12 with the designated code).
• Additional benefits or bonuses: Any additional compensation outside of the standard hourly rate.

The federal overtime tax deduction applies only to the premium portion of FLSA-required overtime. Voluntary double-time or state-mandated premiums that exceed federal requirements may require separate accounting.

21. Legal and professional fees

Amount: 100%

All of your legal fees as a small business owner are tax-deductible, assuming they’re necessary for your business.

Deductible legal fees can be for such things as:

Tax issues

Discrimination claims

Business sales

Legal fees unrelated to your business, such as those for personal matters or hobbies, are not deductible.

22. Internet and phone

Amount: 100%

If you have a dedicated business phone line and internet connection, the full cost is deductible. But you can only deduct the percentage of the bill that applies to business use if you use your personal phone for business.

23. Business insurance

Amount: 100%

Business insurance premiums are 100% deductible. This includes all types of insurance you may need to run your business.

Find peace of mind come tax time

Figuring out how to write off business expenses doesn’t have to be difficult. Being a small business owner is stressful enough. Tax breaks for small businesses provide valuable cash to reinvest in your business. But staying on top of new tax breaks and tracking deductions can be time-consuming.

Small business accounting software like QuickBooks can help manage these write-offs more easily. You’ll find tax time a bit easier—and hopefully, a lower tax bill.