What Can Your Business Actually Deduct? A Straight Answer

The categories owners ask about most

Vehicles

Business use of a vehicle is deductible; commuting between home and a regular workplace generally is not. There are two methods — the standard mileage rate and actual expenses — and the choice interacts with depreciation in ways that can limit switching later. Either method requires a record of business mileage with dates, destinations, and purpose. A vehicle used for both business and personal purposes must be allocated, and heavy-vehicle purchases in particular attract IRS attention when the business-use percentage is not documented.

The home office

A deduction is available when part of the home is used regularly and exclusively as the principal place of business or as a place to meet clients. Exclusivity is the requirement people fail: a desk in a room used for other purposes generally does not qualify. There is a simplified method based on square footage and a regular method based on actual expenses. Employees are treated differently from self-employed individuals, and the deduction can affect the eventual sale of the home when the regular method has produced depreciation.

Meals and travel

Business travel away from your tax home is deductible when the trip is primarily for business, with an allocation required when personal days are added. Business meals are subject to their own limitation and require documentation of the amount, date, place, business purpose, and the business relationship of the people present. Entertainment is treated far less favorably than it once was. Keeping the purpose on the receipt at the time is worth more than any reconstruction later.

Professional fees and services

Legal, accounting, consulting, and similar fees incurred for the business are generally deductible. Fees connected with acquiring an asset or organizing an entity may have to be capitalized rather than deducted currently, which is a timing question rather than a permanent difference.

Payroll and contractors

Wages, employer payroll taxes, and payments to independent contractors are deductible when the work is genuine and reasonable in amount. The compliance side matters: contractor payments generally require Forms W-9 on file and information returns when thresholds are met, and misclassifying an employee as a contractor creates exposure that dwarfs the deduction.

Retirement contributions

Employer contributions to a qualified plan are among the few remaining ways to convert taxable profit into a deductible contribution that stays with the owner. Several plan types are available to small businesses, each with different contribution limits, employee coverage requirements, and establishment deadlines. Because deadlines differ by plan type, this is a decision to make during the year, not at filing time.

Where deductions are lost

• Personal expenses run through the business account with no allocation
• Missing contemporaneous logs for vehicles, travel, and meals
• Cash purchases with no receipt and no bank record
• Expenses paid personally for a corporation without a documented reimbursement policy
• Amounts capitalized in the wrong year, or expensed when they should have been capitalized

The habit that protects all of it

A separate business bank account, a monthly categorization routine, and receipts attached to transactions as they occur will do more to protect deductions than any list of eligible expenses. In an examination, the question is almost never whether an expense category is allowable in principle. It is whether this taxpayer can show that this expense was incurred, in this amount, for this business purpose.

Sources and official references

• IRS — Deducting Business Expenses
• IRS — Home Office Deduction
• IRS — Retirement Plans for Small Business