Small Business Tax Deductions: The Complete 2026 Checklist

An estimated 93% of small businesses leave money on the table at tax time. That means nearly every entrepreneur is overpaying the IRS—often by thousands of dollars—simply because they miss legitimate deductions they qualify for.

Whether you run a home-based consulting practice or manage a growing team, understanding which expenses reduce your tax burden is one of the most valuable financial skills you can develop. This comprehensive checklist covers every major deduction available to small business owners in 2026, including recent changes from the One Big Beautiful Bill Act (OBBBA) that could significantly impact your bottom line.

What Qualifies as a Business Deduction?

Before diving into specific deductions, it helps to understand the IRS standard for deductibility. An expense must be both "ordinary" (common and accepted in your trade) and "necessary" (helpful and appropriate for your business) to qualify.

Personal expenses never qualify, but many mixed-use expenses—like a phone you use for work and personal calls—can be partially deducted based on business use percentage.

Workspace Expenses

Home Office Deduction

Despite being one of the most valuable deductions available, an estimated 90% of eligible business owners skip this one—often out of unfounded audit fears.

If you have a dedicated space in your home used "regularly and exclusively" for business, you qualify. The IRS offers two calculation methods:

Simplified Method: Deduct $5 per square foot of dedicated office space, up to 300 square feet, for a maximum deduction of $1,500.

Actual Expense Method: Calculate the percentage of your home used for business and apply that percentage to your rent or mortgage interest, utilities, insurance, repairs, and depreciation.

The simplified method requires less recordkeeping, while the actual expense method often yields a larger deduction for those with expensive housing costs.

Commercial Rent and Utilities

For businesses operating outside the home, lease payments, utilities, property insurance, and maintenance costs are fully deductible. This includes rent for office space, warehouse facilities, retail locations, and coworking memberships.

Office Supplies and Equipment

Everyday consumables like paper, pens, printer ink, and cleaning supplies are fully deductible. For larger equipment purchases:

• Items under $2,500 can typically be expensed immediately under the de minimis safe harbor
• Larger assets may qualify for Section 179 expensing (up to $1.16 million in 2024, adjusted annually for inflation)
• Bonus depreciation allows additional accelerated deductions for qualifying property

Technology and Communication

Phone and Internet

The business-use portion of your phone and internet bills is fully deductible. If you have a dedicated business line, that's 100% deductible. For mixed-use accounts, calculate the percentage used for business purposes.

A $100 monthly phone bill with 60% business use translates to $720 in annual deductions—money many business owners leave unclaimed because they don't track it.

Software and Subscriptions

Cloud-based tools essential to modern business operations are fully deductible:

• Accounting software
• Customer relationship management (CRM) platforms
• Project management tools
• Communication apps (Slack, Zoom, Teams)
• Cloud storage and backup services
• Industry-specific software

Annual subscriptions can often be deducted in the year paid, even if coverage extends into the following year.

Vehicle and Travel Expenses

Business Vehicle Expenses

If you use a personal vehicle for business, you can deduct the business-use portion using one of two methods:

Standard Mileage Rate: The IRS sets this rate annually. For 2025, it was 70 cents per mile. Driving just 100 business miles per week translates to approximately $3,640 in annual deductions.

Actual Expense Method: Track all vehicle-related costs—gas, insurance, repairs, depreciation—and apply your business-use percentage.

Important: Commuting from home to a regular workplace is personal driving and never deductible. However, driving from your home office to client sites or from one work location to another does qualify.

Business Travel

When overnight travel is required for business purposes, you can deduct:

• Airfare, train tickets, and other transportation
• Hotel accommodations
• Rental cars and rideshare services
• 50% of meal costs (the trip's primary purpose must be business-related)
• Incidental expenses like tips and baggage fees

Keep detailed records documenting the business purpose of each trip.

Business Meals

You can deduct 50% of qualifying meal expenses when dining with clients, prospects, or vendors to discuss business. Documentation requirements include:

• Date and location
• Names of attendees
• Business relationship
• Topics discussed

Internal meals with employees for team building or business planning also qualify at the 50% rate.

Employee-Related Deductions

Salaries, Wages, and Benefits

All compensation paid to employees is fully deductible:

• Regular wages and salaries
• Bonuses and commissions
• Payroll taxes (employer portion)
• Health insurance premiums
• Retirement plan contributions
• Paid time off
• Other taxable benefits

Independent Contractor Payments

Amounts paid to freelancers and contractors for business services are fully deductible. If you pay any contractor $600 or more in a calendar year, you must issue Form 1099-NEC by January 31.

Employer-Provided Childcare Credit

Beginning in 2026, the credit for providing childcare to employees jumps from 25% to 40% of eligible costs, with a maximum credit of $500,000. Small businesses qualifying for the enhanced rate can claim 50% of eligible costs up to $600,000 annually.

Professional Services and Development

Legal and Professional Fees

Fees paid to attorneys, accountants, consultants, bookkeepers, HR professionals, and other service providers for business purposes are fully deductible. This includes:

• Tax preparation and planning
• Legal counsel and contract review
• Business consulting
• Payroll processing services
• Financial advisory fees

Professional Development

Investments in your skills and knowledge are deductible when they enhance your ability to operate your business:

• Online courses and training programs
• Industry conferences and seminars
• Professional certifications
• Business books and publications
• Trade association memberships

Annual professional development costs often range from $2,000 to $5,000—all of which reduces your taxable income.

Insurance Premiums

Business Insurance

Premiums for the following types of coverage are fully deductible:

• General liability insurance
• Professional liability (errors and omissions)
• Commercial property insurance
• Workers' compensation
• Cyber liability coverage
• Business interruption insurance

Self-Employed Health Insurance

If you're self-employed and not eligible for coverage through a spouse's employer, you can deduct 100% of health insurance premiums for yourself, your spouse, and your dependents. This includes medical, dental, and long-term care insurance.

This deduction is taken on your personal return (Form 1040), reducing your adjusted gross income—which can provide additional tax benefits beyond the direct savings.

Financial Expenses

Business Loan Interest

Interest paid on business loans, lines of credit, and business credit cards is fully deductible. This includes:

• Term loan interest
• Line of credit interest
• Credit card interest on business purchases
• Equipment financing interest

Bank and Transaction Fees

Often overlooked, these fees add up significantly:

• Monthly account maintenance fees
• Wire transfer fees
• Payment processing fees (credit card, ACH)
• Currency conversion fees
• Overdraft fees (though avoiding these is advisable)

For many small businesses, bank and transaction fees total $3,000 to $5,000 annually.

Marketing and Advertising

All costs to promote your business are 100% deductible with no percentage limitations:

• Digital advertising (Google Ads, social media)
• Website design and hosting
• Search engine optimization services
• Print materials (business cards, brochures)
• Direct mail campaigns
• Trade show participation
• Branded merchandise
• Video and photography production
• Public relations services

Special Deductions and Credits

Qualified Business Income (QBI) Deduction

This powerful deduction allows eligible pass-through business owners to deduct up to 20% of their qualified business income. Originally set to expire after 2025, the OBBBA made this deduction permanent.

New for 2026: Anyone with at least $1,000 of qualified business income receives a minimum deduction of $400, even if the standard calculation would phase out completely.

Startup Costs

In your first year of business, you can immediately deduct up to $5,000 in startup costs and $5,000 in organizational expenses. Qualifying costs include:

• Market research
• Business plan development
• Legal and accounting fees for formation
• Initial marketing and advertising
• Training for you and your employees

Amounts exceeding these limits are amortized over 15 years.

Research and Development

Thanks to OBBBA changes, businesses can now immediately expense R&D costs incurred in 2025 and later. This applies to qualifying research activities including:

• Software development
• Product enhancements
• Process improvements
• Experimental testing

Bonus Depreciation

The OBBBA permanently restored 100% bonus depreciation, allowing businesses to immediately deduct the full cost of qualifying assets rather than depreciating them over time. This applies to new and used equipment, machinery, vehicles, and certain improvements.

Bad Debts

If you use accrual accounting and have receivables that become uncollectible, you can deduct the amount as a bad debt. Documentation of collection attempts is required.

Net Operating Losses

If your business operates at a loss, you can use that loss to offset other income. Net operating losses can be carried forward indefinitely, though they're limited to 80% of taxable income in future years.

Record-Keeping Best Practices

Claiming deductions requires documentation. The IRS can disallow any deduction you can't substantiate. Implement these practices:

Separate Business and Personal Finances: Use dedicated business bank accounts and credit cards for all business transactions.

Track Expenses in Real Time: Waiting until year-end to categorize expenses leads to forgotten deductions and lost receipts. Accounting software automates much of this work.

Save All Receipts: Digital copies are acceptable. Many apps let you photograph receipts and attach them to transactions automatically.

Log Mileage Systematically: Mileage tracking apps record trips automatically, ensuring you don't miss deductible drives.

Document Business Purpose: For meals, travel, and entertainment, note who attended and what business was discussed.

Don't Leave Money on the Table

The difference between businesses that maximize deductions and those that don't often comes down to systems. When expense tracking is manual and sporadic, legitimate deductions get missed. When it's automated and systematic, nothing slips through the cracks.

Review this checklist against your actual expenses. If you're not claiming deductions in every category that applies to your business, you're likely overpaying your taxes.

Keep Your Finances Organized Year-Round

Claiming every deduction you deserve starts with organized financial records throughout the year—not a scramble in April. Beancount.io provides plain-text accounting that gives you complete transparency over every transaction, making tax time straightforward instead of stressful. Your financial data stays in a format you control, with no black boxes or vendor lock-in. Get started for free and take control of your business finances.