Updated for tax year 2026.
Being a small business owner comes with some unique challenges — including figuring out how small business taxes work.
The good news? We’re here to spill the essential small business tax deduction secrets to help you lower your tax liability and keep that hard-earned money in your pocket.
Note: The One Big Beautiful Bill (OBBB) is now also being referred to by lawmakers as the Working Families Tax Cuts Act. You may see one or both names used here, but they refer to the same set of tax changes.
Small business tax write-offs for tax year 2026
As a small business owner of a sole proprietorship, partnership, or LLC, you may be able to deduct many business-related expenses that you would not be able to deduct if you were just an employee. Many business expense deductions reduce both your taxable income and the net earnings used to calculate self-employment tax. Other deductions discussed below, such as the self-employed health insurance deduction and the deduction for one-half of self-employment tax, generally reduce income tax without reducing self-employment tax.
Reducing your adjusted gross income (AGI) may also help lower your small business taxes in other ways. For example, a lower AGI may mean you qualify for tax credits for educational expenses or other small business tax perks.
Ready to learn how much you could save? Let’s look at some small business tax deductions you may qualify for this year.
1. Self-employed health insurance deduction
If you have qualifying self-employment income, you may be able to deduct premiums for health insurance established under your business. Coverage can include you, your spouse, your dependents, and your children who are under age 27 at year-end, even if they are not your dependents. The deduction is limited by earned income from the business under IRS rules. You generally cannot deduct premiums for any month you were eligible for an employer-subsidized health plan, including through your spouse’s employer, even if you declined that coverage. Additional restrictions apply to coverage available through a dependent’s or qualifying child’s employer.
2. Business startup costs
If you’re just starting out, the IRS offers some valuable tax breaks for new small business owners.
In the year your active business begins, you generally can deduct up to $5,000 of qualifying startup costs and, where applicable, up to $5,000 of organizational costs. Each deduction is reduced dollar for dollar when costs in its respective category exceed $50,000 and is eliminated at $55,000. Remaining qualifying costs generally are amortized over 180 months, beginning with the month business operations start.
Costs of obtaining a business loan may need to be capitalized and recovered over the loan’s term. Advertising expenses, such as business cards, generally are deductible once the business is operating; preopening expenses may fall under the startup-cost rules.
3. Internet and other service fees
The monthly fees you pay for internet service can really add up. Just keeping your computer running can sometimes come at a cost if you experience hardware problems. You may also be paying subscriptions for virus and malware control, professional references, and software subscriptions to keep your business activities running smoothly.
You generally can deduct the business-use portion of internet service and qualifying software subscriptions and related services. Personal use is not deductible, and equipment purchases or improvements may require different treatment. When filing your taxes this year, take the time to look for all internet, subscription, and other service fees you pay that may entitle you to a deduction this tax season.
4. Phone service tax deductions
You generally can deduct the cost of a separate phone line used exclusively for business. For a phone used for both business and personal purposes, only the business-use portion is deductible. A special restriction applies to the first residential landline into your home.
The basic local service charge, including taxes, for the first landline into your home is a nondeductible personal expense, even if you also use it for business. Separately identified business long-distance charges may be deductible. Different rules apply to a second business line or a cell phone.
If you have a second line or cell phone that you use for both business and personal calls, you can deduct a percentage of the cost of your phone service. For example, if you use your cell phone for business purposes 75% of the time and personal calls for the other 25%, you can claim a deduction for 75% of your phone bill.
Tax Tip: You may want to request an itemized phone bill to help prove the business usage of your phone.
5. First-year depreciation of business assets
Bonus depreciation
If bonus depreciation hasn’t been on your radar, now’s a great time to add it to your small business tax preparation checklist. Bonus depreciation lets you write off a big chunk (or even all) of the cost of certain business assets right away, rather than spreading the deduction over several years. Think equipment, machinery, computers, and sometimes even vehicles.
Bonus depreciation rules for tax year 2026
For tax year 2026, 100% bonus depreciation typically applies to eligible business property acquired and placed in service after Jan. 19, 2025. Special acquisition rules, including rules for written binding contracts, can affect eligibility.
The law restored 100% bonus depreciation without a scheduled phaseout for qualifying property acquired and placed in service after Jan. 19, 2025. Property acquired before that date may remain subject to the previous phaseout rules.
| Tax year | Bonus depreciation rate |
| 2022 | 100% |
| 2023 | 80% |
| 2024 | 60% |
| 2025 onward | 100% bonus depreciation (for assets placed in service after Jan 19, 2025) |
Bonus depreciation rules to remember
- New and used property may qualify. Used property must meet additional acquisition requirements, including restrictions involving related-party purchases. Being new to your business alone does not establish eligibility.
- Bonus depreciation can create a business loss. However, other tax rules may limit how much of that loss you can deduct on your current return.
- Bonus depreciation generally applies automatically unless you elect out. The election generally covers an entire class of property placed in service during the tax year, rather than individual assets. Any remaining depreciable basis is recovered under the applicable depreciation rules.
Section 179 expense deduction
Section 179 is another useful deduction for small businesses. Like bonus depreciation, Section 179 lets you write off the entire cost of qualifying business property up front, instead of depreciating it over several years. But there are a few important differences to keep in mind.
2026 deduction limits
For tax year 2026, the maximum Section 179 deduction is $2,560,000. The limit is reduced dollar for dollar when the total cost of qualifying Section 179 property placed in service during the year exceeds $4,090,000. It is fully phased out at $6,650,000.
Separate restrictions apply to certain property. For example, the 2026 Section 179 limit for certain heavy SUVs is $32,000. Business-use and taxable-income limits also apply.
Section 179 rules to remember
- The Section 179 deduction cannot create a tax loss. You can only claim up to the amount of your business income for the year. If your deduction is more than your income, the excess can be carried forward to future years.
- Section 179 gives you flexibility. You can choose which assets (and how much of each asset) to expense, rather than having to claim the full cost for every asset.
- Any cost not deducted using Section 179 can still be depreciated using regular depreciation over the asset’s remaining tax life.
6. Continued depreciation deduction on business assets
If you purchased business equipment and other business assets in previous years but did not fully expense them in the year you purchased them, don’t forget to claim the tax deduction for this year’s depreciation for each asset!
7. Professional dues and subscriptions
Professional dues and subscriptions add up, and they’re easy to miss as a deduction if you pay them automatically every year. For example, you can deduct the cost of trade journals, magazine subscriptions related to your work, and dues to maintain your professional license.
Unfortunately, you can’t deduct dues to clubs the IRS considers having more of a social or recreational aspect, such as dues to business, social, athletic, luncheon, sporting, airline, and hotel clubs.
8. Cost of goods sold
If you sell products you make or buy, their cost can be a major part of your business expenses. That’s why it’s important to calculate the deductible amount of your cost of goods sold each year.
One caveat is that you can’t generally deduct the cost of the inventory until you sell it. Instead, you report your beginning inventory, purchases, other expenses that are added to the cost of goods sold, and ending inventory. From this information, TaxAct® calculates your deductible cost of goods sold on your business return.
Materials and supplies you use to make products, whether or not they become part of the products, should be included in the cost of goods sold. An expense should be included in inventory if it is used in manufacturing or mining the goods you sell. For example, manufacturing labor is included in the cost of goods sold. Selling and administrative labor costs are not.
9. Bad debts
If someone owes you a debt that comes from operating your business, you may be able to write off that debt on your business return.
If you use the accrual method in your business, you may have bad debts when customers buy things on account and then don’t pay you. However, if you use the cash method (as many small businesses do), you cannot generally take a bad debt deduction for uncollectible customer accounts. That’s because you did not count the customer’s purchase as income at the time of purchase.
If you make loans in the course of your business to suppliers, clients, employees, and so on, you can take a business deduction for the bad debts when these loans become uncollectible.
10. Car expenses and mileage
If you use your vehicle for business travel, your mileage and business car expenses can provide a valuable tax deduction. Always track your business miles when visiting clients or making purchases to maximize your deductions! Our mileage reimbursement calculator can help you estimate this deduction.
For 2026, the optional standard business mileage rate is 72.5 cents per mile for Jan. 1 through June 30 and 76 cents per mile for July 1 through Dec. 31. Eligible taxpayers may instead deduct the business-use portion of actual vehicle expenses. The IRS requires tracking of business, commuting, and personal miles (and the business purpose of your miles), regardless of the method chosen. If opting for actual expenses, keep records of gas, maintenance, insurance, registration fees, and depreciation.
If your home office qualifies as your principal place of business, transportation between your home and another work location in the same trade or business generally is deductible. Otherwise, travel between home and a regular workplace generally is nondeductible commuting. Simply doing some work at home does not make every trip from your driveway deductible.
The standard mileage method is not available in every situation. For a vehicle you own, you must choose it in the first year the vehicle is available for business use to preserve that option for later years. You generally cannot use it after claiming Section 179, bonus depreciation, or certain other depreciation methods on the vehicle, or if you use five or more vehicles for business simultaneously. For a leased vehicle, choosing standard mileage generally requires using that method throughout the lease, including renewals. Keep records supporting the method you use.
Do you work as a rideshare driver? Check out our guide to maximizing your tax deductions as a rideshare driver.
11. Employee benefits
Benefits you pay under qualified benefit programs to your employees are a deductible expense. For example, you can deduct your cost of qualified accident and health plans, adoption assistance, cafeteria plans, dependent care assistance, educational assistance, and group-term life insurance coverage for your employees.
Beginning in 2026, qualifying dependent care assistance programs can provide employees with up to $7,500 in tax-free benefits annually, or $3,750 for married employees filing separately. These are employee exclusion limits, not a blanket cap on the employer’s deduction.
12. Taxes
Many taxes you pay in the course of your business are deductible as business expenses.
Some taxes are already included in the business expenses you pay. For example, you pay a fuel tax for the gas you use to drive your vehicle for business, and the tax is included in the price of gas. Likewise, when you pay sales tax on office supplies or a delivery truck, the sales tax is included in your office expenses or the truck’s cost.
But you may pay other taxes separately and deduct them as business taxes on your return. These kinds of deductions include state tax on gross business income, the employer’s share of deductible payroll taxes, personal property tax on business assets, real estate taxes on business property, and excise tax you pay to the state. Unfortunately, you cannot deduct federal income tax.
13. Home office deduction
If you have an area in your home that you use as an office or for any other business purpose, you may be able to take a deduction for your home office expenses, but — you guessed it — there’s a catch.
To claim the home office deduction, you’ll have to meet certain rules. The office space must be solely devoted to your business and nothing else, in most cases. There are two special cases in which you don’t have to meet the exclusive use rule: If you use your home to store inventory or product samples, or if you run a daycare facility.
Your office doesn’t have to fill a whole room either. Let’s say you use half your living room as a home office. You can deduct expenses based on the square footage that you use exclusively for business (more on that shortly).
Business use generally must be regular and exclusive, and the space must meet a qualifying-use test, such as serving as your principal place of business. Special rules apply to qualifying inventory storage and daycare use.
If you use the actual-expense method, your home office deduction can include direct and indirect expenses, subject to applicable limits:
- Direct expenses apply only to the qualifying business portion of your home, such as painting or repairing just your office. They generally are fully deductible under the actual-expense method, subject to income limits and special rules for uses such as daycare.
- Indirect expenses benefit your whole home, such as electricity and rent. To calculate the business-use percentage using square footage, divide your qualifying business-use square footage by your home’s total square footage, then multiply by 100.Â
If finding all those utility bills and other receipts sounds like more trouble than it’s worth (we get it), the IRS has another option you may prefer. Instead of calculating everything yourself, you can use a simplified home office deduction where you take a flat $5 per square foot deduction for your home office, up to a maximum of 300 square feet.
If you use the simplified method, you cannot separately deduct actual home office expenses, such as office repairs or the business share of utilities.
Whichever method you choose, TaxAct can help you crunch the numbers and claim the deduction you deserve.
14. Retirement contributions
One benefit of having a small business is the freedom to choose a better retirement plan for your needs. This is especially true if you want a full range of investment options and the ability to invest more per year than with traditional IRAs or most employee retirement plans.
For 2026, the combined contribution limit for traditional and Roth IRAs is $7,500, or $8,600 if you are age 50 or older, subject to compensation and eligibility rules. Traditional IRA deductibility can depend on income and retirement-plan coverage.
For a SEP IRA, employer contributions generally cannot exceed the lesser of 25% of an employee’s compensation or $72,000 for 2026. Self-employed owners use a special calculation; with a 25% plan contribution rate, their limit generally works out to 20% of net self-employment earnings after deducting the deductible portion of self-employment tax.
15. Contract labor costs
Payments to independent contractors or freelancers for ordinary and necessary business services generally are deductible, although some costs must be capitalized or included in inventory. These payments are contractor fees, rather than employee wages. For payments made in 2026, the Form 1099-NEC reporting threshold generally increases to $2,000 per payee, subject to reporting exceptions. Eligible expenses below that threshold can still be deductible.
16. One-half of self-employment tax
As a self-employed business owner, you pay the full Social Security and Medicare tax on your self-employment income. There’s no employer to share in the cost. To help compensate for this, the IRS allows you to deduct one-half of your self-employment tax as an adjustment to income on your tax return.
17. Qualified business income deduction
Eligible owners of pass-through businesses may qualify for a deduction of up to 20% of qualified business income, subject to limitations. The deduction is now permanent. Beginning in 2026, qualifying taxpayers with at least $1,000 of QBI from active businesses in which they materially participate may qualify for a minimum $400 deduction.
The bottom line
Filing your small business taxes doesn’t have to be scary. By understanding and taking advantage of all the deductions available, you can significantly reduce your taxable income and keep more of your hard-earned money.
Let TaxAct® help you navigate the process, ensuring you claim every deduction you’re entitled to. You don’t have to be a CPA to file your own business taxes — start filing with us today and see how easy it can be to maximize your tax savings with our tax preparation software.
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This article is for informational purposes only and not legal or financial advice.
