How to Write Off Business Expenses: Rules, Records, and Filing

To write off business expenses, you subtract qualifying costs from your gross business income on Schedule C (Form 1040), and the IRS only taxes what’s left as your net profit.¹ Every dollar of legitimate deduction lowers both your income tax and, in most cases, your self-employment tax. The work is in knowing which costs qualify, keeping records that survive scrutiny, and reporting them in the right place.

What Counts as a Deductible Business Expense

Internal Revenue Code Section 162 sets the standard: an expense is deductible if it is both ordinary and necessary for your trade or business.² Ordinary means the cost is common and accepted in your industry. Necessary means it’s helpful and appropriate for producing income. It does not have to be indispensable.

This two-part test is what separates real business costs from personal spending in business clothes. A landscaper buying a mower clears the bar easily. That same landscaper writing off a family vacation does not, even if a few work emails got sent from the hotel. If an expense fails either prong during an audit, the deduction is disallowed.

Where You Report the Deductions

Sole proprietors and most single-member LLCs report business income and expenses on Schedule C, filed with Form 1040.³ The form groups deductions into specific line-item categories: advertising, insurance, office expense, supplies, utilities, and so on. You total each category from your records, subtract the sum from gross receipts, and land on net profit or loss. That figure then flows onto your 1040, where it drives your income tax and your self-employment tax.

The 2025 filing deadline is April 15, 2026. Form 4868 buys you an automatic six-month extension to October 15, but only for the paperwork. Any tax owed is still due April 15, and interest runs on unpaid balances from that date.

Common Write-Offs for Self-Employed People

Business Meals

You can deduct 50% of the cost of a business meal if you or an employee are present and the food isn’t lavish or extravagant. This covers meals while traveling for work, meals at conventions, and meals with clients where business is discussed. Entertainment costs — sports tickets, golf, concerts — are fully non-deductible.⁴ If you take a client to dinner and then to a game, keep the food on a separate receipt. Dinner gets you a 50% deduction; the tickets get you nothing.

Travel

When you travel away from your tax home overnight for business, you can deduct airfare, hotel, ground transportation, and 50% of meals. Your tax home is the city or general area where your principal place of business is located, not necessarily where you live. For every trip, the IRS wants records of departure and return dates, destination, and business purpose.⁵

Vehicle Use

You have two options for deducting business use of a car. The simpler method uses the IRS standard mileage rate: 72.5 cents per mile for 2026.⁶ The alternative is tracking actual expenses (gas, insurance, repairs, depreciation) and deducting the business-use percentage. Either way, you need a mileage log showing date, destination, and business purpose for each trip.⁵

Commuting is where people slip up. Driving from home to your regular place of business is personal, not deductible. Driving between two business locations during the day is deductible. And if your home qualifies as your principal place of business under the home office rules, trips from home to any other work site become deductible regardless of distance.⁷ That one qualification can convert hundreds of otherwise personal miles into deductions.

Home Office

To claim a home office, the space must be used exclusively and regularly for business. Exclusively means no personal use of that area at all. A spare bedroom that doubles as a guest room won’t qualify. The IRS example is an attorney who prepares client returns in a den that the family also uses for recreation; no deduction.⁸ Two narrow exceptions exist: inventory storage and daycare facilities.

You can calculate the deduction two ways. The regular method takes your office square footage as a percentage of the home, then applies that percentage to actual housing costs. The simplified method gives you $5 per square foot up to 300 square feet, capped at $1,500.⁹ The regular method is more work but often produces a bigger deduction, especially if your housing costs run high.

Health Insurance Premiums

If you’re self-employed and not eligible for a health plan through a spouse’s employer, you can deduct premiums for medical, dental, and vision coverage for yourself, your spouse, and your dependents. This is not an itemized deduction; it’s an adjustment to gross income on Schedule 1, so you get it even if you take the standard deduction.¹⁰ The deduction is capped at your net profit from the business that established the plan, and any month you were eligible for an employer-subsidized plan is a month you can’t claim it.

Equipment and Other Big Purchases

Not every business purchase gets deducted the year you pay for it. Day-to-day costs like office supplies, software subscriptions, and advertising are current expenses, deducted in full the year they’re paid. Larger assets that produce value over multiple years — equipment, machinery, vehicles, furniture — are capital expenses. Under normal rules, you depreciate them over the asset’s useful life according to IRS recovery schedules.

Two provisions let you accelerate those write-offs. Section 179 allows you to deduct the full purchase price of qualifying equipment in the year you place it in service, up to $2,560,000 for 2026. The limit phases out dollar-for-dollar once total qualifying purchases exceed $4,090,000 for the year. Bonus depreciation, which the One Big Beautiful Bill made permanent at 100% for property acquired after January 19, 2025, lets you expense the entire cost of qualifying assets in the first year as well.¹¹ Between the two, most small businesses can expense equipment purchases immediately instead of stretching them across five or seven years.

Startup Costs for a New Business

If you launched this year, you can deduct up to $5,000 of startup expenses in your first year of operations. Startup costs are what you spent before opening: market research, employee training, scouting locations, and similar pre-launch work. The $5,000 allowance shrinks dollar-for-dollar once total startup costs exceed $50,000 and disappears entirely at $55,000.¹² Whatever you can’t take in year one is amortized evenly over 180 months, starting the month the business begins.

Two Adjustments That Reduce Your Tax Above Schedule C

Self-employment tax runs 15.3% on your net earnings, covering both the employer and employee shares of Social Security and Medicare.¹³ You can deduct one-half of that tax as an adjustment to gross income on Schedule 1.¹⁴ It doesn’t reduce the self-employment tax itself, but it lowers the income figure that drives your income tax.

The Section 199A qualified business income deduction lets eligible self-employed individuals and pass-through owners deduct up to 20% of qualified business income before income tax is calculated. The One Big Beautiful Bill made this permanent; it had been set to expire after 2025.¹¹ Below roughly $203,000 taxable income for single filers or $406,000 for joint filers in 2026, the deduction is generally 20% of qualified business income, subject to a few guardrails. Above those thresholds the math gets more complicated, particularly for specified service trades like law, accounting, consulting, and medical practices, which face a phase-out that can reduce or eliminate the deduction.

Records That Protect the Deduction

Documentation is what separates a legitimate write-off from a disallowed one. The IRS expects receipts (paper or digital), canceled checks, bank and credit card statements, and any contracts or invoices supporting each expense you claim. Vehicle expenses need a mileage log with date, destination, and business purpose. Travel needs dates of departure and return, destination, and business reason.⁵

Digital records are fine. The IRS requires an electronic storage system that can reproduce legible copies of the originals, maintains an indexing system creating an audit trail between your general ledger and source documents, and includes controls against unauthorized changes.¹⁵ A well-organized cloud accounting system or a dedicated folder of scanned receipts meets that standard for most small businesses. Three years after filing is the baseline retention period; the IRS recommends longer in some situations.¹⁶

Weak records cost more than a lost deduction. If the IRS finds you substantially understated your income tax — the understatement exceeds the greater of 10% of the correct tax or $5,000 — the accuracy-related penalty is 20% of the underpayment, plus interest. For taxpayers claiming the QBI deduction, that 10% threshold drops to 5%.¹⁷

When You Actually Pay

Self-employed individuals pay estimated tax quarterly instead of having it withheld from paychecks. For the 2026 tax year, the deadlines are April 15, June 15, and September 15 of 2026, plus January 15, 2027. You can skip the January payment if you file your full 2026 return and pay the balance by February 1, 2027.¹⁸

To avoid an underpayment penalty, your estimated payments must cover the lesser of 90% of your 2026 tax liability or 100% of what you owed for 2025. If your 2025 adjusted gross income was above $150,000 ($75,000 if married filing separately), that 100% figure becomes 110%.¹⁸ For a newer business with unpredictable income, basing quarterly payments on last year’s total tax is usually the safest path.

1
Internal Revenue Service. About Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship)
2
Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses
3
Internal Revenue Service. Instructions for Schedule C (Form 1040) (2025)
4
Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses – Section: Meals and Entertainment
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Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses – Section: Recordkeeping
6
Internal Revenue Service. 2026 Standard Mileage Rates
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Internal Revenue Service. Revenue Ruling 99-7
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Internal Revenue Service. Publication 587 (2025), Business Use of Your Home – Section: Exclusive Use
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Internal Revenue Service. Simplified Option for Home Office Deduction
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Internal Revenue Service. Self-Employed Health Insurance Deduction
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Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill
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Office of the Law Revision Counsel. 26 USC 195 – Start-up Expenditures
13
Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
14
Internal Revenue Service. Topic No. 554, Self-Employment Tax
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Internal Revenue Service. Revenue Procedure 97-22 – Electronic Storage System Requirements
16
Internal Revenue Service. How Long Should I Keep Records
17
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments
18
Internal Revenue Service. 2026 Form 1040-ES – Estimated Tax for Individuals