2026 Small Business Tax Deductions Checklist

Reading Time: 15 minutes

The 2026 small business tax deduction checklist is designed to help you lower your tax bill and keep more money in your business.

Starting a business or just keeping one running isn’t cheap. New entrepreneurs often deal with costs for research, competitor analysis, marketing, logistics, and more.

Established businesses handle ongoing expenses like hiring, salaries, marketing, office supplies, interest on loans, and utilities.

The good news? Many of these costs can be partly or fully deductible when you file your taxes. Knowing what qualifies and how to track it can make a real difference to your bottom line.

Let’s get into the details.

Small Business Tax Deductions Checklist

Below is a small business tax deductions checklist with 27 items to help you with write-offs when filing your taxes in a taxable business year.

Startup expenses

Did you recently launch your business? For the tax year in which your business officially starts, you may be able to deduct up to $5,000 of qualifying start-up expenses right away.

These costs include (but aren’t limited to):

– Market and product research
– Competitor analysis
– Marketing and advertising
– Travel related to starting the business
– Training costs

If your total start-up costs exceed $50,000, the $5,000 immediate deduction is reduced dollar-for-dollar for any amount over $50,000. If your start-up costs are $55,000 or more, you cannot immediately deduct any of them, but you can amortize (spread) them over 15 years (180 months).

This deduction applies only to costs incurred before the business actually begins operating.

Qualified business income deduction (QBI)

Qualified Business Income (QBI) is generally the net income, gain, deduction, and loss effectively connected with your trade or business (after ordinary business expenses).

In addition to regular business deductions in the U.S., the Qualified Business Income (QBI) deduction allows eligible taxpayers to deduct up to 20% of their qualified business income.

This deduction is available to many pass-through entities:

– Sole proprietorships
– Partnerships
– S corporations
– Certain trusts and estates

Under the One Big Beautiful Bill Act (OBBBA), enacted in 2025, the QBI deduction has been made permanent starting with the 2026 tax year — it is no longer scheduled to expire after 2025.

From 2026 onward:

– The 20% rate remains in place.
– The income ranges where the deduction begins to phase out for higher-earning “specified service” businesses have been expanded, allowing more small-business owners to qualify for the full deduction.
– If you materially participate in an active trade or business and have at least $1,000 of QBI, OBBBA guarantees a minimum QBI deduction of $400 starting in 2026, even if you’re otherwise fully phased out.

Exact income thresholds are indexed for inflation, so for detailed planning in 2026 you’ll want to check the IRS instructions or talk to a tax professional.

Note: QBI does not include some items as listed on the IRS website

Cost of goods sold (COGS)

If your business buys or makes products to sell, cost of goods sold (COGS) is usually one of your largest tax deductions. COGS represents the direct cost of the items you sold during the year. It reduces your total sales to help determine your gross profit.

In simple terms:

Beginning inventory + purchases and production costs – ending inventory = COGS.

For retailers and wholesalers, COGS includes what you paid for inventory, plus shipping costs and other direct expenses. For manufacturers, it also covers raw materials, direct labor, and certain factory overhead.

Selling, general, and administrative costs, such as marketing or office rent, are not included in COGS; those are deducted separately as operating expenses.

Small businesses below the IRS gross-receipts threshold can often use simpler inventory methods that align with their accounting records instead of complicated capitalization rules. Good inventory tracking in your accounting software, makes it much easier to calculate COGS accurately at year-end.

Business Travel Expenses

You can apply deductions to business-related travel expenses. Expenses include flight, hotel You can deduct many business-related travel expenses. These may include: Flights, Hotel bookings, Tips, Car rental, Train or bus tickets, Parking fees, Taxis, or rideshare services (Uber, Lyft, etc.).

To be eligible, all of the following must be true:

1. The trip is ordinary and necessary for your trade or business.
2. The trip is away from your tax home (your main place of business, not just your residence).
3. The travel is primarily for business, not personal reasons.

Business meals

Meals served to employees, clients, or potential clients may be deductible, but rules changed effective January 1, 2026. Most employer‑provided meals (for example, on‑site cafeteria meals or meals provided for the convenience of the employer) are no longer deductible unless the cost is treated as employee compensation or fits a narrow statutory exception (for example, meals purchased from restaurants or other limited exceptions created by statute).

Client meals and travel meals remain generally 50% deductible when they meet the ordinary and necessary business standard, are not lavish or extravagant, and are properly documented. Meals while traveling on business follow the same 50% rule when substantiated.

Company parties and employee meals that were previously treated as fully deductible or as de minimis fringe benefits should not be assumed 100% deductible for 2026; many of these employer‑provided meals will be nondeductible unless they meet a specific exception or are included in employee wages.

Documentation required to claim a business meal deduction

To support a deduction you should keep contemporaneous records that show:

– Date of the meal;
– Location (restaurant name or place);
– Total cost and amount claimed;
– Business purpose (brief statement of the business discussion or reason);
– Names and business relationship or role of attendees (who attended and why their presence was business related). Maintaining receipts and a short note of the business topic will help substantiate the deduction under IRS rules and recent practitioner guidance

Business interest

The interest you pay on loans for business operations is usually deductible, but there is a cap for larger businesses. Under Section 163(j), updated by OBBBA, the most business interest expense you can deduct in a year is limited to the total of:

– Your business interest income,
– 30% of your adjusted taxable income (ATI), and
– Any floor plan financing interest, which mainly applies to certain dealers of vehicles and equipment.

Small businesses that fall below the gross-receipts threshold, known as the “exempt small business” test, do not face this limitation and can generally deduct 100% of their necessary business interest.

OBBBA permanently restored a more favorable EBITDA-based calculation of ATI, making it easier for many businesses to deduct more interest starting in 2025.

You can usually deduct interest on:

– Business loans and lines of credit,
– Business credit cards,
– Certain equipment financing,

as long as you can prove a real debtor-creditor relationship, have legally binding loan documents, and show a genuine intent to repay.

Freelancers or Independent Contractors

If you often hire freelancers or independent contractors, the costs for their services are usually fully deductible as long as:

– The services are solely for your business, and
– The workers are classified as non-employees.

In tax year 2026, the reporting threshold for Form 1099-NEC has changed under the OBBBA. You need to issue Form 1099-NEC to any contractor you pay $2,000 or more during the year, which is an increase from the previous $600 threshold.

This means you should:

– Track payments to each contractor throughout the year.
– If total payments to any contractor reach $2,000 or more in 2026, you must issue Form 1099-NEC to them and report it to the IRS.

You should also make sure that:

– The independent contractor is not treated like an employee in terms of hours, control, tools, and so on.
– The services are clearly connected to your trade or business.

Read details about Form 1099-NEC

Advertising and marketing

Money spent to promote your business and attract new customers is usually fully deductible as a normal business expense.

This includes:

– Online ads (Google, Facebook, Instagram, etc.)
– Influencer marketing
– Content marketing and SEO
– Website design and maintenance
– Printed materials (business cards, brochures, flyers)

Brand-building and long-term awareness campaigns are generally treated the same as direct-response advertising for deduction purposes, as long as they truly promote your business. However, political contributions and most lobbying costs are not deductible.

Bad Debt

A bad debt occurs when a customer, employee, or vendor owes your business money but there is little chance of recovering it.

For business bad debts, you can typically deduct the amount as a regular loss in the year the debt becomes completely or partially worthless, as long as:

– The debt is directly linked to your trade or business, not personal matters.
– You can demonstrate reasonable efforts to collect, such as invoices, reminders, and collection attempts.
– You write off the amount in your records.

Depreciation

The cost of an asset your business uses to generate income is usually spread out over its useful life through depreciation, instead of being deducted all at once in a single tax year.

Basic idea:

Depreciation per year = Total cost of the asset ÷ Useful life of the asset

Before you claim depreciation, ensure:

– The asset is used in your trade or business or for income-producing activity.
– You own the asset or hold a depreciable interest.
– The asset has a useful life longer than one year.

The OBBBA also expanded immediate expensing for certain property. This change allows many small businesses to fully expense qualifying equipment and software in the year they are put into service. However, the exact rules depend on the type of asset and dollar amounts.

Repairs and maintenance

Costs you pay to keep your business property in good working condition, without significantly increasing its value or extending its life, are generally fully deductible as repairs and maintenance in the year you pay them.

Examples include fixing leaks, patching walls, repainting, servicing HVAC units, making minor machinery repairs, and routine vehicle maintenance. These costs simply keep your buildings, equipment, and vehicles running as they were, rather than upgrading or expanding them.

In contrast, major projects that improve a property, such as replacing an entire roof, expanding a building, or doing a full renovation, are usually treated as capital improvements. These must be recovered over time through depreciation instead of being deducted as repairs in one year.

In practice, the IRS also allows several safe-harbor rules for small businesses. These can let you expense many smaller repair and maintenance costs instead of capitalizing them. It’s worth discussing your specific projects with an accountant.

Insurance

The cost of many types of business insurance is usually 100% deductible as a business expense, as long as the coverage is common and necessary for your trade or business.

Deductible premiums can include:

– Commercial property insurance
– Business income/interruption insurance
– General liability or professional liability (E&O)
– Fire and flood coverage for business property
– Employee medical insurance, following the usual health plan rules

The main test is that the policy must mainly serve a business purpose and be seen as common and necessary in your industry. Certain policies, like life insurance where your business or you are the beneficiary, are typically not deductible as business insurance.

Legal and Professional fees

You can deduct ordinary and necessary legal and professional fees that relate directly to running your business. These typically include:

– Bookkeeping and accounting fees
– Tax preparation fees for your business returns
– Legal advice for contracts, leases, or collections
– Fees for consultants and other professional services linked to your business operations

Personal legal fees, such as those for divorce, personal injury, or estate planning, are not deductible as business expenses.

Additionally, some legal and professional costs that relate to acquiring or improving long-term assets, like buying a building or organizing a corporation, generally need to be treated as capital expenses. You will recover these costs over time instead of deducting them right away.

Charitable Donations

Charitable donations can lower your tax bill in 2026, but they are not automatically fully deductible. The amount you can deduct depends on your entity type, income, and how you file.

For sole proprietors, single-member LLCs, and partners in a partnership, charitable gifts are considered personal donations. You generally claim the deduction on your individual tax return instead of a separate business return.

For C corporations, charitable contributions are deducted on the corporate tax return and are usually limited to a percentage of taxable income, with additional rules starting in 2026.

Beginning with the 2026 tax year:

– If you itemize deductions, you can still deduct qualifying charitable contributions (cash or property) to eligible organizations, subject to the usual AGI percentage limits (for example, up to 60% of AGI for many cash gifts). However, only the portion of your giving above 0.5% of AGI counts as a deduction.
– If you take the standard deduction, you can also claim a new “universal” charitable deduction of up to $1,000 (single) or $2,000 (married filing jointly) for cash donations to qualifying charities.

In all cases, the donation must be made to an IRS-qualified organization (such as most registered charities, religious organizations, and certain nonprofits).

Gifts to individuals or non-qualified crowdfunding campaigns usually don’t qualify. Donations can be cash or property, but non-cash gifts have their own valuation and percentage limits and often need extra documentation.

Moving or relocation expenses

For most taxpayers, personal moving expenses are not deductible for the 2026 tax year.

The old federal moving-expense deduction, which required a 50-mile distance test, has been permanently removed for everyone except certain active-duty members of the U.S. Armed Forces and some members of the intelligence community.

However, if your business relocates, the costs of moving business property, such as equipment, inventory, and office furniture, are generally deductible as ordinary and necessary business expenses or capitalized where needed.

The key is that the expense must be clearly business-related and not a personal household move.

Salaries and Employee benefits

Money you pay to or for your employees, such as salaries, hourly wages, bonuses, commissions, and many taxable benefits, is generally deductible as a business expense for the 2026 tax year.

To qualify as a deductible expense, compensation must:

– Be ordinary and necessary for your trade or business
– Be reasonable in amount, reflecting the work performed and your industry
– Be paid to a legitimate employee, not just yourself as a sole proprietor or partner; special rules apply to owners of LLCs and corporations
– Be paid for actual services rendered and actually paid or accrued in the tax year

Common deductible items include wages, bonuses, commissions, and employer-paid education assistance or other benefits, as long as they are part of a real compensation arrangement for employee services.

Utilities

The money you spend on running your business, such as phone, internet, electricity, water, and heat, is usually deductible as a business expense.

For services like phone and internet that you use for both work and personal purposes, you can only deduct the part that is for business use.

If you have one line or connection for both work and personal life, you need to fairly divide the costs and only deduct the business portion.

Home office

If you regularly and exclusively use part of your home as your main place of business, you may qualify for the home office deduction.

Using the IRS simplified method, you can deduct $5 per square foot of eligible office space, up to 300 square feet. This amounts to a maximum of $1,500 per year.

The work area must be used only for business. A space that also serves as a guest room, dining room, or general family area typically does not qualify, unless it fits a specific exception (such as certain storage or daycare uses).

This deduction is available to self-employed individuals and business owners, but not to most W-2 employees working from home, even if they work remotely full-time.

Office supplies/expenses

Office supplies and everyday expenses for your business, like paper, pens, printer ink, small equipment, website hosting fees, domain renewals, and work-related software or subscriptions, are usually deductible as ordinary and necessary business expenses.

Larger items such as computers or office furniture can be treated as equipment. You can deduct these over time or expense them under special rules, based on their cost and how your accountant categorizes them.

To support your deduction, keep proper records for each purchase. This includes receipts, invoices, or bank and credit card statements that show the amount, date, and business purpose.

Equipment and software leases

If you lease equipment or software for your business, such as printers, machinery, POS terminals, or licensed software, the part of your lease payments for business use is usually 100% deductible when it is a true lease.

This means you do not own the asset and you are not building equity through the payments.

Long-term leases with options to buy or terms that transfer ownership may be treated as purchases with financing.

In this case, you would recover the cost through depreciation or amortization, instead of deducting all the payments as rent.

Cloud and SaaS subscriptions, which include most online software tools, are generally considered ordinary business expenses.

You can usually deduct them in full in the year you pay for them, as long as they are used for your trade or business.

Rents

Rent you pay for business property, such as an office, co-working space, warehouse, retail shop, or storage unit, is generally 100% deductible as a business expense for the 2026 tax year.

To qualify for a rental deduction, the space must be used for business purposes. You also must not own the property or be building equity in it through the payments.

If you own the building or are effectively buying it, the payments are treated differently, for example, as depreciation and interest rather than as deductible rent.

Business damages (casualty and theft losses)

If your business property is damaged or destroyed by events like theft, vandalism, fire, storms, or other sudden disasters, you might be able to claim a deduction for the loss in 2026.

For property used in your business, the deductible amount is usually the unreimbursed loss:

– It is limited to your tax basis in the property.
– It is reduced by any insurance or other reimbursements you receive or expect to receive.

To qualify, the loss must:

– Involve property used in your trade or business.
– Result from a sudden, unexpected, and unusual event (for example, burglary, riot, natural disaster, or similar casualty—not gradual wear and tear).
– Occur to property you own or for which you are contractually responsible (such as certain leased property).

You generally report business casualty and theft losses on Form 4684, Section B. You can find detailed guidance in IRS Publication 547 and Publication 584-B (Business Casualty, Disaster, and Theft Loss Workbook).

Business car use

If you use a car, van, or light truck for your business, you can deduct the business-use portion of your vehicle costs for federal tax purposes in 2026. You cannot deduct personal driving or regular commuting.

You generally have two ways to calculate your deduction:

1. Standard mileage rate method

The IRS sets a cents-per-mile rate each year for business driving. You multiply your business miles by that rate to find your deduction.

– For instance, the IRS standard mileage rate for 2025 is 70 cents per mile for business use.
– When you file for the 2026 tax year, use the business mileage rate that the IRS lists on its “Standard Mileage Rates” page for 2026.

If you use this method, the per-mile rate includes fuel, maintenance, repairs, insurance, and depreciation. You typically do not deduct those costs separately, but you can still deduct eligible parking fees and tolls related to business trips.

2. Actual expense method

Instead of using the standard mileage rate, you can deduct the business-use share of your actual vehicle costs: fuel, oil, repairs, tires, insurance, registration fees, lease payments, or depreciation.

The “business share” is usually determined by dividing business miles by total miles for the year. Passenger vehicles face special depreciation and “luxury auto” limits, even under the more generous OBBBA bonus-depreciation rules.

Whichever method you choose, keep good records:

– A mileage log that shows the date, destination, business purpose, and miles driven; and
– Receipts or statements for actual expenses if you use the actual-expense method.

Note: These rules apply to self-employed individuals and business owners. W-2 employees generally still cannot deduct unreimbursed business mileage on their personal returns.

Foreign Income

U.S. citizens and residents are taxed on their worldwide income, even if they live and operate a business abroad. However, if you live and work outside the United States, you may qualify for the Foreign Earned Income Exclusion (FEIE) and other relief options that can greatly reduce your U.S. tax.

For tax year 2026, the FEIE allows a qualifying individual to exclude up to $132,900 of foreign earned income, which includes wages or self-employment income from services performed abroad. If both spouses qualify, each can claim their own exclusion.

To claim the exclusion, you generally need to:

– Have a tax home in a foreign country, and
– Meet either the bona fide residence test or the physical presence test described in IRS Publication 54.

Foreign earned income above the exclusion limit, as well as passive income like dividends, interest, and capital gains, can still be taxed by the U.S. However, the foreign tax credit may offset some or all of that tax if you also pay income tax to a foreign country.

There are specific requirements that would make you eligible for the exclusion.

Retirement Contributions

Contributing to retirement plans can lower your taxable income for the 2026 tax year. It also helps you and your employees save for the future. The specific tax benefit depends on the type of plan.

Traditional and Roth IRAs (personal)

– For 2026, the total contribution limit for all your IRAs (traditional plus Roth) is $7,500 if you are under 50, or $8,600 if you are 50 or older. This limit cannot exceed your earned income for the year.
– Traditional IRA contributions may be fully or partly deductible, based on your income and whether you or your spouse are covered by a retirement plan at work.
– Roth IRA contributions are not deductible, but qualified withdrawals in retirement are tax-free.

Small-business retirement plans (employer plans)

As a business owner or self-employed individual, you can set up a tax-favored retirement plan for yourself and your employees. Options include:

– SEP IRA
– SIMPLE IRA
– Solo 401(k) (one-participant 401(k))
– Traditional qualified plans, often still called Keogh plans

Contributions to these plans for yourself and your employees are generally deductible as a business expense or as an “above-the-line” deduction. This is subject to annual contribution limits and plan rules. The plan must meet IRS qualification requirements (see IRS Publication 560 for details).

Education

You can usually deduct education expenses that help you or your employees keep or improve the skills needed for your current trade or business, or that are required by law or regulations to maintain your current salary, status, or job.

Education that maintains or improves skills in your current trade or business:

– A tax preparer taking an advanced tax course.
– A software consultant taking an AI/ML course to improve their current consulting work.
– A contact-center SaaS marketer doing a B2B copywriting or analytics course.

Education required to keep your current job, license, or status:

– Mandatory continuing education (CE/CPD) hours for lawyers, doctors, accountants, and real estate agents.
– Renewal courses or training required by a regulator or professional body.

Client or Employee gifts

Client gifts: You can deduct the cost of business gifts to clients and customers, but the deduction is generally limited to $25 per recipient each year.

If you spend more than $25 on a gift, you can still give it, but only $25 is deductible. The gift should be clearly related to your business and usually needs to be a tangible item, not entertainment.

Employee gifts: Small, occasional gifts to employees, such as holiday gift baskets or modest non-cash items, are often deductible by the business and may qualify as de minimis fringe benefits, which are tax-free to the employee.

However, cash and gift cards are usually considered taxable wages, even if given as a “gift,” and are subject to payroll taxes, though you can still deduct them as compensation for the business. The $25 limit for business gifts does not apply to employee wages or bonuses.

Final Thoughts!

Tax deductions are one of the best ways to lower your overall tax bill and keep more of your hard-earned money in your business.

As a small business owner, knowing which expenses are deductible and keeping track of them accurately can save you a lot of money and improve your cash flow over time.

That’s where good records come in. With Akaunting, you can easily document your financial transactions, categorize expenses, and create reports that make tax time much less stressful.

If you’re unsure how specific rules apply to you or have difficulty calculating your taxable income, it’s a good idea to talk to a qualified accountant or tax professional. Combining expert advice with clear records and the right tools gives your business the best chance to stay compliant and make the most of every deduction you’re eligible for.