Small Business Tax Deductions: What Counts in 2026

Small business tax deductions are usually lost the same way — not to an aggressive rule or a careless preparer, but to an owner who wasn't certain something counted and left it off rather than risk it. The second most common way is the mirror image: claiming something with real conviction and no basis for it.

Both come from the same gap. Almost every guide to tax write-offs for small business owners hands you a list. Very few tell you where the line actually sits, what a deduction is worth once it lands on the return, or which limits apply before the number reaches your bottom line.

That is what this guide does, for tax year 2026. I'm Mindy Kiliszewski, a CPA in Grand Rapids, and I have been preparing business returns for 28 years. If what you want is the gatherable version — every category with the record it needs, worked through one at a time — that is the small business tax deductions checklist. This is the reasoning underneath it.

What a tax write-off actually is

So what is a tax write-off for small business owners, exactly? A tax write-off and a tax deduction are the same thing. "Write-off" is the kitchen-table word; "deduction" is what appears on the return. Neither one is a discount, a rebate, or money the government hands back. A write-off is a business expense you are allowed to subtract from business income before tax is calculated on what remains.

The governing rule is short. Section 162 of the tax code allows a deduction for expenses that are ordinary and necessary in carrying on a trade or business. Those two words do nearly all of the work:

• Ordinary means common and accepted in your line of work. A framing nailer is ordinary for a contractor. It is not ordinary for a therapist.
• Necessary means helpful and appropriate for the business. It does not mean indispensable, and you are not required to prove the business would have failed without it.

Three conditions sit underneath those. The expense has to be a business expense rather than a personal one — and where something is genuinely both, only the business share counts. It has to be paid or incurred within the tax year you are claiming it. And it has to be reasonable in amount; the phrase the IRS uses is "not lavish or extravagant under the circumstances."

So the honest answer to what are tax write-offs for small business owners is broad: close to anything you genuinely spend in order to earn business income, at the business percentage, in the year you spend it. Everything that follows is about the exceptions — the categories where a limit, a percentage, or a timing rule changes that answer.

What a write-off is really worth

This is the part that changes how people actually spend money, and it almost never appears in a list of deductions.

A deduction is not worth its face value. It reduces the income you are taxed on, which makes it worth your tax rate on that amount rather than the amount itself. Buy a $1,200 laptop for the business and you do not save $1,200. You remove $1,200 from taxable income.

For a Grand Rapids sole proprietor, that $1,200 comes off three taxes at once:

The laptop cost $1,200 and saved roughly $485 — about forty cents on the dollar, before any Grand Rapids city income tax. That is a real saving and absolutely worth claiming. It is not a reason to buy something you do not need, which is the most expensive misunderstanding I correct every December.

The same arithmetic runs the other way, and that half is more useful. A deduction you forget also costs you about forty cents on the dollar. Miss $6,000 of legitimate expenses across a year and you have handed over roughly $2,400 of real money. It is the least dramatic reason to keep books you can actually read, and the one that pays best: you cannot deduct what you cannot see.

The small business tax deductions nearly every owner has

The question I am asked most often is the simplest one: what can a small business write off on taxes? Owners tend to ask it as though a secret list were circulating somewhere. There is not one. Strip out the industry-specific items and the same short set of small business tax deductions appears on nearly every return I prepare. What matters is what each one covers and where people get it wrong.

Rent and occupancy. Shop, studio, office, storage unit, yard. Rent paid to an unrelated landlord is straightforward. Rent paid to yourself for space you own is not a deduction — that is the home office rules, further down.

Utilities, phone and internet. Fully deductible for a dedicated business line or a commercial space. For the phone in your pocket and the internet in your house, only the business share counts, and "100% business" on a phone that also texts your family will not survive a question.

Insurance. General liability, professional liability, commercial vehicle, workers' compensation, business property. Self-employed health insurance is deductible too, but it works differently — see the overlooked section.

Professional fees. Accounting, tax preparation, legal, and industry consultants. The fee for preparing the business portion of your return is deductible; the personal portion is not.

Software and subscriptions. QuickBooks Online or Xero, design and editing tools, scheduling and booking systems, cloud storage, industry apps. These are the deductions most often missed outright, because they leave the bank in small monthly amounts nobody thinks about.

Wages and contractors. Employee wages, payroll taxes you pay as the employer, and amounts paid to subcontractors. Contractor payments over the annual threshold need a 1099 issued — the deduction survives without one, but the penalty does not make that a good trade.

Marketing. Website, hosting, ads, print, signage, vehicle lettering, photography, trade show costs. Sponsorship of a local team is advertising when your name is on the shirt.

Bank charges, merchant fees and interest. Card processing fees are pure deduction and quietly large for anyone taking payments. Interest on a genuine business loan or business credit card is deductible; interest on the personal card you occasionally use for the business is deductible only on the business share, which is a headache worth avoiding by keeping a separate card.

Education that maintains or improves your current skills. Continuing education, licensure renewals, trade certifications, industry publications. Training that qualifies you for a new line of work is specifically not deductible.

Your vehicle: two mileage rates for tax year 2026

Vehicle costs are the largest deduction most trades businesses have, and tax year 2026 has an unusual wrinkle that a lot of published guidance has not caught up with.

There are two standard mileage rates for 2026. The IRS revised the business rate mid-year:

Both figures come from the IRS standard mileage rates table. A single "2026 rate" is wrong for half the year in either direction, and I would treat any source quoting just one with suspicion — including older IRS publications written before the July revision.

That changes the advice, not only the arithmetic. In a normal year a mileage total is enough. For tax year 2026, when a mile was driven determines what it is worth, so a log without dates can no longer be converted into a deduction. If your log is a note on your phone that reads "about 9,000 miles," this is the year that stops working.

The alternative is the actual expense method: you deduct the business percentage of fuel, insurance, repairs, tyres, registration and depreciation. For a contractor running a heavy truck that eats fuel and brake pads, actual expenses usually win. For a therapist driving a paid-off sedan to a second office twice a week, standard mileage usually wins and takes a fraction of the effort. Either way, commuting from home to your regular place of work is never deductible.

The home office deduction

The home office deduction has a reputation as an audit magnet. That reputation is folklore, and it costs people money every year. It is a legitimate deduction with a strict test, and the test is where attention belongs.

The space must be used exclusively and regularly for business. Exclusively is the word that disqualifies most claims — the dining table you clear at six o'clock does not qualify, no matter how much work happens on it. A spare bedroom that holds only your desk, your files and your equipment does. It also has to be your principal place of business, or a space you regularly use to meet clients.

If it qualifies, there are two ways to calculate it:

• Simplified method. $5 per square foot, capped at 300 square feet — so a maximum deduction of $1,500. No depreciation, no depreciation recapture when you sell the house, and your mortgage interest and property taxes stay on Schedule A in full.
• Regular method. You take the business-use percentage of actual costs — mortgage interest or rent, insurance, utilities, repairs, and depreciation on the business portion. More work, usually a larger number, and it puts depreciation recapture on the table when the house sells.

The simplified figures are on the IRS simplified option page. In practice, the therapist with a converted 180-square-foot office suite and the creator with a dedicated 120-square-foot studio are almost always better off running both calculations once and then staying with whichever wins — the ratio does not move much year to year.

Equipment: Section 179 and bonus depreciation

Buy equipment and the default rule is that you deduct its cost gradually over several years through depreciation. Two provisions let you take it all up front instead, and for tax year 2026 both are generous enough that almost no small business is constrained by them.

Section 179 lets you elect to expense the full cost of qualifying equipment in the year you place it in service. For tax years beginning in 2026 the maximum is $2,560,000, reduced dollar for dollar once the total cost of Section 179 property you place in service passes $4,090,000. Those figures come from Rev. Proc. 2025-32. Section 179 cannot create or increase a loss — it is limited to your business income.

Bonus depreciation now runs at 100% and is permanent, applying to qualified property acquired after January 19, 2025. Unlike Section 179 it is not capped by business income, so it can create a loss.

The practical difference for a business of Mindy's typical size is not the caps, which you will never reach. It is control. Section 179 is elective item by item, so you can expense the truck and depreciate the trailer if that produces a better result. Bonus depreciation applies to whole classes of property unless you elect out. In a year when income is unusually low, taking the whole deduction immediately can be the wrong move — the write-off is worth your tax rate, and your tax rate that year is low. That timing question is the substance of business tax planning, and it is decided before December 31, not in April.

The 20% QBI deduction and the new $400 floor

The qualified business income deduction is the largest deduction most pass-through owners get, and it is not an expense at all — you do not have to spend anything to claim it. If you own a sole proprietorship, partnership, S corporation or certain trusts, you may deduct up to 20% of qualified business income, whether or not you itemise.

A warning about sources on this one. The IRS's own explainer page still states that the deduction applies to tax years "ending on or before December 31, 2025," which reads as though it expired. It did not. The One Big Beautiful Bill Act made Section 199A permanent, and the IRS has separately published its inflation-adjusted 2026 thresholds. Two IRS pages disagree and the newsroom explainer is the stale one. If you have read anywhere that QBI ends after 2025, that is where it came from.

For tax year 2026 the threshold amounts, above which the limitations based on W-2 wages, property and type of business begin to phase in, are:

Below the threshold the calculation is close to mechanical: 20% of qualified business income, subject to a taxable income limit. Above it, the rules get involved quickly, and a service business — accounting, law, health, consulting — faces a further restriction that a construction company does not.

There is also something new that first applies for tax year 2026: a minimum deduction of $400 for any taxpayer with at least $1,000 of net qualified business income from an active business they materially participate in. It is small, it is indexed for inflation after 2026, and it matters most to the people least likely to hear about it — the side business, the part-time consultant, the creator whose channel finally turned a profit.

What is 100% deductible — and what is not

Most business expenses are deductible in full. It is easier to learn the short list of exceptions than to check every category against a rule.

Deductible at 100%: rent, utilities, wages and employer payroll taxes, contractor payments, insurance premiums, professional fees, software and subscriptions, office supplies, materials and inventory costs, marketing and advertising, bank and merchant fees, business interest, and training that maintains your current skills. Equipment reaches 100% in year one through Section 179 or bonus depreciation, as above.

Limited: business meals are generally deductible at 50% under the rules in IRS Publication 463. Entertainment is at 0% — the ballgame is not deductible even when the client is sitting beside you, though a meal at the ballgame billed separately can be. Mixed-use items — vehicle, phone, home internet — are deductible only at the business percentage.

Not deductible at all: personal and family expenses, commuting between home and your regular workplace, clothing that is suitable for everyday wear even if you only wear it to work, fines and penalties, political contributions, and the portion of any expense you were reimbursed for. Federal income tax itself is not a business expense.

The most overlooked small business tax deductions

The small business write-offs for taxes that get missed are rarely exotic. They are the ones that do not look like an expense, or that were spent before the business felt real.

Start-up costs. The money you spent investigating and setting up the business before it opened is deductible. You may deduct up to $5,000 of start-up costs in your first year, reduced dollar for dollar once total start-up costs exceed $50,000, and amortise the remainder over 180 months. Owners routinely leave this off because the receipts predate the business bank account.

The de minimis safe harbor. With an election on your return, you can expense items costing up to $2,500 per invoice or item immediately instead of capitalising and depreciating them ($5,000 if you have an applicable financial statement). For a photographer buying a lens or a contractor buying a compressor, this removes the depreciation schedule entirely.

Retirement contributions. A SEP-IRA or solo 401(k) is the largest deduction available to most profitable one-person businesses, and unlike buying equipment, the money stays yours. This is usually the first thing I look at when a client's income jumps.

Self-employed health insurance. Premiums for you, your spouse and your dependants are deductible — but as an adjustment on your personal return rather than a business expense, which means it reduces income tax without reducing self-employment tax. It gets missed because it sits in a different place from everything else.

Business use of a personal vehicle or phone. Not glamorous, and worth thousands a year to someone who drives between job sites. See the mileage section — for tax year 2026 the log needs dates.

Bad debts, for accrual-basis businesses. If you reported income you were never paid and you are on the accrual method, you can write it off. Cash-basis businesses cannot, because the income was never recorded in the first place.

Four Grand Rapids businesses and what they deduct

The categories above are the same for everyone. What differs is which ones carry the weight — and it is worth seeing that concretely, because "small business" covers wildly different tax pictures.

The contractor. Vehicle is the big one, and for a loaded work truck the actual expense method usually beats mileage. Then tools and equipment, expensed under Section 179 or the de minimis safe harbor depending on cost; materials, which flow through cost of goods sold rather than as an expense; subcontractor payments with 1099s issued; liability and workers' compensation insurance; licensing and bonding; and vehicle lettering, which is advertising. The mistake I see most is materials bought on a personal card and never reimbursed through the business.

The therapist. Office rent or a genuinely exclusive home office suite; professional liability insurance; licensure and continuing education; a HIPAA-compliant EHR and telehealth platform; supervision and consultation fees; professional association dues; and mileage between offices, though never the commute to the first one. Therapists under-claim continuing education more than any other group I work with, because it feels like personal development rather than a business cost.

The photographer. Bodies, lenses and lighting, which is where Section 179 and the de minimis safe harbor do the heavy lifting; editing software; cloud storage and backup drives; second shooters and assistants as contractors; studio rent or a dedicated home studio; travel and mileage to shoots, dated; props and wardrobe used only for shoots; and gear insurance. The trap is gear that is genuinely used personally as well — only the business share counts.

The social-media creator. Home studio space if it is exclusive; cameras, lighting and audio; editing and design subscriptions; music licensing; equipment used in the work; contractor payments to editors and virtual assistants; and platform or agency fees deducted before payout, which are deductible even though the money never reaches your bank. Creators most often miss those platform fees, because the deposit already arrived net and looks like the whole story.

None of these is a complete return. They are illustrations of where the money sits — a CPA who prepares business returns will find the ones specific to how you actually operate.