What Counts as a Business Deduction? A Straightforward Guide for New Business Owners

One of the biggest questions new business owners ask is:
“What can I actually write off?”

Unfortunately, most of the advice online ranges from vague to flat-out wrong. The truth is simpler than you think, and you don’t need to memorize the entire tax code—you just need a clear framework for what counts as a business deduction.

This guide will walk you through exactly what the IRS means by “ordinary and necessary,” the types of expenses that almost always qualify, and the gray areas you should approach with caution.

1. The IRS Definition: Ordinary + Necessary

The IRS says a business expense must be:

• Ordinary – commonly accepted in your industry

• Necessary – helpful and appropriate for running your business

It doesn’t have to be indispensable. Just reasonably connected to earning money.

If the expense helps you:

• operate

• serve customers

• market your business

• improve your work

• stay compliant

…it likely qualifies.

2. Common Deductions Most Businesses Can Take

Here are the categories almost all business owners use:

Advertising & Marketing

Business cards, websites, social media ads, printing, sponsorships.

Software & Subscriptions

QuickBooks, Canva, Google Workspace, CRM tools, industry-specific software.

Office Supplies & Equipment

Notebooks, pens, printer ink, monitors, desks, external hard drives.

Professional Services

Bookkeepers, accountants, attorneys, consultants.

Travel for Business

Flights, hotels, rental cars, rideshare, parking—when it directly relates to business. 'Directly' is the key - check with your tax professional for specifics.

Meals (50% or 100% depending on circumstances)

Client meetings, travel meals, team meetings—not personal dining.

Education & Training

Workshops, online courses, certifications, conferences.

Home Office Deduction

A portion of rent, utilities, Wi-Fi, if you use a dedicated workspace regularly and exclusively for business.

3. What About Mixed-Use Items? (Phone, Internet, Car)

Many things you use daily blend personal and business use.

The rule is simple:

You can only deduct the business portion.

Examples:

• Cell phone: Deduct the percentage you use for business.

• Internet: Deduct the percentage tied to your business use.

• Car: Track miles using a mileage app to calculate the deductible portion.

Never guess—document your usage.

4. Expenses That Don’t Count (Even If They Feel Business-Related)

These commonly misunderstood items are not deductible:

Personal meals

Even if you’re thinking about business.

Clothes

Unless it’s a required uniform or protective gear.

Your commute

Driving from home to your office is considered personal.

Entertainment

Most entertainment-related expenses are no longer deductible.

Gifts over $25 per person per year

You can give more—but only $25 is deductible.

When in doubt, think:
Does this directly support my ability to run or grow the business?

5. Documentation Matters (More Than You Think)

A deduction is only valid if you can prove it.

Every deductible expense should include:

• a receipt

• the date

• the vendor

• the amount

• the business purpose

And for meals or travel:

• who you met with

• what was discussed

Good documentation turns tax season from stressful to simple.

6. When to Ask for Help

Deductions get trickier as you grow, especially if you:

• hire contractors

• run a home office

• travel often

• buy major equipment

• have multiple income streams

• mix personal and business frequently

If you start feeling unsure, it’s time to check in with a tax professional so you don’t miss savings—or make avoidable mistakes.

Final Thoughts

Understanding business deductions doesn’t need to be complicated. Start with expenses that clearly support your work, document everything, and use a consistent system to stay organized. Over time, this becomes second nature and helps reduce your tax bill legitimately and confidently.

If you’d like help setting up a deduction system that’s simple, compliant, and tailored to your business, let’s schedule a quick call and see how we can help.

The Money-Smart Business Blog provides educational content designed to help small business owners make informed decisions. This content is not tax, legal, or financial advice and should not be used as a substitute for personalized guidance. Always consult with a licensed professional before taking action based on this information.