Deductible expenses FAQ
Tax Deductible Business Expenses: FAQ (IRS Sourced)
Direct answers to the most common questions about what business expenses are tax deductible, from meals and mileage to home office and equipment, each tied to the underlying IRS rule.
Direct answer
Direct answer
Most ordinary and necessary costs of running a business are deductible, but the percentage, method, and paperwork requirement vary by category. Business meals are generally 50% deductible, not 100%. Vehicle costs use either the standard mileage rate or actual expenses, never both for the same vehicle. Home office requires regular and exclusive business use. Equipment can often be expensed immediately under Section 179 or the de minimis safe harbor rather than depreciated over years. None of this is tailored advice; confirm your specific situation with a qualified tax professional.
The baseline test behind every category
Schedule C, the form most sole proprietors and single-member LLCs use to report business income and expenses, applies one baseline test across nearly every line: the cost has to be ordinary, meaning common and accepted in your line of business, and necessary, meaning helpful and appropriate for it. That test decides whether an expense belongs on the return at all; the category-specific rules below decide how much of it, and under what conditions.
This is why the same receipt, a restaurant charge for example, can be a fully documented deductible client meal, a nondeductible personal dinner, or a reimbursable employee expense depending entirely on the facts around it. Software can suggest a category from a receipt; it cannot know the business purpose.
The categories buyers actually ask about
The questions below map to the categories that generate the most confusion for freelancers, contractors, and small-business owners: vehicle mileage, meals, the home office, software subscriptions, equipment, and contractor payments. Each answer here reflects the general rule; exact dollar thresholds and rates are set or adjusted annually and should be checked against the current-year IRS guidance before filing.
Common questions
FAQ
Are business meals 100% deductible?
No. Qualifying business and travel meals are generally 50% deductible. Entertainment costs, such as event tickets or a round of golf, are generally not deductible at all following the 2017 tax law change, even if business was discussed. A separately stated meal at that same event can still be 50% deductible.
How do I deduct mileage for business driving?
Using either the standard mileage rate, which the IRS sets annually and can revise mid-year, or actual vehicle expenses (gas, repairs, insurance, depreciation) multiplied by your business-use percentage. You cannot use both methods for the same vehicle in the same year, since the standard rate already bakes in operating costs, and commuting between home and a regular workplace is never deductible.
Can I deduct a home office?
Yes, if the space is used regularly and exclusively for business. The simplified method allows $5 per square foot up to 300 square feet, a $1,500 cap; the regular method allocates actual home costs by the business-use percentage of the home. A space used for both work and personal life generally does not qualify.
Are software subscriptions and SaaS tools deductible?
Yes, business software and cloud tools are generally deductible as ordinary business costs. Personal subscriptions, such as streaming services with no business use, are not. A tool used for both personal and business purposes should be allocated to its business-use share, not claimed in full.
Can I deduct the full cost of a new laptop or equipment purchase the year I buy it?
Often yes, either through the de minimis safe harbor for lower-cost items or an election such as Section 179, rather than depreciating the cost over several years. Larger or mixed-use equipment may still need to be depreciated or allocated to its business-use percentage. Exact dollar limits change yearly and should be confirmed against the current Form 4562 instructions.
Do I need to issue a 1099 to a contractor I paid?
Generally yes, once payments to a nonemployee for services cross the reporting threshold, which changed for payments made after December 31, 2025. Whether you owe a 1099 filing is a separate question from whether the payment itself is a deductible business expense; confirm the current threshold before filing.
Is my cell phone bill deductible?
Only the business-use portion. Claiming 100% of a phone plan used for both personal and business purposes is not defensible; allocate it to a reasonable business-use percentage and keep a basis for that split.
Are client gifts deductible?
Business gifts are deductible only up to a modest cap per recipient per year, and gifts fall under the same stricter substantiation rule as travel and meals, meaning you need the recipient, business relationship, amount, and date documented, not just a receipt.
What is self-employed health insurance, and where does it go?
Health insurance premiums for a self-employed person are deducted above the line, generally through Form 7206 and Schedule 1, not as a Schedule C insurance expense. It is handled separately from general business insurance like liability or commercial property coverage.
Does buying inventory count as a supplies expense?
No. Merchandise inventory and materials that become part of a product you sell follow cost-of-goods-sold rules, not the ordinary supplies line. Consumable items used to run the business, like packaging or office materials, are the ones that belong in supplies.
What is the Qualified Business Income deduction, and does it change what I can spend on?
The Section 199A QBI deduction is a separate deduction based on qualifying business income, reported on Form 8995, and it does not change which expenses are deductible on Schedule C. It can be limited for specified service businesses, such as consulting, at higher income levels.
Can I deduct clothing I only wear for work?
Only if it is not suitable for everyday wear, such as required safety gear or a distinctly branded uniform. Clothing that could reasonably be worn outside of work is not deductible even if you only actually wear it on the job.
Does a receipt app decide whether something is deductible?
No. A receipt app can capture the image, extract the fields, and suggest a category, but deductibility depends on business purpose, the applicable percentage or method, and current-year law. Review every suggested category before relying on an export, and confirm anything uncertain with a qualified tax professional.
See it in context
Receipt workflows by business
ReceiptLine uses AI to extract and suggest expense details. It is not accounting or tax advice. Review each receipt and confirm the correct treatment with a qualified professional for the relevant jurisdiction.