Whether you're operating as a single-member LLC that reports business income on your personal tax return or have elected S Corp status, the IRS generally treats business deductions the same way. To be deductible, an expense must be both ordinary (common and accepted in your trade) and necessary (helpful and appropriate for running your business).
Here’s a breakdown of typical business expenses that small business owners should know and how they are generally treated (some exceptions may apply depending on certain circumstances):
Advertising
This can range from printing business cards to launching digital marketing campaigns.
Bank Fees
All fees associated with your business banking, including account maintenance and transaction fees, are deductible.
Commissions and Fees
These are deductible, but commissions related to real estate purchases are not. Instead, they are added to the property’s basis and depreciated over time.
Contract Labor
Hiring freelancers or independent contractors is a common practice among small businesses to fulfill labor needs efficiently.
Credit Card Convenience Fees
Fees charged for certain credit card transactions can also be deducted.
Education Expenses
Costs related to the education and training of your employees, and your own business-related education, are deductible.
Employee Benefit Programs and Qualified Retirement Plans
Costs for employee benefits and contributions to qualified retirement plans are deductible.
Home Office and Mileage (Employee Reimbursement via Accountable Plan)
S Corp owners can reimburse themselves for out-of-pocket business expenses through an Accountable Plan, allowing those costs to be deducted by the business and reimbursed to the owner. Generally, under an Accountable Plan, you can deduct reimbursements for business-related expenses like mileage, home office costs, or other qualified out-of-pocket expenses.
Note for LLC Tier Members:
Single-member LLCs generally report mixed-use expenses, such as home office or mileage, directly on their individual tax return rather than through an Accountable Plan. Because of this, an Accountable Plan usually isn’t applicable. What matters most is maintaining accurate records to support your business deductions.
Learn more about reimbursing out-of-pocket expenses here.
Insurance
This includes premiums for your business owner’s health insurance policy, malpractice coverage, flood insurance on business premises, cyber liability, and business continuation insurance.
If you’re self-employed, the way health insurance premiums are deducted depends on your business structure:
- Single-member LLCs (Schedule C): Health insurance is typically deducted on your personal tax return, not as a business expense.
- S Corporation owners: The company must pay or reimburse premiums and report them on your W-2 for you to claim the deduction personally. You can read more about S Corp Health Insurance here.
Interest on Business Debt
Interest paid on business loans are usually deductible.
Legal & Professional Fees
Fees for accounting, tax preparation, and other professional services directly related to your business operations are deductible.
Machinery and Equipment
Higher-cost items like computers, cameras, or tools are typically capital assets and deducted over time through depreciation. You can often deduct smaller purchases immediately under the de minimis safe harbor rule – generally for items costing $2,500 or less per item or invoice.
Keep receipts and records showing cost, date, and business purpose.
Meals & Entertainment
Generally, you can deduct 50% of qualifying food and beverage expenses related to business operations. Entertainment, even for clients, is generally not deductible.
Membership Dues
Dues for business-related organizations, such as professional associations or chambers of commerce, are deductible.
Office Expenses
Office expenses generally include small items and supplies that help you maintain and operate your workspace, such as pens, notebooks, printer ink, chargers, or desk organizers. If you work from a home office, this can also include reasonable costs to make your workspace comfortable and productive, like lighting, décor, or a desk chair.
These types of expenses fall under your general business deductions, while larger workspace costs (like rent, utilities, or internet) may qualify under the home office deduction if you meet the IRS requirements.
Payroll Expenses (S Corp Tier only)
For S Corp owners, payroll expenses, including your own reasonable salary as a W-2 employee, are deductible business expenses. This includes gross wages paid to employees and the employer portion of payroll taxes (Social Security, Medicare, and unemployment taxes).
Note for LLC Tier Members:
Single-member LLCs can generally hire employees and deduct payroll-related expenses for them. However, most LLC owners do not pay themselves through payroll; instead, they take owner draws, which are not deductible as business expenses.
Collective does not currently support payroll for additional employees under the LLC tier.
Rent & Lease
Expenses for commercial leases are deductible; however, home office expenses fall under a different category.
Repairs and Maintenance
Costs for ordinary repairs and maintenance of business property are deductible. However, improvements that increase the property’s value are usually capitalized and depreciated. There are safe harbor rules that may allow for immediate deduction.
If you’re unsure how to categorize a transaction, flag it using the “Transaction Issue” feature in your Collective Dashboard. From your Dashboard, go to Accounting → Transactions, select the transaction, and click Issues with Transaction to send your question to our team for review.
Supplies
All items purchased for business use, including cleaning supplies for a service or postage for mailing, are fully deductible.
Taxes & Licenses
You can deduct certain taxes and the cost of licenses and permits required for your business operations. Generally, federal and state individual income taxes are not deductible business expenses. However, business-related taxes (for example, state franchise or LLC fees) are typically deductible at the business level.
Travel
Business-related travel expenses, including airfare and accommodations, are deductible. Ensure you have a clear business purpose for these expenses to qualify for deductions.
Industry-Specific Expenses
Some professions have unique costs that qualify as deductible business expenses, as long as they’re ordinary and necessary for your work.
Examples include:
- Photographers or videographers: cameras, lenses, lighting, props, editing software
- Designers or artists: software, creative tools, printing, materials
- Consultants or coaches: digital platforms, subscriptions, certifications
- Trainers or performers: studio rentals, instruments, gear, client materials
This list isn’t exhaustive – expenses specific to your field may still qualify if they directly support your business.
Closing
Whether you operate as an LLC or S Corp, the key to maximizing deductions is to keep clear records and separate your business and personal spending. If an expense doesn’t neatly fit into other categories but is ordinary and necessary for your business, it’s likely deductible.
Keep detailed records to support these claims. Staying informed about what constitutes a deductible business expense not only helps reduce your taxable income but also strengthens your financial planning and budgeting throughout the year.
Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as legal, financial, or tax advice. It is not intended to be a substitute for obtaining legal, accounting, or other financial advice from an appropriate and/or licensed adviser, or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.