A business expense is deductible when it is both ordinary, meaning common and accepted in your field, and necessary, meaning helpful and appropriate for your business, according to IRS Publication 334 (2025). Typical examples include supplies, advertising, insurance, rent and business use of a car. The personal part of a mixed expense is not deductible. A ProfitDrawer bookkeeping spreadsheet sorts each expense into categories you set.
An expense does not have to be indispensable to count as necessary. A few rules change how much you can deduct:
- Mixed use: split costs that are partly personal, such as a phone or car, and deduct only the business share.
- Meals: generally limited to 50% of the cost.
- Car: use either the standard mileage rate or actual costs for the business share.
- Home office: the simplified method allows $5 per square foot, up to 300 square feet.
The IRS lists costs you usually cannot deduct as business expenses, including:
- Personal, living and family expenses
- Entertainment
- Penalties and fines paid to a government agency for breaking the law
- Political and charitable contributions
- Club dues (business, social, athletic and similar clubs)
- Improvements to property
Keep a receipt or record for each expense, with the date, who you paid, the amount and the business reason. The IRS generally says to keep records for 3 years, longer in some cases. General information, not tax advice.
Source: IRS Publication 334 (2025), Tax Guide for Small Business · Updated
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General information, not tax, legal or financial advice. Check the rules for your state and your situation.