Expense deductions may not top the list of priorities for small businesses and startups, and that oversight could be costing them. Sure, you’re focused on customer service and improving your products and services. But some easy moves could significantly lower your tax bill.
For example, say you’re putting 250 miles per week on your private vehicle to get products out to customers. It may seem time-consuming to keep a log separating business and personal vehicle use, but you’re losing out on $9,880 in annual deductions. Or maybe you shuttered your office and started running your company from a spare room. As long as the space is exclusively used for business, you can deduct $5 for every square foot, up to $1,500. These are just two examples of the 36 that follow.
What Are Business Expense Categories?
Business expense categories are the groupings used to sort your company’s spending, such as advertising, travel, utilities, or office supplies, so you can track costs and claim every deduction you’re due. Develop categories that fit your business and then use them to record and organize expenditures as you go, so nothing is missed come tax time.
You’ll also save significant headaches for your bookkeeper or tax preparer. Speaking of, it’s worth spending time with a financial advisor to understand the types of expenses you can and can’t include in a specific category.
What Are Tax-Deductible Business Expenses?
Tax-deductible business expenses are the costs of running a company and generating sales that the IRS lets you subtract from your taxable income, as long as they’re “ordinary and necessary” to your industry. The expenses that can be written off vary depending on the nature of your business, which is why the IRS doesn’t provide a master list of allowable small business deductions. IRS Publication 334, Tax Guide for Small Business, discusses the deductibility of common business expenses and general rules for filing your taxes, even though it’s not a definitive checklist.
Ordinary and necessary expenses must be incurred in an organization motivated by profit. Even if your small business faces financial problems and doesn’t actually generate a profit, the intent needs to be there. Otherwise, the IRS may determine your business is a hobby and disallow expenses. The IRS also suggests distinguishing usual business expenses from categories that fall under the cost of goods sold (COGs) and capital expenses to confirm accuracy, since some business expenses can’t be deducted in the year they’re incurred.
Key Takeaways
- Business expenses are deductible if they’re “ordinary and necessary” for your industry, but there’s no master list.
- Sorting expenses into fixed, variable, and periodic types helps with forecasting, budgeting, and pricing decisions.
- The 36 categories in this guide cover deductions applicable to many small businesses.
- Recent tax law changes affect several common deductions, so it’s important to update categorizations and assumptions.
- Accounting software with AI-powered categorization can help track deductible expenses year-round.
Why Is It Important to Accurately Categorize Business Expenses?
Accurate categorization prepares you for tax season. It also shows you where money actually goes, which is the foundation of any small business financial plan. Expenses that are sorted consistently make it easier to uncover cost creep, build realistic budgets, back up the numbers for investors or lenders, and file taxes faster.
Sloppy categorization has the opposite effect. It buries potential deductions and muddies the profit picture. It also puts you in a weaker position if you’re audited. The IRS closed nearly 500,000 audits in fiscal year 2025, recovering $26.8 billion in additional tax, and the burden of proof for any deduction falls on you. Clean, well-documented categories are exactly what auditors look for.
The 3 Types of Business Expenses
The three major types of business expenses are fixed, variable, and periodic. Understanding how each type behaves helps shape business management decisions and sharpens forecasting. For example, a rent payment impacts financial results differently than an emergency repair bill. A well-organized chart of accounts (COA) is a shortcut for keeping track of these expense types. The COA typically groups general ledger accounts by function, such as COGS or sales and marketing, and then many companies add fixed, variable, and periodic tags on top of that structure:
- Fixed expenses are those that don’t change for the foreseeable future. Examples include auto lease payments or rent. Fixed costs are a useful starting point when building forecasts and budgets.
- Variable expenses are expenses that can change from month to month, such as utilities, hourly wages, or shipping costs tied to sales volume. Variable costs are especially important when making pricing decisions, since rising variable costs erode margins if prices don’t keep pace.
- Periodic expenses are those that happen occasionally, such as business travel, emergency car repairs, or annual software renewals. Periodic expenses are tied to cash reserve planning, so a surprise or non-recurring bill doesn’t strain cash flow when it hits.
36 Business Expense Categories for Small Businesses and Startups
The following 36 categories apply to most small businesses and startups. Use this list as a starting point and add industry-specific categories, such as research and development costs for a product-driven startup or fundraising expenses for a company seeking venture capital funding.
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Advertising
This covers the cost of items and services to directly promote or market your business. Examples include fees paid to advertising or marketing companies to produce promotional materials, billboards, brochures, posters, websites, and social media images. You may even deduct spending on a PR campaign.
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Continuing Education
This can include courses for continuing education or seminars to stay current on industry trends. Relevant materials, books, and registration fees for you and your employees are tax-deductible. You can also deduct payments made to employees to reimburse them for relevant educational expenses.
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Credit and Collection Fees
Businesses that use accrual basis accounting, where revenue and expenses are recorded when they’re earned or incurred even if no money changes hands at that point, can deduct unpaid invoices as business bad debt. Any fees spent trying to collect on debt, such as hiring an outside company to collect what’s owed, also count. A better bet: Minimize bad debt and increase cash flow by optimizing your billing processes.
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Bank Fees
Interest paid on business loans, ongoing credit lines, and business credit cards are tax-deductible expenses. Bank fees, such as monthly maintenance or overdraft fees, also count.
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Dues and Subscriptions
Subscriptions to industry magazines or journals related to your business can be deducted on your taxes. Membership fees include those paid to professional or trade associations that can help promote your business and even to your local Chamber of Commerce.
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Employee Benefit Programs
Payments made toward benefits, such as disability insurance, life insurance, dependent care assistance, health plans for you and your employees, and adoption assistance, are tax-deductible. Note that this is one area, along with workers’ compensation insurance, where companies tend to spend more than they need to.
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Insurance
Besides workers’ compensation insurance, you can deduct premiums for business-related insurance, including liability, malpractice, and real estate. Auto insurance premiums on a personal vehicle are a bit more complicated: If you deduct a flat mileage rate, you can’t also deduct actual costs, such as insurance.
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Maintenance and Repairs
Companies that use fleet vehicles as part of their operations can deduct the portion used for business. Deductible expenses include parking fees and gas. Otherwise, you can choose to utilize the standard mileage rate. When using actual expenses calculations for vehicle deductions, you may include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) prorated to the total business miles driven. Additionally, repair and maintenance of other types of equipment and machinery used in your business also count.
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Legal and Professional Expenses
These include fees paid to certified public accountants, financial planners, lawyers, or other types of professionals.
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Office Expenses and Supplies
Items such as cleaning products, paper, notebooks, and stationery can be deducted as supplies. The expenses category includes costs related to operating your business, such as website hosting and software.
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Telephone
Monthly telecommunications fees in a commercial space can be deducted, as can additional phone lines in a home office, as well as cell phone contracts as a subcategory of office expenses.
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Utilities
For a commercial space, utilities, such as electricity, internet, sewage, and trash pickup fees, are fully deductible. For a home office, you can deduct utilities in proportion to how much of your home is used for business.
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Postage and Shipping
Stamps, freight, and postage fees to mail business-related items, including products to customers and return shipping labels, count. Envelopes and packaging materials are included in office supplies.
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Printing
Ink cartridges, printers, and payments for printing services can be included under this business expense category. Note that if you decide to do some direct-mail marketing, you can deduct the cost of producing the materials here, but postage must be listed separately even if the printer handled mailings.
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Rent
Any rental payments made to occupy a warehouse for inventory or office space to conduct business are tax deductible. Your business structure—C corporation (C-corp) or S corporation (S-corp)—dictates whether you can pay a reasonable amount to rent property from shareholders.
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Salaries and Other Compensation
Employee salaries, gross wages, commissions, bonuses, and other types of compensation count as tax-deductible expenses. Compensation can even extend to salaries paid to children and spouses, provided payments were made through payroll and those individuals performed services for your business. The amount paid does need to be considered reasonable.
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Travel
Business-related travel expenses, including flights, hotels, and rental cars, are fully deductible. Meals for employees on a business trip and customers are 50% deductible. This category also applies to travel costs for job candidates coming in for an interview.
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Security
Costs to protect the business are generally deductible as ordinary business expenses. This includes physical security, such as alarm systems and security personnel, as well as cybersecurity tools like antivirus software, threat monitoring, and AI-powered threat detection.
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Business Meals
You can deduct 50% of qualifying food and drink purchases outside of travel. It needs to be related to the business, such as work conferences and meals with customers. As of 2026, new rules changed things, making costs for operating an employee eating facility, or any meal provided mainly for the employer's convenience, no longer deductible at all.
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Business Use of Your Car
If you use a vehicle strictly for business, you can deduct the full cost of maintaining and operating it. For mixed personal and business use, you have two options. You can use the standard mileage rate, which bundles gas, insurance, maintenance, and depreciation into one per-mile deduction, or the actual expense method, where you track real costs and deduct the percentage tied to business use. You can’t use both methods for the same vehicle in the same year.
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Moving Expenses
Previously, businesses could deduct certain employee moving costs. That’s no longer the case. Tax law changes in 2025 permanently eliminated the moving expense deduction for non-military taxpayers, so this cost is no longer deductible for most small businesses.
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Depreciation
Depreciation spreads the costs for capital expenditures, like machinery or a vehicle, over their useful life, instead of deducting the costs in a single tax year.
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Charitable Contributions
You can deduct charitable contributions made to qualifying organizations; you may need to itemize these deductions.
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Child and/or Dependent Care
Qualifying costs associated with child or dependent care can be written off, though you’ll need to meet the IRS requirements.
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Startup Expenses
Businesses that launch a new venture may be able to deduct up to $5,000 in organizational costs and $5,000 in startup expenses leading up to the launch. Examples of organizational costs are state incorporation fees or costs to legally form the business entity. Startup expenses include marketing and employee training costs before the business opens. Be aware that both deductions phase out once total costs exceed certain thresholds.
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Mortgage Interest
If you’re purchasing a building or taking out a loan to build or improve your home for business purposes, you may be able to deduct the interest incurred.
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Software
Software used for business purposes, such as bookkeeping tools or recurring subscription with Software-as-a-Service (SaaS) companies, may be fully tax deductible.
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Books and Magazine Subscriptions
Magazines, books, and journals that are specialized and directly sent to your business may be tax-deductible. For instance, newspapers may not be, but industry-specific magazines would.
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Foreign Earned Income
If you have a business based abroad, you may be able to leave out any foreign income earned off your tax return, known as foreign earned income exclusion. You’ll need to meet certain requirements, such as being under a certain income threshold.
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Medical Expenses
Self-employed individuals who pay for their own medical care expenses or insurance premiums can deduct these expenses on their tax return. Examples include doctor’s fees and prescription drugs.
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Licenses and Permits
Any required licenses and permits can be tax deductible. Examples include building permits and licenses to practice law in your state.
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Manufacturing or Raw Materials
Costs to produce your product, such as raw materials, parts, direct labor, and manufacturing overhead, are categorized as COGS and are fully deductible.
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Retirement Contributions
Contributing to a tax-advantaged account, such as an IRA or 401k, can reduce your taxable income—a great way for those who are self-employed to save on taxes. Heads up that self-employed retirement vehicles have higher limits for what’s tax deductible.
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Real Estate Taxes
If you have a home office and itemize your taxes, you may be able to deduct some of the taxes you pay. This falls under the overall SALT (state and local tax) deduction cap, which is subject to change and phase outs.
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Client Gifts
Gifts for employees, clients, or vendors may be fully tax deductible up to $25 per recipient per year—for example, employee gift baskets during the holiday season or gift cards sent to vendors.
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Employee Loans
If you pay an advance to an employee and expect them to pay you back (as in, they didn’t do any extra work to earn this extra income), you can deduct this amount. However, any interest paid may count as business income.
Skip the Golf?
| Expense | Deductible Amount |
|---|---|
|
Party or cookout for employees |
100% |
|
Meals for employees while traveling |
50% |
|
Meals with customers or prospects |
50% |
|
Other entertainment for customers or prospects, such as a sporting event or round of golf |
0% |
If you have employees who frequently travel for business, consider following small-business expense management best practices, such as making it easy for them to upload the receipts required by the IRS.
What Else Can I Deduct as a Business Expense?
As we’ve mentioned, your home can yield many deduction opportunities, based on the percentage of space your office occupies—but you’ll need to itemize mortgage interest, utilities, insurance, and property taxes. Or, you can claim the standard deduction, which is $5 per square foot up to 300 square feet. A few other items you may not have considered:
- The Work Opportunity Tax Credit: This federal tax credit—available to employers for hiring individuals from certain groups, including some veterans and people with disabilities, who face significant barriers to employment—has lapsed for employees who started work after December 31, 2025. It’s currently waiting for congressional reauthorization, so check the current status before counting on it.
- Costs to protect intellectual property: Items created by you or your employees, such as software code, a logo for your business, or a patent for a new product or service, may be immediately deductible, so it’s worth revisiting whether costs you’ve been previously amortizing now qualify for a current-year deduction.
- Losses from a natural disaster or crime: If a fire or flood destroys your stock, or items are stolen, you may deduct losses not covered by your insurance.
Free Business Expense Worksheet
One of the most extensive guides to what requirements need to be met for qualifying business expenses is IRS Publication 334. However, if you want a resource that’s easier to wade through, download our free overview guide (opens in new tab). You can review a list of common business expense categories as well as nondeductible items.
3 Steps to Categorize Expenses for Your Small Business or Startup
Poor tax compliance and inconsistent cash flow are among the top 10 financial challenges for small businesses. You can break that mold by being consistent in categorizing expenses. That allows you to see where and how much you’re spending to operate your company while being prepared come tax time. You’ll also gather insights that will enable you to create financial statements that add visibility into profitability and cash flow. These statements are required for audits and are often requested by lenders and investors. Here are three steps to categorize business expenses.
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Determine Correct Categories for Your Specific Business
Choosing the right categories will depend on your industry. For example, a greeting card business may have dedicated categories for shipping and storage rental, whereas SaaS companies may have categories for digital services. Start by identifying the expense categories your business uses the most—those financial statements will help here—and ones that you’ll need to add. Refer to the list above to get started.
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Reconcile and Review Financial Accounts Regularly
Reviewing financial accounts is a good habit that will encourage you to stay on top of your expenditures. Reconciling bank statements can be easily done using accounting software. If you find you’re having challenges, a business-only credit card is a top expense management best practice.
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Assign a Category to All Transactions
Using the list of categories you came up with, look at your spending details and assign anything deductible. Pay particular attention to where receipts are required. Note that keeping business and personal finances separate is a top financial tip for small businesses and shields you from liability, so as you assign an expense, make sure it’s business-related.
4 Best Practices for Accurate Business Expense Categorization
Expense categories may evolve as a business grows. Revisiting them with these four practices in mind keeps your reports accurate and your monthly close moving quickly:
- Regularly clean up expense categories: Duplicate, unused, or overly narrow categories make reports harder to read and less meaningful. Review your COA periodically and consolidate or retire categories that no longer serve a purpose.
- Use consistent naming conventions when creating categories: Vague or inconsistent labels can create general ledger coding confusion and can introduce errors in your data over time. Set clear naming rules from the start and apply them across every department.
- Sync expense policies with expense categories: Set categories at a level of detail that lets you check whether spending limits or approval requirements are actually being followed. A category that’s too broad can hide policy violations, while one that’s too narrow adds needless complexity.
- Leverage automation and accounting software: Automated categorization can match transactions to the correct account based on vendor and spending patterns, cutting down on errors and staff workload.
Use Accounting Software to Track Spending and Categorize Business Expenses
Manually sorting expenses into the right categories gets harder as the number of expense transactions grows, and a missed or miscategorized expense can cause a deduction to be left on the table. NetSuite Cloud Accounting Software uses AI to help match expenses to the correct category using a customizable COA so every deductible expense is tracked and any exceptions are caught for review. That keeps your records clean and your expenses organized well before your tax preparer needs them.
Tracking down every eligible deduction can sometimes feel like a scavenger hunt. Building expense categories that fit your business and using them consistently turns that scavenger hunt into a routine part of running a healthy company. Whether you draw from all 36 categories above or just the handful that applies to your business, the payoff is cleaner books, a faster month-end close, and fewer surprises if the IRS comes knocking.
Small Business and Startup Expense FAQs
What can be written off as a business expense?
Generally, if an expense counts as ordinary and necessary to conduct business, you can deduct it as a business expense. There is no comprehensive list because what counts as ordinary and necessary is highly dependent on industry.
What can’t be written off as a business expense?
Any spending considered a personal expense can’t be written off. In addition, you can’t deduct expenses related to client entertainment, with the exception of meals; fines or penalties for violating a law; country club dues; and illegal payments.
Can you deduct job expenses?
Generally, employees can no longer deduct unreimbursed work expenses, such as relocation costs, and recent tax changes made that permanent. However, if a business reimburses an employee, then the employer can deduct that reimbursement as an expense.
Can I write off my business startup costs?
Businesses can write off startup costs, depending on the type of expenditure. Allowable deductions must be directly related to getting the business up and running and organizational in nature, such as training staff and incorporation fees. You may be able to deduct up to $5,000 for startup costs and an additional $5,000 for organizational costs.
Can I take the standard deduction and still deduct business expenses?
Yes. You can deduct business-related expenses even if you take the standard deduction.
How do I categorize business expenses?
Start by identifying the categories that fit your business. Tailor your chart of accounts to track them. Assign every transaction to a category as it happens and review your accounts regularly to catch errors. Accounting software can automate most of this process.
