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If you run a company—even a small business—you’re bound to incur at least some business expenses along the way. The good news is that many of these expenses are deductible; i.e., they can be written off as tax deductions to lower your tax bill. 

Unfortunately, not all business expenditures qualify as a tax write off, and it’s critical that you know the difference if you want to avoid the potentially costly penalties and fines that could result from writing off the wrong expenses.

Below, we define what a non-deductible business expense is and highlight 35 common examples you’re likely to come across. We also discuss the importance of keeping your expenses organized and offer advice to help you better manage your expenses. 

What is a non-deductible business expense?

Many of the costs associated with running a business can be written off for tax purposes. When you write off a qualified expense in this way, you effectively lower your taxable income for the year, which in turn lowers your business’s tax liability. 

But what makes a business expense deductible? According to the Internal Revenue Service (IRS), a deductible expense is one that is both ordinary—it’s common and widely accepted for businesses operating in your industry—and necessary—it’s helpful and appropriate for your business, but not necessarily indispensable.

Some examples of deductible business expenses include many operating expenses, general and administrative expenses, payroll expenses, some travel expenses, and costs associated with many other business activities. 

With this in mind, a non-deductible business expense is any expense that does not meet the IRS’ criteria of being both ordinary and necessary to your business, and which cannot be written off to lower the amount of taxes your business owes for the year. 

Logically, this includes personal expenses, which are not tied in any way to your business. But to complicate the matter, it can also include some expenses that do serve legitimate business purposes, such as certain taxes and legal fees.

Common non-deductible business expenses

While the list below isn’t exhaustive, it’s meant to highlight some of the most common expense categories that would typically be considered non-deductible. Where possible, we’ve also included examples under each of these categories to help you avoid mistakenly writing off expenses that don’t qualify.

Personal expenses

Personal expenses, by their very definition, are not business expenditures and therefore cannot be deducted from your taxable income. After all, certain expenses are simply a part of life; even if you think they help you do your job as a business owner, they can’t be written off. The same can be said of family expenses.

Some common examples of personal expenses include:

  • Clothing (unless it is a branded uniform or safety gear)
  • Childcare expenses 
  • Haircuts and grooming costs
  • Household supplies
  • Personal groceries and meals
  • Personal entertainment
  • Non-business related travel expenses
  • Travel expenses for non-business associates (like family members)
  • Mileage on a personal vehicle
  • Personal cellphone or residential landline

What if you use the same vehicle for both your business and personal use? Only the mileage associated with your business can be deducted from your business income, so it’s important to keep detailed records of your use. This is also true for other shared resources, such as a cellphone and phone plan that serves double duty between your business and personal life.

Commuting costs

Any costs associated with your daily commute to and from work are non-deductible, whether you drive yourself or take public transportation. After all, the average taxpayer isn’t allowed to write off such expenses, so why would a business owner? Some examples of non-deductible commuting expenses include:

  • Mileage to and from work
  • The cost of gasoline
  • Bridge and tunnel tolls
  • Parking expenses
  • Train tickets
  • Subway fare
  • Bus fare

That being said, travel costs that are directly related to your job are deductible. This can include mileage, plane tickets, subway fare, etc. related to various business trips, such as when you or your employees are visiting a client, partner, vendor, or distributor; attend a work meeting; or conduct other business-related activities.

Certain types of insurance

Certain insurance premiums related to your business can be deductible, including general liability insurance, professional liability insurance, malpractice insurance, and commercial property and auto insurance. Likewise, certain types of insurance premiums you cover for your employees may be deductible, such as health insurance and unemployment insurance. 

Unfortunately, there are exceptions. Insurance premiums related to the following types of coverage are typically not deductible:

  • Life insurance policies where you are the beneficiary
  • Life insurance policies taken out to secure a business loan
  • Disability insurance that replaces your income if you can’t work

Many entertainment costs

Prior to 2018, business owners could deduct up to 50% of certain entertainment expenses they incurred as a part of their business—whether they were for entertaining customers, clients, partners, or other employees. 

The Tax Cuts and Jobs Act (TCJA) of 2017 eliminated these tax deductions, making costs related to entertainment, amusement, and recreation non-deductible. Just a handful of examples of entertainment costs no longer deductible include:

  • Tickets to sporting events, movies, or theaters
  • Social clubs, athletic clubs, country clubs, or sporting clubs
  • Vacations and trips
  • Amusement parks
  • Bars and night clubs

The tax law still allows for up to 50% of business meals to be deducted, so long as certain conditions are met.

Gifts over a certain amount

Do you make a habit of giving gifts to your clients, employees, or partners? The good news is that the cost of business gifts are deductible—but only up to $25 per recipient, per year. Anything you spend beyond this limit is considered to be a non-deductible expense.

It’s also important to note that if you are married, the same $25 limit applies to both you and your spouse. It doesn’t double to $50 if you and your spouse both make a business gift to the same person. 

As one final point of distinction: If an item can be considered either a gift or entertainment, the IRS considers it to be entertainment, which would be non-deductible. 

Fines or penalties

If your company incurs a penalty or fine in the course of doing business, those fees cannot be claimed as a tax deduction. Examples include:

  • Late fees when filing taxes for your business (federal and state tax) 
  • Parking or speeding tickets received while on the job
  • Fines levied for workplace safety violations, such as by OSHA

Political contributions 

Many businesses make political contributions to candidates that they believe would be good for their industry, the economy, or for businesses in general. However effective these lobbying expenses may or may not be, political contributions made by businesses are non-deductible. This includes donations made to support:

  • Political candidates
  • Political campaigns
  • Political Action Committees (PACs)
  • Political advertisements

Charitable donations

Likewise, charitable contributions may or may not be deductible, depending on how much you give and the type of business entity your business is incorporated as. 

C Corporations are allowed to deduct charitable donations up to 10% of the company’s taxable income each year. (Note: This limit was temporarily increased to 25% in the 2020 and 2021 tax years.) Excess charitable contributions can be carried over to the following year.  

For all other business entities (self-employed individuals and entrepreneurs, sole proprietors, LLCs, S Corps, Partnerships), charitable contributions are not a deductible business expense. These contributions can be claimed on an individual’s tax return, however, so long as they claim itemized deductions. 

Other non-deductible expenses

Some other non-deductible expenses that don’t easily fall into any of the groups outlined above include:

  • Some taxes: Depending on the type of business you own and where you live, you may be entitled to deduct some state, local, and foreign income taxes when filing your business’s federal tax return, but limitations do apply.
  • Certain legal fees: While many legal fees related to running your business are deductible, legal fees related to purchasing property for your business are non-deductible.
  • Club memberships: Club des are non-deductible. This includes dues to clubs that can be considered to benefit your business, such as hotel clubs, airline clubs, and other travel-related clubs. 

How to record non-deductible expenses

Just because you can’t deduct a business expense on your taxes doesn’t mean you shouldn’t be recording it. After all, those expenses may still be reimbursable, if incurred by an employee, making a clear and accurate record a necessity. Plus, by recording your non-deductible business expenses, you can track how your business spends money over time and potentially identify areas to cut back so that you’re retaining more profit. 

It’s also worth noting that in some cases, you may still need to report your non-deductible business expenses on your tax forms, even though doing so will not reduce your taxable income. To do so, you will need to fill out IRS Schedule K-1, box 18, Code C. This is particularly important for partnerships.

To record a non-deductible business expense in your expense management software, you simply need to flag the expense as such. In some cases, this will be a built-in option. In others, you may need to create a custom expense type or subtype, which you can then use to flag all non-deductible expenses in order to make reporting easier.

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The importance of keeping track of your expenses

If you mischaracterize non-deductible business expenses, even accidentally, it can lead to serious repercussions. These can include an IRS audit, legal investigations, fines and other penalties (up to $500,000 per instance), and even prison time (up to 3 years per instance). 

The good news is that there are steps you can take to reduce the risk of making such a costly mistake. 

Start by establishing an internal process for tracking all of your business expenses. This should include a plan for collecting and organizing your business receipts, so that you always have a paper trail in the event of an audit. For particular complicated returns, it may be a good idea to work with a tax professional to ensure not only that you are properly characterizing all of your expenses, but also that you’re claiming all of the tax credits and other deductions your business qualifies to receive.

Ramp makes it easy to track all of your business expenses—deductible and otherwise

With Ramp’s expense management software, you can easily categorize your business expenses as you incur them—making it easier than ever to distinguish between deductible and non-deductible expenses when filing your business taxes. 

Our all-in-one platform removes the need for multiple systems. Track your company’s spending, scan and save receipts, generate reports, and run projections all from one powerful system designed to help you run your business more efficiently.

Interested in learning more? See how a leading boutique fitness company used Ramp’s expense management solution to save more than 400 hours per month on expense reports. Ready to take the next step? Request a demo, or try Ramp for free today.

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Contributor Finance Writer
Tim Stobierski is a writer and content strategist focused on the world of finance, investing, software, and other complicated topics. His friends know him as a bit of a nerd. On the side, he writes poetry; his first book of poems, Dancehall, was published by Antrim House Books in July 2023.
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