Non-deductible expenses: A comprehensive guide to what you can’t write off

Non-deductible expenses are costs that the IRS specifically prohibits from being claimed as business tax deductions, regardless of how necessary they might seem for your operations.

For business owners, accountants, and finance professionals, it’s important to know which expenses fall into this category to maintain compliance and avoid costly mistakes. The distinction between deductible and non-deductible expenses isn't always obvious, and the stakes for getting it wrong are significant.

Misclassifying expenses can trigger IRS audits, result in substantial penalties and interest charges, and damage your professional reputation. What might seem like a reasonable business expense could actually be prohibited by tax law, leaving you vulnerable to enforcement actions that can cost far more than the original deduction you claimed.

In this guide, we'll break down a comprehensive list of 43 non-deductible expenses that commonly trip up taxpayers, offering explanations and practical tips for compliance.

What are non-deductible expenses?

A non-deductible expense is any business cost you can’t write off on your tax returns. But what does that mean exactly?

Many of the costs associated with running a business are tax-deductible, so you can write them off on your business tax returns. 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.

When you write off a qualified expense, you effectively lower your taxable income for the year, which in turn lowers your business’s tax liability. When an expense is non-deductible, you can't write it off to lower your taxable income or your business's tax liability.

How to determine if an expense is deductible

The Internal Revenue Service (IRS) provides guidelines on what qualifies as a deductible expense. For tax purposes, the IRS states that qualifying business expenses must be both ordinary and necessary:

• Ordinary expense: Common and widely accepted for businesses in your industry
• Necessary expense: Helpful and appropriate for your business, but not necessarily indispensable

A non-tax-deductible business expense is any expense that doesn’t meet the IRS’s criteria of being both ordinary and necessary. As a result, it can’t be written off to lower the taxes your business owes for the year. This includes personal expenses, which aren’t tied to your business in any way.

But it can also include some expenses that do serve legitimate business purposes, such as certain taxes and legal fees, or mixed personal and business expenses. This is where things get complicated. To determine whether an expense is deductible or not, ask yourself these questions:

• Is this expense directly related to my business operations? The cost should have a clear connection to generating income or conducting business activities, not personal use.
• Is this expense ordinary and necessary for my type of business? The expense should be common and accepted in your industry, and helpful or appropriate for your business.
• Can I document this expense with proper records? You should have receipts, invoices, or other documentation showing the amount, date, business purpose, and parties involved.
• Is this expense reasonable in amount? The cost should not be excessive or extravagant compared to what others in similar situations would typically spend.

If you're in doubt as to whether an expense is deductible, consult IRS guidelines such as:

• Publication 334 (Tax Guide for Small Business)
• Publication 542 (Corporations)
• Publication 463 (Travel, Gift, and Car Expenses)

You can also consult with a tax professional to ensure you're in compliance and avoid any penalties.

Why do you need to track all your business expenses?

If you mischaracterize non-deductible expenses, even accidentally, it can lead to serious repercussions. These can include an IRS audit, legal investigations, fines and other penalties, and even prison time.

But you can take steps to reduce your risk of making such a costly mistake. Start by establishing an internal process for tracking all 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 particularly complicated returns, it might be a good idea to work with a tax professional to ensure that you’re properly characterizing all your expenses and that you’re claiming all the tax credits and other deductions your business qualifies to receive.

Common non-deductible expenses

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

Personal expenses

Personal and family expenses, by their very definition, aren’t business expenditures, so you can’t deduct them from your taxable income. Even if you think they help you do your job as a small business owner, you can’t write them off.

Some common examples of personal expenses include:

• Clothing (unless it’s 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 (such as family members)
• Mileage on a personal vehicle for non-business activities
• Personal cell phone or residential landline

What if you use the same vehicle for both business and personal use? Only the mileage associated with your business can be deducted from your business income, so it’s important to keep a detailed mileage log of your vehicle use. This is also true for other shared resources, such as a mobile data 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-tax-deductible, whether you drive or take public transportation.

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

Other travel expenses that are directly related to your job are deductible. This includes travel expenses related to common business trips, like when you or your employees visit a client, partner, vendor, or distributor; travel between job sites; attend a work meeting; or conduct other business-related activities.

Fines or penalties

If your company incurs a penalty or fine in the course of doing business, you can’t claim those fees as a tax deduction. Examples include:

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

The IRS doesn't allow you to deduct fines and penalties because doing so would essentially defeat the purpose of having them in the first place. If you could write off a speeding ticket or regulatory fine on your taxes, it would reduce the financial sting that's meant to discourage that behavior in the future.

The government wants fines and penalties to serve as a real consequence, so they've made it a rule that these costs have to come out of your own pocket without any tax relief. It's about maintaining the integrity of laws and regulations by ensuring that when someone breaks the rules, they feel the full financial impact rather than getting a tax break that would soften the blow.

Political contributions and lobbying

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

• Political candidates
• Political campaigns
• Political action committees (PACs)
• Political advertisements

The IRS prohibits deducting political contributions because allowing them would mean taxpayers are indirectly subsidizing political activities they may not support. This policy maintains fairness by ensuring your tax dollars don't fund political causes through someone else's deductions.

Political giving is considered a personal choice that should come from after-tax income, keeping the tax system neutral in electoral matters.

Charitable contributions

Charitable contributions may or may not be deductible, depending on how much you give and your business structure.

If your business is incorporated as a C corporation, you can deduct charitable donations up to 10% of your company’s taxable income each year. (Note that this limit was temporarily increased to 25% for the 2020 and 2021 tax years through the CARES Act.) You can carry over excess charitable contributions to the following year.

For all other business entities—self-employed individuals and entrepreneurs, sole proprietors, LLCs, S corps, and partnerships—charitable contributions aren’t a deductible business expense. However, you can claim these contributions on your individual tax return so long as you claim itemized deductions.

Entertainment expenses

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-tax-deductible.

Just a handful of examples of entertainment costs that aren’t 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 nightclubs

The tax law still allows you to deduct up to 50% of business meals so long as they meet certain conditions:

• Business meals with clients, employees, or business associates where business is discussed
• Meals during business travel
• Travel meals when you're traveling overnight for business
• Dinner provided for employees working late
• Office snacks and coffee (considered de minimis fringe benefits)

Club dues and membership fees

Club dues are not tax-deductible, even if you discuss business or meet clients there. This includes dues to clubs and memberships that could be considered beneficial to your business, such as:

• Hotel clubs, airline clubs, and other travel-related clubs
• Country clubs or social clubs
• Gyms or fitness centers
• Political organizations

The IRS views these memberships as primarily providing personal benefits rather than serving legitimate business purposes, regardless of any incidental business use.

Capital expenditures

Capital expenditures aren't deductible because they provide lasting value beyond one tax year. The IRS requires these costs to be treated as investments in assets rather than immediate business expenses since they generate benefits over multiple years.

Examples of non-deductible capital expenditures include:

• Building purchases or major renovations
• Equipment and machinery acquisitions
• Vehicle purchases for business use
• Computer hardware and software licenses
• Furniture and fixtures

However, you may depreciate many capital expenditures over time, allowing you to claim portions of the cost as deductions across several years rather than all at once.

Other non-deductible expenses

Other non-deductible expenses that don’t easily fall into 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
• Certain legal fees: While many legal fees are tax-deductible, legal expenses related to purchasing property for your business are not deductible‍
• Certain types of insurance: While some business-related insurance premiums are deductible, life insurance policies where you're the beneficiary or that secure a business loan are not deductible
• Gifts over $25: The cost of business gifts is deductible, but only up to $25 per recipient per year. Anything you spend beyond this limit is considered a non-deductible expense. If an item can be considered either a gift or entertainment, the IRS considers it to be entertainment, which would be non-deductible.

Knowing which expenses aren't deductible helps you avoid costly mistakes during tax season. Keep accurate records, consult tax professionals when needed, and focus your deduction efforts on legitimate business expenses that truly qualify.

How to track and record non-deductible expenses

Just because you can’t deduct a business expense on your taxes doesn’t mean you shouldn’t record it.

Accurate recordkeeping helps you avoid mistakenly claiming non-deductible expenses, which could trigger IRS audits and result in penalties or additional taxes owed. Detailed documentation also protects you during tax examinations by clearly demonstrating which expenses were properly excluded from your deductions.

To record a non-deductible business expense, you can follow a few best practices:

Use accounting or expense management software

Choose accounting software that allows you to categorize expenses with custom tags or labels. Look for features that let you mark items as "non-deductible" or "personal use" so you can easily separate them from legitimate business deductions.

Popular options offer expense categorization tools that streamline this process and generate clear reports for tax preparation.

Keep itemized receipts

Maintain detailed receipts for all expenses, including those you can't deduct. This documentation becomes invaluable during IRS audits, as it demonstrates your commitment to accurate recordkeeping and helps justify your deduction decisions.

Store receipts digitally using expense software or apps, which can organize and categorize your documentation automatically while ensuring nothing gets lost.

Separate personal and business accounts

Open dedicated business bank accounts and credit cards to create a clear financial boundary between personal and business expenses. This separation makes it much easier to identify non-deductible items and prevents accidental mixing of personal purchases with business transactions.

Pay for personal expenses from personal accounts and business expenses from business accounts to maintain clean, auditable records.

When to consult a tax professional

Tax laws can be complex and confusing, especially when dealing with expenses that fall into gray areas between deductible and non-deductible categories. A qualified tax professional can provide expert guidance to help you navigate these ambiguous situations and ensure you're making the right decisions.

Professional guidance is especially valuable in these scenarios:

• Large capital purchases: When buying expensive equipment, property, or making significant business investments that may require depreciation schedules
• Mixed-use expenses: Items used for both personal and business purposes, such as home offices, vehicles, or electronic devices
• IRS notices or audits: Any correspondence from the IRS regarding your deductions or tax filing requires immediate professional attention
• Unusual business expenses: Costs that don't fit standard categories or seem questionable in terms of deductibility
• Business structure changes: Switching from sole proprietorship to LLC or corporation affects how expenses are treated
• International transactions: Cross-border business activities often involve complex tax implications
• Entertainment and travel expenses: These areas have strict rules and frequent changes that professionals must stay current with
• Research and development costs: These may qualify for special treatment or credits beyond simple deductions

A tax professional can save you money by identifying legitimate deductions you might have missed while protecting you from costly mistakes.

Simplify business expense tracking with Ramp

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 modern finance operations platform eliminates the need for multiple tools. Track your company’s spending, scan and save receipts, generate reports, and run projections all from a single system designed to help you run your business more efficiently.

Businesses that use Ramp save time and money. Watch a demo video and see how Ramp customers save an average of 5% a year across all spending.